Joanne has a $100,000 whole life policy with an accumulated $25,000 of cash value. She would like to borrow $15,000 against the cash value. Which of the following statements is TRUE?
Net death benefit will be reduced if the loan is not repaid
The true statement is that Joanne can borrow up to $15,000 against the cash value of her whole life policy.
A whole life insurance policy is a type of permanent life insurance that provides both a death benefit and a cash value component. The cash value accumulates over time as the policyholder pays premiums, and it can be borrowed against without having to surrender or cancel the policy.
In this scenario, Joanne has accumulated a cash value of $25,000 in her $100,000 whole life policy. She would like to borrow $15,000 against this cash value. Since the policy’s cash value is greater than the amount she wants to borrow, she can take out the loan without having to cancel her policy.
It’s important to note that borrowing against the cash value of a whole life policy can have implications on the policy’s death benefit and future premiums. The borrowed amount will accrue interest, and if it’s not paid back, it will reduce the policy’s death benefit. Additionally, the unpaid loan balance and interest will increase the policy’s premiums. Therefore, it’s important to carefully consider all the implications before taking out a loan against a whole life policy.
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