What Is Policy Loan? Definition | Epic Life Glossary

Why it matters

You do not need a credit check, and there is no fixed repayment date. Interest still builds, though. An unpaid loan and its interest are subtracted from the death benefit, and a large loan can cause the policy to lapse, which may trigger a tax bill. Only permanent policies with cash value allow loans. Rates and rules differ by carrier.

Source: law.cornell.edu

Where we use this term

Indexed universal life (IUL) explained: caps, floors, costs, and risks

Related terms

Cash Value: Cash value is the savings part of a permanent life insurance policy. It grows over time at a rate set by the policy and can be borrowed against or withdrawn, subject to the contract terms.
Cash Surrender Value: Cash surrender value is the amount a carrier pays you if you cancel a permanent policy, which is the cash value minus any surrender charges and unpaid loans.
Death Benefit: A death benefit is the money a life insurance carrier pays to the beneficiary when the insured dies. It is usually paid as a lump sum and is generally income tax free to the beneficiary.
Lapse: A lapse happens when a life insurance policy ends because the owner did not pay the premium by the end of the grace period. Coverage stops unless the policy is reinstated.
Whole Life Insurance: Whole life insurance is permanent coverage that lasts for the insured's entire life as long as premiums are paid. It combines a guaranteed death benefit with a cash value that grows at a rate set by the insurer.

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Where we use this term

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