What is the role of a "policy loan" in whole life insurance?

The role of a "policy loan" in whole life insurance primarily allows the policyholder to borrow against the cash value accumulated in the policy. Whole life insurance inherently builds cash value over time, which the policyholder can access during their lifetime. By taking a loan against this cash value, the policyholder has financial flexibility, as they can use the borrowed amount for various needs without having to surrender the policy or pay taxes on the cash value.

When a policyholder takes out a loan, it does not require a credit check, and the funds received are often made available quickly. However, it's also important to note that any unpaid loans, along with interest, will be deducted from the death benefit if not repaid, meaning that outstanding debt can reduce the amount beneficiaries receive upon the policyholder’s death. This aspect demonstrates how policy loans can provide liquidity while also requiring careful management to maintain the desired death benefit for heirs.