Policy Loan
A loan taken against eligible cash value under a permanent life insurance policy.
Why it matters
Interest and unpaid balances can reduce cash value and death benefit, trigger lapse, or create taxable income.
Where you may see it
Loan request, annual statement, policy loan provision, in-force illustration, and tax form.
What to verify
Loan rate, direct or participating loan treatment, interest capitalization, repayment, lapse threshold, and effect on benefits.
Do not confuse it with
Withdrawal, which permanently removes value rather than creating a repayable balance.
Read Policy Loan in context
Start with the exact sentence where the term appears, then read the definition, schedule, and any referenced rider together. The practical concern is this: Interest and unpaid balances can reduce cash value and death benefit, trigger lapse, or create taxable income. Locate the relevant records—loan request, annual statement, policy loan provision, in-force illustration, and tax form.—and compare them with the issued contract rather than a sales summary.
Before signing, changing coverage, or making a claim decision, record the points that control the result: Loan rate, direct or participating loan treatment, interest capitalization, repayment, lapse threshold, and effect on benefits. If another policy uses similar wording, do not assume it has the same effect.
Keep the dated page or form with your notes. If the definition changes the benefit, premium, ownership rights, or a deadline, ask the issuing insurer for a written explanation tied to the policy number.
Reliable places to check
- Your issued policy and application copy.
- NAIC consumer life insurance resources.
- Your state insurance department for licensing and consumer help.