Policy Loan vs Bank Loan Calculator
Compare borrowing against your whole life cash value with a bank loan, a HELOC, hard money, or paying cash. Interest, fees, and the growth you give up, side by side, over any horizon. No sign-up.
Your numbers
Lowest net cost over 5 years
Policy loan $7,303
Policy loan net cost $7,303 vs bank loan $12,275: the policy loan is $4,972 cheaper on these inputs. Net cost = interest and fees paid plus any growth you gave up.
| Option | Monthly payment | Interest & fees | Growth given up | Net cost | What to know |
|---|---|---|---|---|---|
| Policy loan | $955 | $7,303 | $0 | $7,303 | Full cash value keeps earning while borrowed (non-direct recognition). |
| Bank loan | $1,038 | $12,275 | $0 | $12,275 | Credit check, fixed schedule, reported to credit bureaus. |
| HELOC | $354 | $21,250 | $0 | $21,250 | Interest-only draw; lender can freeze, reduce, or call the line. |
| Hard money | $500 | $35,000 | $0 | $35,000 | 2 points every 12 months plus interest-only payments. |
| Pay cash | $0 | $0 | $10,833 | $10,833 | No interest, but the cash stops compounding the day you spend it. |
What a policy loan versus bank loan comparison actually measures
A policy loan versus bank loan comparison measures the total cost of using money for a period of time, not just the interest rate on the paper. Three things drive that cost: the interest and fees you pay, the growth your own money stops earning, and the flexibility of the repayment terms. A bank loan charges interest but leaves your other assets alone. Paying cash charges no interest but stops your money compounding. A policy loan sits in between: you pay the carrier's loan rate while the collateralized cash value keeps earning, because the carrier lends from its general account rather than liquidating your policy.
How the calculator works
Every option is run month by month over the horizon you choose, then summarized as interest and fees paid plus growth given up. The bank loan amortizes with a fixed payment. The HELOC is modeled as an interest-only draw with the principal due at the end, which is how most draw periods work. Hard money charges points at each origination and interest-only payments, and it is re-originated when the term runs out. Paying cash charges nothing but forgoes the yield you enter. The policy loan uses the carrier loan rate with the repayment pattern you pick, and its growth given up is zero under non-direct recognition or the dividend reduction you enter under direct recognition.
Direct versus non-direct recognition is the input people most often get wrong. Under non-direct recognition the carrier credits the same dividend to your entire cash value whether or not a loan is outstanding. Under direct recognition the carrier adjusts the dividend on the loaned portion, sometimes down and occasionally up when the loan rate exceeds the dividend scale. The number is in your policy's dividend provisions or on a current in-force illustration; the calculator lets you enter the reduction rather than guessing.
When a policy loan wins, and when it does not
A policy loan usually wins when the horizon is long enough for uninterrupted compounding to matter, when the loan rate is close to or below the crediting rate, and when the alternative is hard money or paying cash. It usually loses when the loan rate is several points above the crediting rate under direct recognition, when the bank is offering a promotional rate, or when the borrower has no discipline to repay and lets a large loan compound against a policy that is not well funded. The honest answer is on the chart, and it changes with every input.
- Real estate investors compare it with hard money for rehab capital and with a HELOC for down payments. See infinite banking for real estate investors.
- Business owners compare it with equipment financing and lines of credit that require personal guarantees.
- Families compare it with auto loans and tuition financing, where the flexible repayment schedule matters as much as the rate.
What the calculator leaves out
The model ignores income taxes, closing costs, prepayment penalties, the policy's premiums and cost of insurance, whether the policy is a modified endowment contract, and the possibility of a lapse if an accruing loan is never repaid. Interest on a policy loan is generally not deductible for personal use, and the rules for investment or business use are fact-specific, so confirm any deduction with your CPA. Treat the output as an educational comparison of financing costs, not as an illustration, a quote, or advice.
Frequently asked questions
Is a policy loan cheaper than a bank loan?
Often, but not always. A policy loan wins when its rate is at or below the bank rate, or when the carrier keeps crediting dividends on the loaned cash value so the money compounds while it is out. It loses when the loan rate is well above the crediting rate and the carrier uses direct recognition. Run both sets of numbers above.
Does my cash value keep growing while a policy loan is outstanding?
Yes. The loan is made from the insurance company's general account with your cash value as collateral, so the cash value itself is never withdrawn. Under non-direct recognition the full dividend is credited regardless of the loan; under direct recognition the dividend on the loaned portion is adjusted, which is the reduction you enter in the calculator.
What interest rate do policy loans charge?
The rate is set by the carrier and written into the contract. Some carriers use a fixed rate, others a variable rate tied to a published index, and many mutual carriers have charged in the 4 to 8 percent range in recent years. Some contracts offer wash loans where the loan rate equals the crediting rate. Check your policy or a current illustration.
Why does paying cash show a cost when there is no interest?
Because the money stops earning the day you spend it. If you drain a savings account or take a withdrawal from a policy, you give up the growth that money would have produced over the horizon. Economists call it opportunity cost, and it is usually larger than people expect over five or more years.
Does a HELOC really compare to a policy loan?
Both are lines of credit secured by an asset, which is why investors compare them. The differences are control and reliability: a HELOC requires qualification, reports to your credit, and the lender can freeze, reduce, or call the line during a downturn. A policy loan is a contractual right with no application, no credit check, and no fixed repayment schedule.
Why does hard money look so expensive in the results?
Hard money charges points at every origination plus a double-digit interest rate, and it usually matures in six to twelve months. Over a multi-year horizon the calculator re-originates the loan and charges points again each term, which is what actually happens when a flip or rehab runs long. For short, well-timed projects the gap is smaller.
What does this calculator not include?
It ignores taxes, closing costs, prepayment penalties, the policy's premium and cost of insurance, MEC status, and the risk of a policy lapsing if a large loan is never repaid. It is an educational estimate for comparing financing costs, not an illustration, a quote, or advice. Confirm the tax treatment of any loan with your CPA.
Sources: 26 U.S.C. §7702, 26 U.S.C. §72(e), 26 U.S.C. §264 (interest on policy loans), CFPB: what is a HELOC. Built and reviewed by Brandt Hudson, licensed insurance professional, The Infinite Wealth Group, Chattanooga, TN. Published September 5, 2026.