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What is a Participating Policy Loan?

Participating policy loans are an often-overlooked feature of life insurance policies. In fact, many people are never told their policies offer them more than just a death benefit.

They are often misunderstood because they work differently than most loans.

When we think of a typical loan, we usually think of borrowing money and then paying it back with interest.

A participating policy loan allows you to use the cash value of your life insurance policy as collateral. You can pay it back, or it gets deducted from the death benefit when you pass away.

What is “cash value”? It’s the amount that has accumulated over time from premiums paid and interest earned on your policy.

This cash value is accessible during the lifetime of the insured, meaning policy owners can utilize it for income.

Participating policy loans can be a great way to access cash quickly while preserving your policy's value to continue to compound and grow. This is dramatically different compared to withdrawing money from an investment or retirement account, because once its withdrawn, it cannot continue to appreciate any further.

How Does a Participating Policy Loan Work?

The process of obtaining a participating policy loan is relatively simple. Say your policy has $200k in cash value and you’d like $50k to use for living expenses. You’d rather not touch your market investments in a recession.

The participating policy loan works very different than a withdrawal from an investment or retirement account. One of the significant advantages is that the entire $200k of cash value will continue to earn interest.

Another benefit is that the loan proceeds are not taxable, as long as the policy remains active. Put simply, you can access that $50k tax-free.

Participating policy loans can be a great financial tool for policyholders looking to access cash quickly without disrupting their policy's value. They offer low-interest rates, are not credit-dependent, and can be used for any purpose.

However, it is essential to remember that a policy loan reduces the death benefit. Additionally, if the policy lapses there could be a taxable event. This is a great reason to work with an advisor that understands how to properly structure this solutions for success.

Having decades of experience in premium financing I can tell you participating policy loans are a crux of this investment strategy. The fact that the full value of the invested cash is unaffected by the loan cannot be overlooked.

Explaining this compounding benefit to clients is exciting every time.

If you’d like to learn more, feel free to contact us. You can email me directly at or call 773-318-9608.



901 N Lake Destiny Drive, STE 380

Maitland, FL 32751


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