HomeRetirementCan you take a loan on an annuity?

Can you take a loan on an annuity? [Revealed 2024]

Yes, you can borrow against your annuity. There are two main options:

Annuity loan: Many annuity issuers allow you to borrow directly from your annuity’s cash value. This typically comes with interest charged on the loan amount, and there may be fees involved. Check your specific contract details to see if this is an option and what the terms are.

Surrender: This isn’t technically a loan, but you can access your annuity’s cash value by surrendering a portion of the annuity. This may come with surrender charges, depending on the terms of your contract and how long you’ve held the annuity. Early surrender charges can be significant, so this option should be a last resort.

Unlocking the potential of your annuity through borrowing can provide financial relief, yet navigating this path requires careful consideration. Let’s delve into the intricacies, benefits, drawbacks, and processes involved in borrowing against your annuity.

Advantages of Borrowing Against an Annuity

Avoid surrender charges: Annuity contracts often come with surrender charges if you withdraw money within a certain period (typically several years). Annuity loans allow you to access funds without triggering these charges.

Avoid taxes and early withdrawal penalties: If you’re under age 59 ½, withdrawing money from a traditional IRA or annuity typically results in a 10% tax penalty on top of income taxes. Annuity loans bypass this penalty because you’re borrowing money, not withdrawing it.

Access to funds: This can be helpful if you need money for an unexpected expense or short-term need without having to completely tap into your retirement savings.

Preserves future income stream: Annuity loans allow you to access cash without reducing the overall value of your annuity contract. The remaining balance continues to grow and can provide income in retirement.

Drawbacks of Annuity Loans

Reduced growth potential: The money you borrow is no longer in the annuity growing with interest. This can significantly impact your long-term retirement income, especially if you need the loan for an extended period.

Debt accumulation: Annuity loans accrue interest, adding to your overall financial burden. If you’re not careful, you could end up owing more than you borrowed.

Risk of default: If you can’t repay the loan, the insurance company may withhold your annuity benefits to cover the debt. In the worst-case scenario, you could lose access to both your retirement income and the loan principal.

Limited access to funds: Annuity loans often have limitations on how much you can borrow, typically capped at a percentage of the annuity’s cash value. This might not be enough to cover your entire unexpected expense.

Potential tax implications: While you avoid the early withdrawal penalty with a loan, interest payments may not be tax-deductible. Be sure to consult with a tax advisor to understand the specific tax implications for your situation.

Process for applying for an annuity loan

Check your annuity contract: Not all annuities allow for loans.  Review your contract details or call your annuity company to confirm if a loan provision is available.

Understand the terms:  Ask about the following:

  • Maximum loan amount or percentage of your annuity’s cash value you can borrow.
  • Interest rate for the loan: This interest typically gets paid back into your annuity, increasing its cash value.
  • Repayment period and schedule

Submit the application:  Annuity loan applications are usually straightforward. They’ll ask for basic information and details about the loan amount and repayment terms you prefer.  There’s no credit check involved since you’re borrowing against your own money.

Approval and receiving funds:  The annuity company will process your application and send you an approval letter outlining the final loan terms.  Review and sign it if you agree. Once approved, you’ll receive the loan amount.

Some of the annuity companies that may offer loan provisions on their annuities:

  • American General Life Insurance Company (AIG)
  • Genworth Life and Annuity Insurance Company
  • John Hancock
  • Massachusetts Mutual Life Insurance Company (MassMutual)
  • Pacific Life Insurance Company
  • Prudential Insurance Company of America

What Happens if You Default on Your Annuity Loan?

Defaulting on an annuity loan can have some negative consequences for your finances:

Tax Treatment as a Distribution:  If you don’t repay the loan, the loaned amount becomes classified as a taxable withdrawal from your annuity. This means you’ll owe income tax on the withdrawn amount.

Early Withdrawal Penalty:  There’s also a potential early withdrawal penalty of 10% if you’re under age 59½. This penalty applies on top of regular income taxes.

Reduced Annuity Value:  The loaned amount represented a portion of your annuity’s cash value. By defaulting, you’re essentially withdrawing that money, reducing the annuity’s overall value and its potential future payouts.


Borrowing against your annuity offers immediate financial relief, but it’s essential to grasp the full picture before proceeding. An annuity loan allows you to borrow against the cash value of your annuity, typically with interest and potential fees. Alternatively, surrendering a portion of your annuity provides immediate access to cash, but may incur surrender charges. Before deciding, consider tax implications, interest rates, and potential impact on your future income stream. It’s prudent to explore alternative options and consult with a financial advisor to ensure alignment with your long-term financial goals. By carefully weighing the pros and cons, you can make an informed decision that best serves your financial needs.

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