Policy Loan Provision
Under the policy loan provision, a permanent life insurance policy may be borrowed against, using the policy's cash value as collateral. The cash value can also be pledged as security to obtain loans from other sources. However, if the insured dies before the loan is repaid, the loan amount and any interest due must be repaid from the death benefit proceeds.
Florida law restricts an insurance company from charging a fixed rate higher than 10% annually. Older policies still in force stipulate a flat rate of interest, such as 5-8%. Alternatively for newer policies, insurance companies can use an adjustable rate of interest with the limit based on the average monthly published interest rate determined by Moody's corporate bond index.
Automatic Premium Loan Provision
The automatic loan provision enables the insurer to withdraw funds from the policy if any cash value has accumulated within the contract - to pay for any premiums that may not be paid by the policyowner. The amount withdrawn becomes a loan against the cash value and is subject to the interest rate specified within the contract.
