Nature of Policy Loans as Now Granted

Although the loan privilege is granted to-day by all companies, a considerable variance exists as regards the size of the loan. Some companies limit the loan at all times to a stated percentage of the reserve, while others lend the full terminal reserve less the interest on the loan. Still other companies lend the full terminal reserve of the policy at the end of the next year less interest in advance and the premiums payable before the expiration of the next policy year. Nearly all policies also make provision, as already indicated, for the advancement to the insured, upon request, of any premium or premiums falling due, provided the cash surrender value is sufficient to cover such loans. If the cash value allowed under the policy is less than, the reserve, such value is almost invariably made the basis of the loan, the insured being allowed to borrow all or a designated percentage thereof. Under such conditions the policy provision guaranteeing the loan usually reads to the following effect:

Upon request and the sole security of this policy properly assigned, the company, unless extended term insurance be in force, will advance at a rate of interest not exceeding 6 percent, per annum, an amount which with the interest, and any unpaid premium or premiums, for the then current policy year shall equal, or at the option of the insured be less than, the cash value of the policy and of any existing dividend additions at the end of such year. Failure to pay either loan or interest shall not avoid the policy unless the total indebtedness to the company on account thereof shall equal or exceed the cash surrender value of the policy and any existing dividend additions, nor until thirty-one days after notice shall have been mailed to the last known address of the insured and of any assignee.