Question

Which of the following is true about the loan status after a loan is made from the cash value of a life policy?

a) The policy becomes fully paid-up.
b) The policy continues as if no loan was made.
c) The death benefit decreases by the loan amount.
d) The loan must be repaid with interest immediately.

Answer 1

After a loan is made from a life insurance policy's cash value, the policy continues without immediate changes, but if not repaid, the death benefit will be reduced by the loan amount.

Step-by-step explanation:

When a loan is made from the cash value of a life insurance policy, the correct statement regarding the loan status is that the policy continues as if no loan was made. This means that the policy does not become fully paid-up, the death benefit does not decrease by the loan amount initially, and the loan does not need to be repaid with interest immediately. However, if the loan plus accrued interest is not repaid by the time of the policyholder's death, the death benefit will be reduced by the outstanding loan amount.