A. This is a good question and many people with cash value life insurance policies are confused about.
First, permanent life insurance policies typically give you the option of interest-free loan after certain number of years. However, the downside is the amount you borrowed from the cash value will no longer be able to continue to generate the return as the rest of the cash value inside your policy.
Second, some permanent life insurance policies give you another option, collateral loan - you could borrow against your cash value, but you will have to pay interest back to the insurer on the loan, the upside is your cash value, including the borrowed part, will continue to generate the return for you.
Now you might have the question - why do I have to pay interest on my own money?
As explained in the second reason above, such loan is a collateral loan, the insurance company holds your asset (life insurance) as a collateral (which means your asset will continue to generate the return for you as usual), but lends you money, of course with an interest.
In our next blog post, we will do a comparison between Life Insurance Loan and Home Equity Loan, you will have a better understanding why you have to pay interest accessing your own money.