Final answer:
The maximum amount that can be borrowed when life insurance is pledged as collateral for a loan is typically based on the cash surrender value of the policy.
Step-by-step explanation:
When life insurance is pledged as collateral for a loan, the maximum amount that can be borrowed is typically based on the cash surrender value of the policy. The cash surrender value is the amount that the insurance company will pay out if the policy is surrendered before the insured person's death.
For example, if a life insurance policy has a cash surrender value of $10,000, the borrower may be able to borrow up to that amount using the policy as collateral. The other options listed in the question are not typically used to determine the loan amount when life insurance is pledged as collateral.