Policy Loan

A policy loan is a feature of permanent life insurance allowing the policyholder to borrow money against the accumulated cash value of their policy, typically up to a certain percentage of that value. The loan does not require a credit check or a fixed repayment schedule, and the borrowed funds are generally tax-free as long as the policy remains in force. Interest accrues on the outstanding loan balance; if the loan and interest are not repaid, the insurer deducts the amount from the death benefit paid to beneficiaries or may surrender the policy if the loan exceeds the cash value, potentially triggering tax consequences. Policy loans are specific to cash value (permanent) life insurance, not term life insurance.