1. What is a Life Insurance Loan?

A life insurance loan allows policyholders to borrow against the cash value of their permanent life insurance policy. The loan accrues interest, which is calculated as a percentage of the outstanding loan amount.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( Loan \) — The amount borrowed from the policy's cash value (in dollars)
• \( Rate \) — The annual interest rate charged on the loan (in decimal form)

Explanation: This calculates the annual interest charge on a life insurance policy loan.

3. Importance of Loan Interest Calculation

Details: Understanding the interest cost helps policyholders make informed decisions about borrowing against their policy and managing repayment.

4. Using the Calculator

Tips: Enter the loan amount in dollars and the interest rate in decimal form (e.g., 0.05 for 5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Are life insurance loans tax-free?
A: Generally yes, as long as the policy remains in force. However, tax implications vary by situation.

Q2: What happens if I don't repay the loan?
A: Unpaid loans plus interest will reduce the death benefit and may cause the policy to lapse.

Q3: How is the interest rate determined?
A: Rates are set by the insurance company and specified in the policy contract.

Q4: Can I pay just the interest?
A: Many policies allow interest-only payments, but this increases long-term costs.

Q5: Does interest compound on these loans?
A: Some policies compound unpaid interest, while others charge simple interest - check your policy terms.