How does borrowing against my life insurance cash value work?

A policy loan lets you borrow against the cash value of a permanent life insurance policy without a credit check or fixed repayment schedule. The insurer charges interest (often 5–8%), and you don't have to repay on a set timeline — but any unpaid loan balance plus accrued interest is subtracted from the death benefit your heirs receive. The loan itself is generally not taxable while the policy stays in force. The danger: if the loan plus interest grows larger than the remaining cash value, the policy can lapse, and that can trigger a surprise tax bill on gains you never actually pocketed. Policy loans can be a useful liquidity tool late in life when cash value is substantial, but they quietly erode the protection you bought the policy for. Always ask the insurer for an in-force illustration before borrowing.