If a policyowner borrows a portion of cash value from his whole life policy and does not repay the loan, how will it affect the death benefit to the beneficiary?

When a policyowner takes out a loan against the cash value of a whole life insurance policy, that loan represents a liability that must be considered when calculating the death benefit. In this scenario, if the policyowner does not repay the loan, the amount of that outstanding loan will be deducted from the death benefit payable to the beneficiary upon the policyowner's death.

Essentially, the life insurance company will subtract the loan amount (along with any accrued interest) from the total death benefit before paying out the proceeds to the beneficiary. This process ensures that the insurer is compensated for the risk taken in allowing the policyowner access to their cash value, while also maintaining the integrity of the policy's terms.

Understanding this interaction between loans and death benefits is crucial for policy owners, as it directly impacts the financial protection they intended to provide to their beneficiaries.