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Ask the Life Insurance Expert

Can you borrow money against a term life policy?

No, term life insurance policies do not have any cash value, so you can't withdraw money or borrow against them. Term life covers you for a certain period of time, such as 10, 15 or 20 years and pays the insurance benefit to beneficiaries if you die within that term period.

Only permanent life insurance, which provides protection for the rest of your life, accumulates cash value. Once the cash account has built up enough value, you can borrow money against the policy or even make a permanent withdrawal. However, any unpaid loans, plus interest, is subtracted from the death benefit, so your beneficiaries lose money for any temporary financial gain you make off the policy.

Permanent life insurance, such as whole and universal life, is far more expensive than term life. However, some companies are marketing combination universal/term life policies, which feature term-like premiums but are actually universal life policies. These, however, are not structured to build cash value.

Most life insurance buyers choose term life because it provides coverage for the lowest price during the most critical years that families need protection, such as when they're still raising children, saving for college and paying off mortgages.

For more, see life insurance basics.

Last updated: May. 6, 2011