Final answer:
True, if a policy loan remains unpaid at the time of the insured's death, the death benefit paid to the beneficiary is decreased by the outstanding loan amount.
Step-by-step explanation:
If a policy loan has not been repaid by the time the insured dies, the amount paid to the beneficiary is reduced by the amount of the debt. This situation is true. Policy loans are available in some types of life insurance policies, such as cash-value (whole) life insurance, which include both a death benefit and a cash value component. The cash value acts as a savings account, and the policyholder can borrow against it. However, if the loan is not repaid, the insurer will reduce the death benefit by the amount owed, including any interest, before paying out to beneficiaries.