Introduction
Ever wondered how the rich stay rich — even during recessions, market crashes, or personal financial crises? The secret lies in how they use their assets smartly. One of the most powerful, yet underused financial strategies is borrowing money against life insurance policies.
Yes, you read that right. Wealthy individuals often use insurance-backed loans to access funds without selling their investments or paying taxes. In this blog post, you’ll discover how this secret tool works, why the rich love it, and how you can also take advantage of it.
What Is a Loan Against Insurance?
A loan against insurance is a type of secured loan where you borrow money against the cash value of your life insurance policy — typically whole life or endowment policies. Unlike term life insurance, these policies accumulate savings (called cash or surrender value), which can be borrowed.
This loan is issued by the insurance company itself, and you don’t need to involve a bank, credit score, or lengthy approvals.
Why the Wealthy Use This Strategy
Here’s why this tool is a favorite among the elite:
✅ 1. Tax-Free Access to Money
When you take a loan against your insurance policy, it’s not considered taxable income. This means you can access large amounts of money without paying any tax on it — unlike selling stocks or real estate.
✅ 2. No Credit Checks or Collateral
The loan is based on the value of your policy, not your credit score. The rich often use this method to maintain privacy, avoid lengthy paperwork, and keep their credit utilization low.
✅ 3. Investments Stay Intact
Instead of selling shares, property, or other appreciating assets, they borrow money against insurance — letting their investments continue to grow while still getting the cash they need.
✅ 4. Low Interest Rates
Insurance companies offer lower interest rates on these loans — often between 6% and 9% — far lower than business or personal loan rates.
✅ 5. Flexible Repayment
There’s no strict repayment schedule. If the loan is not repaid, the amount is deducted from the policy’s maturity or death benefit.
Real-Life Example: How the Wealthy Do It
Imagine a businessman named Amir who has a whole life insurance policy worth PKR 15 million. Over the years, the policy has built a cash value of PKR 7 million.
Instead of applying for a bank loan to start a new venture, Amir takes a PKR 5 million loan against his policy — no questions asked, no taxes paid, and no assets sold. He uses the money, grows his business, and repays the loan over time — all while keeping his policy intact and active.
How You Can Use This Strategy
You don’t have to be ultra-rich to take advantage of this powerful tool. Here’s how you can apply it to your own financial planning:
🔸 Step 1: Get the Right Policy
Make sure you buy a whole life or endowment insurance policy — one that builds cash value over time. Term insurance won’t qualify.
🔸 Step 2: Pay Premiums Regularly
The more consistent you are, the faster your policy grows in value. Usually, loans are available after 2–3 years of regular premium payments.
🔸 Step 3: Monitor the Cash Value
Check with your insurance company to track how much cash value your policy has built. This will determine your maximum loan amount.
🔸 Step 4: Borrow When Needed
Once the policy has enough value, you can request a loan anytime. Use it for business, emergencies, real estate — anything you want.
Cautions and Things to Know
Even though this strategy is powerful, it must be used wisely:
-
If unpaid, the loan reduces your policy benefits.
-
Interest keeps accruing until it’s repaid.
-
Overborrowing can cause the policy to lapse.
Always speak with your financial advisor or insurance agent before taking a loan.
Top Insurance Companies Offering Policy Loans in Pakistan
These companies provide life insurance policies with loan facilities:
-
State Life Insurance Corporation
-
Jubilee Life Insurance
-
EFU Life Assurance
-
Adamjee Life
-
Pak-Qatar Takaful
Each provider has different terms, interest rates, and processing times — so compare and choose wisely.
Conclusion
The rich stay rich not just by earning more — but by leveraging what they already have. Borrowing against life insurance is a low-risk, tax-free, and flexible way to access cash without selling investments or going into heavy debt.
It’s time for the rest of us to take notes and start using these tools too. If you have a suitable insurance policy, you already have a powerful financial weapon in your hands — now it’s just about using it wisely.