Q. How much interest do I pay to take a loan from a variable life insurance policy?
A. Just like other types of permanent life insurance policies, you can take a loan from the cash value of a variable life insurance policy. Depending on the issuing insurance company, you could take a loan of up to 90 percent of the cash value that is in the policy.
Because the loan will reduce the amount of available cash value in the policy, however, it will also reduce the amount of death benefit. While taking a loan is not considered to be a taxable event, you will be charged interest on the amount that you borrow. This interest rate may be either fixed or fluctuating. Typically, the insurance company will charge interest on loans at a rate that is a few percentage points higher than the return you receive in the policy’s fixed account.