Why are policy loans not available on term insurance?

Policy loans are not available on term insurance primarily because there is no cash value to borrow against. Term insurance is designed to provide death coverage for a specified term, typically ranging from 1 to 30 years, but does not accumulate any cash value over time. The premiums paid for term life insurance only cover the cost of insurance protection and do not contribute to any savings or investment account.

In contrast, permanent life insurance policies, such as whole life or universal life, include a savings component that builds cash value as the policyholder pays premiums. This cash value can be accessed through policy loans, as it serves as collateral. Since term insurance lacks this built-up cash value, policyholders cannot take out loans against it.

Understanding that term policies focus solely on providing a death benefit without forming a cash accumulation element is crucial for comprehending why loans are not applicable in this context.