What is the purpose of a policy loan provision?

The policy loan provision is designed specifically to enable the policyholder to borrow against the cash value of the life insurance policy. This feature allows the insured to access funds without needing to cancel the policy or lose the death benefit. When a policyholder takes out a loan, they can use the cash value accumulated in their policy as collateral. The loan does not require a credit check and can often be obtained relatively quickly, providing the policyholder with financial flexibility in times of need.

This provision is a critical aspect of whole life and universal life policies, where cash value builds up over time. Borrowing against this cash value can be helpful for various expenses, such as medical costs, education, or other financial emergencies, while still keeping the life insurance coverage in force. The borrowed amount will accrue interest, and any unpaid loan balance will reduce the death benefit paid out to beneficiaries if the policyholder passes away before repaying the loan.