Which type of insurance allows borrowing against cash value?

Interest-sensitive whole life insurance permits policyholders to borrow against the cash value accumulated within the policy. This type of insurance combines a death benefit with a savings component, allowing the policy to accumulate cash value based on a rate of return that may vary but is typically linked to interest rates.

As the policyholder pays premiums, a portion of those funds contributes to the cash value, which grows over time. This cash value can be accessed through loans, enabling policyholders to leverage their policy’s savings without forfeiting the death benefit. However, it’s important to note that any amounts borrowed will reduce the death benefit if not repaid.

Other types of insurance, such as fixed life insurance and scheduled term life insurance, do not accumulate cash value, meaning there is no cash to borrow against. Flexible permanent insurance may or may not allow cash value accumulation depending on the specific type of policy and its structure, but it is not as explicitly defined as interest-sensitive whole life insurance in its borrowing provisions. Hence, the ability to borrow against cash value is a defining characteristic of interest-sensitive whole life policies.