Final answer:
When interest is not paid on a life insurance policy loan, the unpaid interest is added to the principal, increasing the total loan amount.
Step-by-step explanation:
If Joe, a life insurance policyowner, has failed to pay interest on his policy loan, the typical result from this nonpayment is that the loan amount is increased to reflect the amount of interest due. What happens is that the unaided interest gets added to the principal amount of the loan, and the loan balance grows. This is referred to as "capitalizing" the interest. It does not lead to an immediate requirement to fully repay the loan, nor does it necessarily affect loan privileges or result in higher future interest rates, unless specified in the policy terms.