Florida Life and Health Insurance License Practice Test

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Which statement is TRUE in regards to a policy loan?

  1. Policy loans are available on all types of policies

  2. Past-due interest on a policy loan reduces the total death benefit

  3. Past-due interest on a policy loan is added to the total debt

  4. Policy loans are only available in the event of surrender

The correct answer is: Past-due interest on a policy loan is added to the total debt

A policy loan allows the policyholder to borrow money against the cash value of their life insurance policy. Interest is charged on the amount borrowed, and if the interest is not paid, it accrues and becomes part of the total debt. Option A is incorrect as not all types of policies offer policy loans. Option B is incorrect because past-due interest does not affect the total death benefit of the policy. Finally, option D is incorrect because policy loans are available even if the policy is not surrendered.

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