Final answer:
In a term life insurance contract, the policyowner can take out loans against the policy's cash value or use it as collateral on a loan. However, this will reduce the death benefit of the policy.
Step-by-step explanation:
In a term life insurance contract, the policyowner has the right to take out loans against his or her policy's cash value or use it as collateral on a loan. Term life insurance is a type of life insurance that provides coverage for a specified period, typically 10, 20, or 30 years.
The cash value of a term life insurance policy refers to the savings component that accumulates over time. This cash value can be accessed by the policyowner through loans. However, it's important to note that taking out loans against the policy or using it as collateral will reduce the death benefit of the policy.
For example, let's say you have a term life insurance policy with a cash value of $50,000. You can borrow up to a certain percentage of this cash value, depending on the terms of your policy. If you borrow $10,000, your death benefit will be reduced by $10,000, meaning your beneficiaries will receive a lower payout in the event of your death.