Jeffrey Manola is an experienced life insurance agent and the founder of Top Quote Life Insurance. His mission when he created Top Quote Life Insurance was to provide online consumers searching for life insurance with the absolute best quotes for term life insurance, permanent life insurance, no medical exam life insurance, and burial insurance. Not only does he strive to provide you with the ...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insur...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years

UPDATED: Nov 24, 2021

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It’s all about you. We want to help you make the right life insurance coverage choices.

Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance provider and cannot guarantee quotes from any single provider.

Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.

Facts You Should Know

  • Generally, you can use a life insurance policy with cash value as collateral for a loan
  • Types of policies that a lender will accept for collateral are whole, universal, and variable
  • When you pay the loan off, the lender is removed from your policy and will receive nothing when you die

The number one reason people get a life insurance policy is to protect their loved ones financially after their death. A life insurance payout can help your family pay your end-of-life and funeral costs, take care of the mortgage, and make sure all the bills are paid.

However, many people don’t realize that they can use their insurance policy as collateral for a loan.

In fact, loan companies are eager to use a policy for collateral assignment because they know the loan will be repaid no matter what. The most common insurance policy that people use as collateral is whole life.

If you’re interested in finding rates from life insurance companies that allow assignment of collateral, it’s best to shop around. If you’re ready to see what quotes might look like for you, enter your ZIP code into our free tool today.

Life Insurance Companies That Allow Assignment of Collateral

Whole life policy owners have been using their insurance as collateral for years. While whole life is more expensive than term, the fact that you can use it as collateral makes it an attractive option.

Using your life insurance as collateral is a simple process. As the borrower, you give the lender access to your policy’s death benefit as a collateral assignment for the loan you need.

A collateral assignment of your loan is conditional, meaning that once you repay your loan, the lender is removed from the policy.

The death benefit on your life insurance policy appeals to lenders because they know repayment is guaranteed. If you die during the loan term, your policy will pay the remainder of your balance.

Additionally, if you stop making payments on your loan, the lender can seize the policy’s cash value.

You’ll find that most lenders are willing to accept whole life policies as collateral. If you think you might want to pursue a loan using your insurance as collateral in the future, you should consider the price of life insurance.

The best life insurance companies that offer whole life have competitive prices, valuable discounts, and allow collateral assignment.

Here is a list of average rates for $100,000 in whole life insurance for men:

Companies50-year-old rates55-year-old rates60-year-old rates65-year-old rates
MassMutual$16.97$24.10$35.50$61.68
AIG$17.01$26.62$38.22$55.07
Mutual of Omaha$18.88$27.65$41.67$59.73
TransAmerica$20.21$30.10$42.66$71.29
Prudential$21.88$28.18$37.72$58.45
Foresters Financial$15.31$20.83$34.04$43.66
AAA$17.78$22.53$37.14$59.93
Liberty Mutual$40.32$55.35$95.58$141.93
State Farm$26.54$34.45$51.50$83.09
Assurity$20.10$28.45$44.20$67.08
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Rates for women who want $100,000 in whole life insurance are a little cheaper:

Companies50-year-old rates55-year-old rates60-year-old rates65-year-old rates
MassMutual$14.62$20.28$28.19$42.64
AIG$15.04$20.96$25.58$44.93
Mutual of Omaha$16.73$21.97$29.20$46.57
TransAmerica$17.46$25.89$36.98$59.94
Prudential$21.27$23.80$29.49$41.13
Foresters Financial$13.13$17.41$25.46$34.39
AAA$15.40$18.83$25.61$37.93
Liberty Mutual$32.94$39.15$59.76$81.27
State Farm$23.49$29.67$40.98$59.51
Assurity$16.53$22.97$32.71$49.76
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You can quickly notice a trend in the above graphs: younger people get lower rates. Life insurance might not be on the mind of the average young adult, but they could save a lot of money in the future by purchasing a policy early.

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What is considered the collateral on a life insurance policy loan?

When you agree to use your life insurance policy as collateral for a loan, you essentially agree that the lender is a temporary beneficiary and co-owner of your policy.

The only person who can use their policy to take out a loan is the policy owner, who might not be the insured person. For example, if a wife owns a life insurance policy on her husband, only she can take out a loan. The insured person can only use it if they are also the owner.

If you happen to pass away before you pay off your loan, the lender is entitled to part or all of your death benefit. They will claim what they need to close out your loan. After that, the rest of your death benefit is given to the original beneficiary.

However, if you pay the loan off before you die, the lender loses status as your beneficiary and no longer has access to your account.

How to Use Your Policy as Collateral

Although it sounds complicated, you might be surprised by how simple it is to use your life insurance as collateral. The borrower (you) and the lender do most of the paperwork together. The insurance company doesn’t get very involved with the process.

After you and the lender agree on the terms of your loan, all you need to do is notify your insurance company. The company will then insert the lender as your beneficiary.

After you have your loan secured, the requirements to keep it up are simple. Make sure your policy stays current. Depending on the lender, you might have to start a new policy. However, most lenders will let you use your current plan.

While there aren’t many life insurance companies that don’t allow assignment of collateral, some lending companies won’t lend against a term policy. In fact, you’ll find most whole life from your policy.

Lenders tend to shy away from term policies because they’re not permanent. They also don’t accumulate a cash value. If you default on your loan, there’s nothing for the lender to claim.

You can still find a lender that will accept a term life policy if you don’t want to buy whole life, it just might take longer.

Is using your life insurance for collateral safe?

When you go to a reputable lender, using your life insurance for collateral is safe. However, there is one thing you should keep an eye out for.

Take this collateral assignment of life insurance sample as a cautionary tale:

When you use your life insurance policy as collateral, the lender will ask you to make them the primary beneficiary. You agree because you want your loan, the paperwork is signed, and you’re free to use your loan however you’d like.

If you die before the loan is paid off, your entire death benefit now goes to the lender because you named them your primary beneficiary. None of the payout goes to the person or people you originally bought the insurance for.

To avoid this, make sure you agree to a conditional collateral assignment. In this case, the lender is entitled to just enough of your death benefit to repay your loan.

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How to Find Life Insurance Companies That Allow Assignment of Collateral

It’s exciting to know you can use your life insurance policy to secure a loan, especially since your intended beneficiaries are still protected in the future.

Quotes from life insurance companies that allow assignment of collateral can provide you with the funds you need. If you’re ready to explore possible quotes, enter your ZIP code below to get started.