Practice Quiz

Health and Life Insurance

Category - Annuities & Policies

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Whole life insurance can be used as a policy loan. What does this mean to the insured?
  1. Cash can be loaned and repaid to the policy
  2. Cash can be loaned and repaid with interest before the policy expires
  3. Cash can be loaned and does not have to be repaid
  4. Cash can be loaned and does not have to be repaid cancelling the policy
Explanation
Answer: C - An insured can borrow against the cash value of their whole life policy in the form of a policy loan. This means that cash can be loaned and does not have to be repaid. If the policy owner chooses not to repay the loan, the face amount of the policy and cash available would be reduced to reflect the money taken for the loan. Usually the premiums will continue to be paid, causing the cash value of the policy to rise faster than the loan plus its interest. Policies will lapse if the premiums are not maintained.
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