Question

What happens when a policy owner borrows against the cash value of his life insurance policy?

A. The policy proceeds would be reduced by the outstanding loan balance.
B. No additional loans can be taken out in the future.
C. The amount borrowed is added to the policy owner's gross income for tax purposes.
D. The interest on the loan is tax deductible.

Answer 1

When a policy owner borrows against the cash value of his life insurance policy, the policy proceeds would be reduced by the outstanding loan balance. This reduces the amount of money that would be received by beneficiaries.

Step-by-step explanation:

When a policy owner borrows against the cash value of his life insurance policy, the policy proceeds would be reduced by the outstanding loan balance. This means that if the policy owner were to pass away, the death benefit paid to beneficiaries would be reduced by the amount of the loan. Therefore, borrowing against the cash value of a life insurance policy reduces the amount of money that would be received by beneficiaries.