Which type of insurance allows policyholders to borrow against the cash value?

Universal life insurance is designed with both a death benefit and a cash value component, enabling policyholders to accumulate savings over time. This cash value can grow on a tax-deferred basis and serves as a financial resource for the policyholder. One of the unique features of universal life insurance is that policyholders can borrow against this cash value, providing them with access to funds if needed, without having to forfeit the policy. The amount borrowed will be deducted from the death benefit if not repaid, creating flexibility and providing a potential source of income for emergencies or other financial needs.

In contrast, other types of life insurance, such as term life insurance, do not accumulate cash value and therefore do not offer borrowing options. Variable life insurance does have cash value but involves investment risks tied to the performance of underlying assets, yet borrowing specifics are more typical in universal policies. Hence, universal life insurance is the correct choice for a product that allows for borrowing against cash value.