Walt Disney borrowed $60,000 against his life insurance to build Disneyland — how policy loans work

By the early 1950s, Disney wanted to create a physical entertainment destination unlike the amusement parks of the era. What began as a relatively modest park concept eventually grew into plans for a 160-acre Disneyland theme park in Anaheim, California.

The biggest problem, however, was the price tag. The park was initially expected to cost $5 million, roughly 10 times the less than $500,000 Walt Disney Productions earned in net income in 1952.

Disney personally committed roughly $250,000 to the project, according to Acquired. To raise his share, Disney sold his Palm Springs vacation home, took out a personal loan and borrowed $60,000 against his life insurance policy with Commerce Trust, now Commerce Bank. The loan is documented in a 1954 agreement that resurfaced decades later after its owner, a Disney memorabilia collector, contacted Commerce about it.

It’s a striking example of just how much Walt was willing to put behind Disneyland. He wasn’t only staking his professional reputation on the project, he was putting his personal finances on the line, too.

How borrowing against life insurance works

Disney didn’t have to cash out or cancel his life insurance policy to get the $60,000. Instead, Commerce Trust lent him the money using his life insurance policy as security.

According to former Commerce executive Jim Linn, loans backed by life insurance were a significant part of the bank’s business in the early 1950s. Commerce offered them at 2% interest, compared with roughly 6% charged by life insurers themselves.

“Our rate was so good that people from around the country came to us for those loans,” Linn said in an article on Commerce Bank’s website.

Borrowing against life insurance is still possible today, although the mechanics can be different from Disney’s arrangement. The option is generally available with permanent life insurance policies that build cash value, including whole life and certain universal life policies, according to the National Association of Insurance Commissioners (NAIC).

Cash value is essentially the portion of a permanent life insurance policy that builds value while the policyholder is alive. With whole life insurance, the NAIC says cash value comes from premiums paid into the policy, minus fees and the cost of providing the insurance.

The insurer doesn’t put part of each premium into a savings account. Instead, cash value grows according to the terms of the policy and can eventually become an asset the policyholder can access. With whole life insurance, for example, it typically grows according to a schedule established by the policy.

Once enough has accumulated, the policyholder may be able to borrow against it. With a typical policy loan today, the insurer lends the money using the policy’s cash value as security.

For example, suppose a policyholder has a permanent life insurance policy with a $500,000 death benefit and $100,000 in cash value. Depending on the terms of the policy, the policyholder may be able to borrow a portion of that $100,000 without canceling the policy or giving up their insurance coverage.

This flexibility can make a policy loan an appealing source of cash. But borrowing against life insurance isn’t free, and letting a loan linger can eat into the benefits that made the policy valuable in the first place.