Ace the Chartered Life Underwriter Challenge 2025 – Secure Your Success and Dominate the Exam!

A policy loan in permanent insurance refers to a loan against the cash value of a permanent life insurance policy. Permanent life insurance accumulates cash value over time, and policyholders have the option to borrow against this value. This loan does not require a credit check or any specific repayment schedule, as it is secured by the policy's cash value. The outstanding loan amount, along with any interest accrued, will be deducted from the death benefit if it is not repaid by the time of the policyholder's death. This feature allows policyholders to access funds at a relatively low cost, making it a flexible financial resource.

In contrast, a direct payment to beneficiaries upon death does not involve loans; it's the benefit of the policy itself. A loan provided by the insurance company unconditionally implies that it comes without any collateral, which is not the case for policy loans since they are secured by cash value. Lastly, a loan specifically for purchasing additional policies misrepresents the nature of policy loans, as they are intended to provide liquidity against the existing policy's cash value, not for acquiring new insurance policies.

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