Glossary > Insurance > Life Insurance > Universal Life Insurance

Policy Loans

Policy loans are loans that policyholders can take out against the cash value of their life insurance policy. The loan amount is borrowed from the insurance company and is secured by the cash value of the policy.

Example #1

For example, if you have a universal life insurance policy with a cash value of $10,000, you may be eligible to take out a policy loan up to that amount. The loan would accrue interest, and if not repaid, it could reduce the death benefit that your beneficiaries would receive.

Example #2

Another example could be a policyholder facing a financial emergency and deciding to take out a policy loan to cover unexpected medical expenses.

Misuse

Misusing policy loans by borrowing excessively or failing to repay them can lead to reduced benefits for your beneficiaries. It's crucial to be cautious when considering a policy loan and only borrow what is necessary and can be repaid to protect the financial security of your loved ones.

Benefits

The benefit of policy loans is that they provide a source of quick cash in times of need without requiring a credit check or impacting your credit score. This liquidity can be especially valuable in emergencies when traditional loans may not be readily available.

Conclusion

Policy loans can be a useful feature of life insurance policies, offering policyholders a financial safety net when unexpected expenses arise. However, it's essential to use them judiciously to avoid compromising the policy's benefits for your beneficiaries.

Last Modified: 4/29/2024