Legal Implications Of Life Insurance Policy

[satyaptiwari]

Hi

For Knowledge I want to know , Is the owner of a loan on a his life insurance policy is legally obliged to repay the policy loan.If yes then please support yr answers with some supportive document.

Thanks
Satya

 

[somarco]

The answer is no, and yes.

The owner of the policy has no obligation to ever repay the loan.

However, loans against a policy carry certain "penalties" including reduced death benefit, and (sometimes) lower crediting of interest on the cash value. If the insured dies while the loan balance (and accrued interest) is outstanding, the death benefit payable to beneficiaries is reduced accordingly.

In many policies, outstanding loan balances generate lower dividends (on par policies) or lower interest crediting (on UL policies) which results in a slower accumulation of internal cash values.

No, the loan does not have to be repaid, but in doing so you may cause the policy to lapse or suffer other consequences (noted above).

Yes, the loan should be repaid if you want the full features of the contract.