A loan taken against the cash value of a permanent life insurance policy. Policy loans do not require credit checks and typically carry low interest rates. However, unpaid loans reduce the death benefit, and if the loan balance exceeds the cash value, the policy may lapse.
Related Terms
Cash Value
A savings component built into permanent life insurance policies that grows over time on a tax-deferred basis. You can borrow against the cash value, withdraw from it, or surrender the policy for its cash value. Term life insurance does not have a cash value component.
Permanent Life Insurance
Life insurance that provides coverage for your entire lifetime as long as premiums are paid, unlike term life which expires after a set period. Permanent policies include a cash value component and come in several forms: whole life, universal life, and variable life.
Whole Life Insurance
The most traditional form of permanent life insurance, offering a guaranteed death benefit, fixed premiums, and guaranteed cash value growth. Whole life policies may also pay dividends. Premiums are higher than term life but remain level for your entire life.