Listen to a Business English Dialogue About Policy loan
George: Hey Taylor, have you ever considered taking out a policy loan?
Taylor: No, what’s a policy loan?
George: A policy loan is a loan borrowed against the cash value of a life insurance policy, where the policyholder can access funds by using the policy as collateral without undergoing a credit check.
Taylor: How does a policy loan work exactly?
George: The policyholder can borrow up to a certain percentage of the cash value of the policy, and the loan accrues interest over time, which is typically lower than the interest rates on traditional loans.
Taylor: Are there any advantages to taking out a policy loan?
George: Yes, policy loans offer flexibility in accessing funds without affecting credit scores, and the interest paid on the loan may be tax-deductible in certain situations.
Taylor: What are some drawbacks of policy loans?
George: One drawback is that any outstanding loans reduce the death benefit payable to beneficiaries upon the policyholder’s death, and if the loan isn’t repaid, it could result in reduced coverage or policy termination.
Taylor: How do policyholders repay the loan?
George: Policyholders can repay the loan in installments or in a lump sum, but if the loan isn’t repaid, the outstanding balance plus accrued interest will be deducted from the death benefit.
Taylor: Can policyholders use the loan for any purpose?
George: Yes, policyholders can use the loan for various purposes, such as covering unexpected expenses, funding education, or supplementing retirement income.
Taylor: Are there any risks associated with policy loans?
George: Yes, if the policyholder fails to repay the loan, the outstanding balance plus accrued interest could exceed the cash value of the policy, resulting in policy lapse or termination.
Taylor: Thanks for explaining, George. Policy loans seem like a convenient option for accessing funds in times of need, but it’s important to understand the potential risks involved.