What is the typical interest rate on policy loans?

Participating whole life policy loans charge 5–8% interest; universal life loans typically charge 3–6%. Interest may be capitalized (added to loan balance) or paid separately. With direct recognition, the insurer credits a lower dividend/interest rate to the loaned portion of cash value.

When does a policy loan cause a lapse?

Policy lapse occurs when the outstanding loan plus accrued interest exceeds the policy's net cash surrender value. Unpaid loan interest compounds and can consume all remaining cash value if dividends are insufficient. Insurers are required to notify policyholders before lapse triggered by an over-borrowed position.

Policy Loan Interest Rate Impact on Cash Value

Model the impact of an outstanding policy loan on life insurance cash value accumulation, comparing direct vs. offset loan arrangements and the effect of loan interest rate on policy lapse risk.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to Use

Enter the values for the scenario you are assessing. Model the impact of an outstanding policy loan on life insurance cash value accumulation, comparing direct vs. offset loan arrangements and the effect of loan interest rate on policy lapse risk. Use the policy loan interest result to inform your calculation.

Related Calculators

Annuity Surrender Charge

Finance Long-tail

Life Annuity Payment