What is a "policy loan" in the context of permanent life insurance?

A "policy loan" refers specifically to a loan that a policyholder can take against the cash value accumulated in a permanent life insurance policy. Permanent life insurance products, such as whole life or universal life, build cash value over time, which can be accessed by the policyholder. When a policyholder borrows against this cash value, they are essentially using the insurance policy as collateral for the loan. This means that if the policyholder does not repay the loan, the unpaid amount will be deducted from the death benefit or cash value if the policy is surrendered.

Taking a loan against the cash value typically does not require credit checks, as the repayment is pulled from the policy itself. This can provide a flexible source of funds for the policyholder when needed, but it's important to understand that any unpaid loans or interest can reduce the overall value of the policy.