Life Insurance Lawyer Milwaukee Wisconsin

Decreased Death Benefit: When a policyholder takes out a loan against their life insurance policy, the death benefit (i.e., the amount that will be paid out to the beneficiaries upon the policyholder's death) is typically reduced by the amount of the outstanding loan balance. This means that if the policyholder were to pass away, the amount paid out to the beneficiaries would be reduced by the amount of the outstanding loan.

Outstanding Loan Balance: If a policyholder has an outstanding loan balance at the time of their death, the loan balance will typically be deducted from the death benefit before it is paid out to the beneficiaries. For example, if a policyholder had a death benefit of $100,000 and an outstanding loan balance of $20,000, the beneficiaries would receive $80,000.

Interest Accrual: When a policyholder takes out a loan against their life insurance policy, they are typically charged interest on the loan balance. If the policyholder is unable to pay back the loan balance and the interest that has accrued on it, the loan balance will continue to grow over time. This means that if the policyholder were to pass away with an outstanding loan balance, the amount deducted from the death benefit would include both the original loan balance and any interest that had accrued on it.

Policy Lapse: If a policyholder takes out a loan against their life insurance policy and is unable to pay back the loan balance, the policy may lapse (i.e., terminate) if the loan balance exceeds the policy's cash value. If the policy lapses, there will be no death benefit paid out to the beneficiaries upon the policyholder's death.

Tax Implications: If a policyholder takes out a loan against their life insurance policy and the policy lapses or is surrendered, any gains on the policy (i.e., the amount by which the policy's cash value exceeds the amount of premiums paid) may be subject to income tax. This means that if the policyholder were to pass away with a policy that had been subject to loans, the beneficiaries may receive a reduced death benefit and may also be responsible for paying any income tax owed on the policy's gains.