Which statement is true about a policy loan against cash value?

Which statement is true about a policy loan against cash value?

• A. Loans are available only if cash value is present
• B. Loans require proof of loss
• C. Loans do not reduce the death benefit
• D. Loans are interest-free

Answer: (A)

The key idea is that a policy loan against cash value can be taken only when there is cash value inside the policy. The loan is secured by that cash value, so if there isn’t any cash value, there’s nothing to borrow against. It doesn’t require proof of loss, since loans are not claims on an event; they’re loans you repay with interest. In addition, outstanding policy loans do reduce the death benefit payable later, and loans carry interest. Because of that, the only true statement is that loans are available only if cash value is present.

The key idea is that a policy loan against cash value can be taken only when there is cash value inside the policy. The loan is secured by that cash value, so if there isn’t any cash value, there’s nothing to borrow against. It doesn’t require proof of loss, since loans are not claims on an event; they’re loans you repay with interest. In addition, outstanding policy loans do reduce the death benefit payable later, and loans carry interest. Because of that, the only true statement is that loans are available only if cash value is present.