What does a policy loan signify in the context of Ordinary Life insurance?

A policy loan in the context of Ordinary Life insurance signifies a loan taken against the cash value of a permanent life insurance policy. This means that if the policyholder has accumulated cash value in their life insurance policy, they have the option to borrow against that amount. The cash value serves as collateral for the loan, allowing the policyholder access to funds while still maintaining the policy.

The primary advantage of a policy loan is that it typically does not require a credit check, and the loan can be obtained quickly. However, outstanding loans reduce the death benefit payable to beneficiaries if not repaid, along with any accrued interest. This feature provides flexibility for policyholders, enabling them to use their accumulated cash value to meet financial needs without surrendering the policy or incurring taxable events.