Policy Loan
A loan taken out by the policyholder against the cash value of their permanent life insurance policy. The loan accrues interest and must be repaid, or the outstanding balance will be deducted from the death benefit.
Detailed Explanation
Policy loans can provide access to funds without surrendering the policy, but interest charges can accumulate.
Practical Example
Robert took out a policy loan against the cash value of his whole life insurance policy to help pay for his daughter's college tuition. He understands that he needs to repay the loan with interest, or the outstanding balance will reduce the death benefit paid to his beneficiaries.
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