What does a policy loan in a whole life insurance policy allow?

A policy loan in a whole life insurance policy allows the policyholder to borrow against the cash value of the policy. Whole life insurance accumulates cash value over time, which is a portion of the premiums that remains in the policy and can grow through interest. The policyholder has the right to access this cash value while the policy is in force, which is where the concept of a policy loan comes into play.

When a policyholder takes a loan from their whole life policy, they are essentially borrowing money from the insurance company against the cash value that has been built up. It's important to note that this loan does not require a credit check and does not affect the policyholder's credit score, as it is secured by the cash value of the insurance itself. However, if the loan is not repaid, any outstanding balance will be deducted from the death benefit when the policyholder passes away.

This option stands out in contrast to the other choices. Withdrawing the death benefit early would not be a feature of a policy loan; instead, it would typically involve some other provision or option, which is not standard practice in whole life policies. Buying additional coverage would require purchasing a new policy, not utilizing existing cash value. Paying premiums in advance is not related