While borrowing from your life insurance policy can be a quick and easy way to get cash in hand when you need it, there are a few specifics to know before borrowing. Most importantly, you can only borrow against a permanent life insurance policy, meaning either a whole life insurance or universal life insurance policy.

Term life insurance, a cheaper and more suitable option for many people, does not have a cash value. It is designed to last for a limited period of time, which is generally anywhere from one to 30 years. However, in some instances, a term life policy can be converted to a permanent policy in which cash value can build.

Borrowing from your life insurance policy can be an easy way to get cash in hand when you need it.

You can only borrow against a whole life insurance policy or a universal life insurance policy.

Policy loans reduce the death benefit if not paid off.

Life insurance companies add interest to the loan balance, which if unpaid can cause the policy to lapse.

Only permanent life insurance builds cash value. Term policies do not.