Life Policy ProvisionsQuestion 176 of 716
A whole life policyowner takes a policy loan against the cash value. Which of the following best describes the loan?
a.The loan must be repaid in full within 12 months or the whole policy lapses for nonpayment
b.The loan is taxable to the owner as ordinary income in the year the funds are taken
c.The insurer may refuse the loan once cash value reaches a stated maximum limit
d.Any unpaid loan balance plus interest reduces the death benefit paid to beneficiaries
Explanation
Cash-value policy loans do not have a fixed repayment schedule. If the loan and accrued interest remain unpaid at death, the insurer deducts the outstanding balance from the death benefit. Loans from non-MEC permanent policies are generally not income-taxable while the policy stays in force.
Law Reference: Cal. Ins. Code §10110This topic, taught in full in the California Life & Health Insurance Producer Exam guide. California Life & Health Insurance Producer Exam — Complete Study Guide (2026) — PDF + EPUB, $19.99 · 14-day refund →
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PrepPass team · Verified against California Life & Health Insurance License Exam · How we review
Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)