Ace the Pearson VUE Life Insurance Exam 2025 – Insure Your Success with Confidence!

A 'policy loan' refers to funds borrowed against the cash value of a permanent life insurance policy. Permanent policies, such as whole life or universal life insurance, accumulate cash value over time. This cash value can be accessed by the policyholder through a loan. The policyholder can borrow against this accumulated cash value without undergoing a credit check or strict approval process, as the loan is secured by the policy itself.

When a policy loan is taken, the insurance company typically charges interest on the borrowed amount. If the loan is not repaid, the outstanding amount plus any accrued interest will be deducted from the death benefit payable to beneficiaries upon the policyholder’s death. This allows policyholders to access funds in a way that can be more favorable than traditional borrowing methods, making it an attractive feature of permanent life insurance products.

In contrast, the other options refer to different financial concepts related to insurance. For instance, taking a loan to purchase a policy involves borrowing money to pay premiums, while a payment made by the insurer in the event of death refers to the death benefit, and an amount payable upon policy expiration pertains to the policy’s surrender value or final benefits at the end of the policy term. These do not accurately describe a policy loan.