Final answer:
When a policyholder with a life insurance policy has an unpaid policy loan at the time of policy maturation, the insurance company will deduct the amount of the loan and accrued interest from the death benefit. The correct answer is option b.
Step-by-step explanation:
When it comes to life insurance policies, one of the features available to policyholders is the option to take out a loan against the cash value of their policy. Such a policy loan can be used for various personal reasons, and it's common for insurance companies to allow policyholders to borrow a certain percentage of the policy's cash value.
It's important to note that these loans are not free of cost; they come with interest that accrues over time. If a policyholder does not repay the policy loan, what happens at the time of policy maturation is a question of concern for many.
Upon the maturation or death of the insured, if there is an unpaid policy loan, the insurance company will handle it by deducting the amount of the loan, plus any interest due, from the policy benefits before payment is made to the beneficiaries. This means that if you have an unpaid loan on your life insurance policy, the death benefit paid out to your beneficiaries will be reduced by the amount of the outstanding loan, including interest.
Consequently, the correct option for what happens to unpaid policy loans upon policy maturity is B) They are deducted from the policy death benefit.