Policy Loans and Cash Value
How borrowing against a permanent policy can affect coverage. A good decision usually comes from comparing policy details, not from chasing the first low premium.
Model the loan through policy maturity
A policy loan accrues interest and can reduce value and death proceeds. If charges and interest outpace funding, the policy may lapse and create a taxable event. The credited value is not the same as freely withdrawable cash.
Key record: Request the loan rate, compounding method, current payoff, tax basis, direct or participating treatment, death-benefit impact, and in-force projection.
Documents to gather
- Current policy data page and riders.
- Application and any amendments.
- Latest annual statement or illustration.
- Quote assumptions and underwriting offer.
- State-required notices when applicable.
Questions to verify
Finish with a written decision
Copy the controlling policy language and dates into your notes. Mark each number as guaranteed, current, or illustrated; identify the person or organization that supplied it; and save any written answer. Before ending or replacing coverage, confirm when the new protection becomes effective and whether a free-look, contestability, surrender, or tax consequence applies.
Reliable sources
- Your issued policy and application copy.
- NAIC consumer life insurance resources.
- Your state insurance department.