The insurer is never required to loan 100% of the cash value.

• A. True
• B. False
• C. Only after 5 years
• D. Only if the loan is used for surrender

Answer: (A)

The concept here is borrowing against the policy’s cash value. A permanent life policy allows a loan against its cash value, but the amount you can borrow is limited to the available cash value (usually cash value minus any existing loan balance and accumulated interest). The insurer is not obligated to lend the full amount, and in many situations you won’t receive 100% of the cash value. Factors such as already outstanding loans, policy status, or terms that require keeping some cash value to keep the policy in force can prevent a full 100% loan. So statement that the insurer is never required to loan 100% of the cash value is true. Remember, any loan and accrued interest reduce the death benefit, and if the loan equals or exceeds the cash value, the policy could lapse.