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5 August, 12:32

C has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. He applies for and receives a $10,000 policy loan from the insurer.

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  1. 5 August, 13:13
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    If C were disabled, his beneficiaries would receive $70,000, less any outstanding interest charges

    Explanation:

    Policy loans can generally amount up to 100% of the cash surrender value of the policy, in this case C only requested $10,000 (1/3 of the cash value). This type of loan is fully collateralized by the cash value of the policy and the borrower can even miss some payments or pay on a later date because interests keep adding.

    This type of loan can carry a fixed or variable interest rate, depends on the insurer.

    If C surrenders his policy, he will receive the total cash surrender value minus the loan amount = $30,000 - $10,000 = $20,000

    If C dies, his beneficiaries would receive the full benefits minus the loan amount = $100,000 - $10,000 = $90,000
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