Utah Life Producer Practice Exam

A "policy loan" in life insurance specifically refers to a loan that a policyholder can take out against the cash value of their whole life or universal life insurance policy. This occurs when the policy accumulates cash value over time, allowing the policyholder to borrow against this amount. The amount borrowed typically accrues interest, and the loan does not require a credit check or a repayment schedule, offering flexibility to the policyholder.

If the policyholder does not repay the loan, the outstanding balance, including any accrued interest, will be deducted from the death benefit payable to beneficiaries at the time of the policyholder's passing. This feature allows policyholders to access funds in times of need while still maintaining the life insurance coverage.

Other options do not accurately depict what a policy loan is. For instance, taking a loan to purchase another policy is a different financial action and does not relate directly to the cash value of the existing policy. Similarly, while a policy loan may be obtained from the insurance company, it is specifically tied to the cash value rather than being simply a loan from the insurance provider. A refund of premiums paid is not applicable in this context, as it refers to a return of payments made under certain conditions, rather than a loan against the policy