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 If the borrower fails to repay the loan, the money is withdrawn from the insurance death benefit.

RELATED TERMS
  1. Credit Life Insurance

    A life insurance policy designed to pay off a borrower's debt ...
  2. Term Loan

    A loan from a bank for a specific amount that has a specified ...
  3. Key Person Insurance

    A life insurance policy that a company purchases on a key executive's ...
  4. Future Advance

    A clause in a mortgage which enables the lender to advance funds ...
  5. Permanent Life Insurance

    An umbrella term for life insurance plans that do not expire ...
  6. Decreasing Term Insurance

    A type of annual renewable term life insurance that provides ...
Related Articles
  1. Insurance

    Borrowing Against a Life Insurance Policy

    There are advantages and disadvantages to taking out a loan against your permanent life insurance.
  2. Financial Advisor

    Getting Life Insurance in Your 20s Pays Off

    Find out how Americans in their 20s can benefit from a well-thought-out life insurance policy, especially if they are able to build cash value for retirement.
  3. Insurance

    Is Loan Protection Insurance Right For You?

    This coverage can keep you from defaulting on your loans when you're in financial trouble.
  4. Insurance

    4 Things That Keep You From Getting Life Insurance

    We look at four common reasons people give for not applying for life insurance, and see if they're legitimate.
  5. Managing Wealth

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
  6. Insurance

    Tips for Helping Clients with Life Insurance Needs

    Life insurance needs will likely change over the client’s lifetime and again financial advisers can provide an objective sounding board.
  7. Financial Advisor

    Which Life Insurance is Right For You?

    Consumers have choices when it comes to life insurance. Knowing your future needs for cash or retirement can make the difference in what you select.
  8. Financial Advisor

    How Life Insurance Can Help With Liquidity

    Life insurance can provide liquidity in personal and business situations when access to capital is essential. Learn how to utilize its unique properties.
RELATED FAQS
  1. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
Hot Definitions
  1. Investing

    The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.
  2. Stagflation

    A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, ...
  3. Notional Value

    The total value of a leveraged position's assets. This term is commonly used in the options, futures and currency markets ...
  4. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
Trading Center