Question

All of the following are true regarding insurance policy loans EXCEPT

AThe policy will terminate if the loan plus interest equals or exceeds the cash value of the policy.
BPolicyowners can borrow up to the full amount of their whole life policy's cash value.
CPolicy loans can be made on policies that do not accumulate cash value.
DThe amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies.
Incorrect! The policy loan option is only found in policies that contain cash value.

Answer 1

Insurance policy loans are a feature of cash-value (whole) life insurance policies, where policyowners can borrow against the cash value. However, if the loan plus interest exceeds the cash value of the policy, it may terminate. Policy loans can only be made on policies that accumulate cash value.

Step-by-step explanation:

Insurance policy loans are a feature of cash-value (whole) life insurance policies. These policies have a death benefit and also accumulate a cash value. The cash value can be used as collateral for a loan from the insurance company. Policyowners can borrow against the cash value, but the loan amount plus interest must be repaid. If the loan plus interest equals or exceeds the cash value of the policy, the policy may terminate. When the insured dies, the amount of the outstanding loan and interest will be deducted from the policy proceeds.

However, it's important to note that policy loans can only be made on whole life policies that accumulate cash value. Policies that do not accumulate cash value do not have the option to take out a policy loan.