Policy Loan

DEFINITION of 'Policy Loan'

A loan issued by an insurance company that uses the cash value of a person's life insurance policy as collateral.

Sometimes referred to as a "life insurance loan."

BREAKING DOWN 'Policy Loan'

Traditionally, these were loans issued at a very low interest rate, but that is no longer universally true. If the borrower fails to repay the loan, the money is withdrawn from the insurance death benefit.

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RELATED FAQS
  1. How can I borrow money from my life insurance policy?

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  3. Can you do a life insurance to life insurance 1035 exchange after the new life insurance ...

  4. What is a collateral assignment of life insurance?

    Learn about collateral assignment of life insurance so you can make a wise decision about what kind of collateral to use ... Read Answer >>
  5. What is the difference between the death benefit and cash value of an insurance policy?

    Understand the difference between the various components of a life insurance policy including the death benefit and a policy's ... Read Answer >>
  6. What is the difference between term and universal life insurance?

    Term life insurance is the most basic of insurance policies. It is nothing more than an insurance policy that provides protection ... Read Answer >>
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