You can initiate a policy loan yourself. The process is different by carrier and by policy type, but the structure is the same. This article walks through the steps for the four common permanent policy types, with the specific questions to ask.
If you'd rather Cove handle the paperwork, that's what the explorer at the top of the page does. The rest of this article is for the do-it-yourself path.
Before you call
A few things to have ready.
Your policy number. Usually on the annual statement, the original contract, or the carrier's online portal.
Your most recent cash value. Annual statement is fine; online portal is better if your policy moves quickly.
Your purpose for the loan. Carriers don't actually require this, but having a clear answer ("I'm using it to pay off a credit card") makes the conversation move faster and helps the rep route your call correctly.
If you have your contract handy, pull the loan provisions section. It tells you the maximum loan amount, the stated rate, and any restrictions specific to your policy.
Whole life
Whole life policies have the longest history with the loan feature. Process is straightforward.
Step 1: Call the carrier's policyholder service line. Not your agent. Tell them you want to take a loan against your policy. They'll ask for the policy number.
Step 2: They'll quote you the current loan rate. For older fixed-rate policies, this is the rate in your contract (often 5-8%). For newer variable-rate policies, it's tied to an external index — they'll give you today's number.
Step 3: Ask whether the policy is Direct Recognition. If yes, ask what the dividend reduction is on the loaned portion. Add that to the stated rate to get the effective cost.
Step 4: Confirm the available loan amount. Usually 85-90% of cash value, but there are exceptions.
Step 5: They'll send you a loan request form. Most carriers accept it by email or through the online portal. Some still require a notarized form. Penn Mutual is one example.
Step 6: Funding takes 5-10 business days depending on the carrier. The money is wired to the bank account on file or mailed as a check.
Universal life
Similar process, with a few wrinkles.
UL policies have variable loan rates tied to an index. The carrier will quote you today's rate. The rate can change quarterly, sometimes more often.
UL policies also have ongoing charges (cost of insurance, expenses) that come out of the cash value monthly. Taking a loan doesn't pause these charges. If your cash value is small and the loan is large, you need to make sure interest payments cover both the loan interest and the ongoing charges, or the policy can drain faster than expected.
Ask the rep: "What's my current monthly charge, and what's my projected cash value 12 months out if I take this loan and pay only annual interest?"
Indexed universal life
Same as UL with one additional question.
IUL policies typically credit interest based on a market index (S&P 500, for instance). The loaned portion of cash value often earns a different crediting rate than the unloaned portion — sometimes a fixed rate, sometimes a participation-rate-reduced index rate.
Ask: "What's the crediting rate on the loaned portion of cash value? Is it fixed, or is it the index rate with reduced participation?"
This matters because the difference between what the loaned portion earns and what you pay in interest is your net cost.
Variable universal life
Same as UL/IUL with one more question.
VUL policies have sub-accounts that you invest. When you take a loan, the cash value backing the loan is typically moved out of your sub-accounts and into a fixed-rate "loan collateral" account.
Ask: "What happens to my sub-account investments when I take this loan? Do I need to sell anything?"
You don't want to be forced to sell at the wrong time. Most carriers handle this with the loan collateral account so you don't take a capital event, but confirm.
What carriers don't volunteer
A few things the rep won't bring up unless you ask.
Modified Endowment Contract status. Ask: "Is my policy classified as a MEC under IRC Section 7702A?" Get the answer in writing. MEC tax rules are different and worse.
Surrender vs loan. If you're considering surrendering the policy, ask them to model both — surrender net of tax versus loan against the same amount. Sometimes surrender is the right answer; sometimes it's much worse. Don't take the agent's pitch at face value either direction.
In-force illustration with the loan. Ask them to run the in-force illustration assuming the loan stays outstanding for X years. This shows you when (if ever) the policy starts to look like it's in lapse territory.
Let Cove handle this
We pull the rate, surface the borrowing power, and run the paperwork through to funding. About a week.
Common gotchas
Variable-rate ceilings. Many UL/IUL/VUL policies have an 8% loan rate ceiling. If rates rise sharply, the carrier moves your rate to 8% within a quarter or two. Plan based on the ceiling, not today's rate.
Premium continuation. Taking a loan doesn't pause your premium. If you're paying $5,000/year in premiums and you take a $20K loan, you're still on the hook for $5K next year. If you stop paying premiums while a loan is outstanding, the failure mode is faster and worse than without a loan.
Repayment ordering. When you pay back the loan, some carriers apply your payment to principal first, others to interest first. The difference affects how fast the loaned portion of cash value rejoins the unloaned crediting rate. Ask which they do.
Lapse notification. Carriers typically send a paper letter when your loan-to-cash-value ratio approaches 90%. The letter is easy to miss. Set a calendar reminder to log into the carrier's portal monthly and check the ratio yourself.
Bottom line
The process is real but not complicated. The carrier handles it without your agent. The questions above cover what you actually need to confirm before signing the loan request.
If the process is more friction than you want to deal with, Cove handles it. If not, the steps above are everything you need.
Cove is a consumer credit platform for permanent life insurance owners. This article is illustrative and not insurance, legal, or tax advice. Specific terms and processes vary by carrier — always confirm with your policy contract and carrier policyholder services.
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