Borrowing Against Va Life Insurance: Is It Possible?

Yes, it is possible to borrow against the value of your VA life insurance policy. This is known as a 'policy loan'. The Veterans Benefits Administration (VBA) will determine the cash value of your policy by subtracting any unpaid premiums or debts to calculate the basis for your loan amount. The amount you can borrow depends on the cash value of your policy and the rules set by the insurer, with policyholders often able to borrow up to 90% of the cash value. Policy loans are granted by the life insurance company rather than a bank and typically have a simpler approval process and flexible repayment schedules. However, failure to make monthly loan payments may result in the loss of your life insurance plan.

Borrowing against a VA life insurance policy

To apply for a loan, you can use the "Instant Loan" feature on the Veterans Affairs website, or you can submit a completed VA Form 29-1546, "Application for Cash Surrender Value or Policy Loan," or a written request for a policy loan specifying the amount desired.

It is important to note that if you are unable to make monthly loan payments, you may lose your life insurance plan. Additionally, if the loan is not paid back before the policyholder passes away, the beneficiary will only receive a portion of the death benefit.

There are several pros and cons to borrowing against your life insurance policy. On the positive side, there is no formal approval process, as the value of the plan is technically yours, and the loan will not affect your credit. However, if you are unable to make monthly loan payments, you may lose your life insurance plan, and if the loan is not paid back before the policyholder passes away, the beneficiary will only receive a portion of the death benefit.

Cash value of a VA life insurance policy

Yes, it is possible to borrow against the value of your VA life insurance policy. The Veterans Benefits Administration (VBA) will determine the cash value of a life insurance policy by subtracting any unpaid premiums or debts to calculate the basis for your loan amount.

There are five types of permanent life insurance offered by the VA: Service-Disabled Veterans Insurance (S-DVI), United States Government Life Insurance (USGLI), National Service Life Insurance (NSLI), Veterans' Special Life Insurance (VSLI), and Veterans Reopened Insurance (VRI). If you have any of these policies, you may be able to cash them out.

S-DVI is the only VA life insurance program that still issues new policies. It is available exclusively to veterans with a service-connected disability. Basic coverage maxes out at $10,000, but up to $30,000 more can be added through the program's eight additional options. While basic coverage doesn't build cash value, supplemental programs do.

USGLI was issued to World War I veterans, with new policies issued until 1951. Today, fewer than 8,000 policies remain active. NSLI is a VA life insurance policy designed specifically for World War II veterans, while VSLI policies were issued to Korean War-era veterans until 1957. Finally, VRI was only offered to veterans for one year, ending in May 1966.

To borrow against your VA life insurance policy, you must have an eligible permanent plan issued under one of the following programs: NSLI, VSLI, S-DVI, or VRI. You can apply for a loan by submitting a request for an Instant Loan using your Insurance online account or by completing and mailing VA Form 29-1546, "Application for Cash Surrender Value or Policy Loan." Loans carry interest rates ranging from 5% to 12%. It's important to note that VALife, a type of VA life insurance, does not offer loans.

Interest rates on VA life insurance loans

Yes, it is possible to borrow against the value of your VA life insurance policy. The interest rates on these loans vary and are dependent on several factors.

The interest rate on a VA life insurance loan is determined by the insurance policy and the date it was issued. Policies issued between July 1, 1975, and July 1, 1981, must contain one of the following provisions:

• A fixed interest rate of up to 8% per year.
• A variable interest rate of up to 8% per year, which can be adjusted by the insurer from time to time. This variable rate cannot be increased by more than 1% per year and can be decreased without restriction.

For policies issued after July 1, 1981, the interest rate provisions are slightly different:

• The maximum fixed interest rate remains the same at up to 8% per year.
• The adjustable maximum interest rate is established by the insurer as permitted by law. This rate cannot exceed the greater of the Published Monthly Average for the previous month or the rate used to compute the cash surrender value of the policy, plus 1% per year.

It's important to note that the interest rate on a VA life insurance loan is not the same as the mortgage interest rate for a VA loan, which is currently around 6.82% for a 30-year loan as of November 9, 2024.

When considering a loan against your VA life insurance policy, be sure to review the specific provisions and interest rate details of your policy. Additionally, keep in mind that the interest rates are subject to change over time, and the insurer must provide reasonable advance notice of any increases.

Eligibility for VA life insurance loans

Yes, it is possible to borrow against the value of your VA life insurance policy. The eligibility criteria for a VA life insurance loan are as follows:

Firstly, you must be a policyholder of a permanent plan issued under one of the following programs:

• National Service Life Insurance (NSLI)
• Veterans' Special Life Insurance (VSLI)
• Service Disabled Veterans Insurance (S-DVI)
• Veterans Reopened Insurance (VRI)

Secondly, your policy must have been in force for at least one year before you can borrow against it. This is a standard requirement across all VA life insurance programs.

Thirdly, the amount you can borrow is typically up to 94% or 100% of the policy's reserve or cash value, minus any existing indebtedness against the policy, plus interest. It's important to note that interest rates on these loans can vary between 5% and 12%.

Finally, it's worth noting that while there is no formal approval process for a VA life insurance loan, failure to make timely monthly loan payments may result in the loss of your life insurance plan. Additionally, if the loan is not repaid before the policyholder's passing, the beneficiary will only receive a portion of the death benefit.

Applying for a VA life insurance loan

Yes, it is possible to borrow against the value of your VA life insurance policy. Here is a step-by-step guide on applying for a VA life insurance loan:

Step 1: Check Eligibility

Before applying, ensure you meet the eligibility criteria. You must have a permanent plan issued under one of the following programs:

• National Service Life Insurance (NSLI)
• Veterans' Special Life Insurance (VSLI)
• Service Disabled Veterans Insurance (S-DVI)
• Veterans Reopened Insurance (VRI)

Step 2: Understand the Loan Terms

The loan amount can be up to 94% to 100% of the policy's reserve value, minus any existing indebtedness. Interest rates typically range from 5% to 12%, and the interest is billed on the anniversary date of the loan. Remember that if the interest is unpaid for a long period, it will be added to the outstanding amount, and you may risk the policy lapsing.

Step 3: Prepare Required Documents

To apply for a VA life insurance loan, you will need to complete and submit specific forms. You can apply by submitting:

• A request for an Instant Loan using your Insurance online account
• A completed VA Form 29-1546, "Application for Cash Surrender Value or Policy Loan"
• A written request for a policy loan specifying the desired amount

Step 4: Submit the Application

You can submit your application through the Online Policy Access website. This website allows you to manage your policy online and access other helpful resources. If your instant loan request is not approved, you can still apply with VA Form 29-1546.

Step 5: Await Processing

After submitting your application, allow some time for processing. If you need assistance or have questions during this time, you can contact the VA Insurance Center at 1-800-669-8477 or refer to the Ask VA (AVA) website for frequently asked questions.

It's important to remember that borrowing against your VA life insurance policy has pros and cons. On the positive side, there is no formal approval process, it won't affect your credit, and the funds can be received quickly. However, if you're unable to make timely loan payments, you may risk losing your life insurance plan.

Frequently asked questions