If the insured has an outstanding loan on a life policy at the time of death, what will the policy pay?

The policy will pay the face value minus the outstanding loan amount at the time of the insured's death. This means that if there is any loan taken against the policy, the insurer will deduct this amount from the death benefit before it is paid to the beneficiary.

This deduction occurs because the loan represents an obligation that the policyholder has incurred, and the insurance company must settle that obligation before disbursing the remaining funds to the beneficiaries. The beneficiaries receive the net amount, which reflects the insured's face value benefit minus any amounts borrowed against the policy.

Understanding this concept is crucial as it affects both the financial planning of the policyholder and the expectations of the beneficiaries regarding the amount they will ultimately receive.