Policy Loans

Last updated: March 29, 2016

How a Policy Loan Works

With whole life, universal, or variable life insurance you can usually borrow money from the insurer. You do this by using the cash value of your policy as collateral for the loan.

  • This loan is unlike loans from most financial institutions:

  • It is not dependent on credit checks; nor is the policy owner legally obligated to repay the loan.

However, insurers charge interest on the loan - usually annually. The amount of interest payable on the loan is stated in your policy.

  • You may repay the loan and interest as a lump sum, in installments, or not at all.

    • If you do not pay the interest, it is added to the loan.

    • If the loan plus unpaid interest eventually becomes greater than the policy’s cash value, the policy ends without value.

    • Any unpaid loan, including interest, is subtracted from the proceeds at the time of death.

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