What does the policy loan provision allow a policy owner to do?

• A. Borrow against the cash value of a permanent life policy
• B. Borrow against the death benefit only
• C. Surrender the policy for its cash value
• D. Extend the policy term

Answer: (A)

Policy loan provisions let a policy owner borrow money from the insurer using the policy’s accumulated cash value as collateral. Because it’s a loan from the insurer, no underwriting is needed and you can access funds up to the cash value built up in the policy. It doesn’t require surrendering the policy, and you continue to keep the policy in force while the loan is outstanding. However, the loan accrues interest, and any outstanding loan balance reduces the death benefit payable to beneficiaries. If the loan balance grows too large and the cash value can’t cover the costs, the policy could lapse. In general, policy loans are not treated as taxable income as long as the policy remains in force and there isn’t a distribution of cash value.