Capitalized Interest

Capitalized interest is the interest on a policy loan that is added to the outstanding loan balance rather than paid separately. When you do not make an interest payment, the carrier adds the interest to your loan balance — effectively borrowing the interest on top of the principal.

Capitalized interest causes loan balances to grow over time even without taking additional loans. For example, if you have a $100,000 loan balance at a 5% loan rate and do not make any loan repayments, your balance grows to $105,000 after one year.

This is why repayment discipline matters in whole life banking — unchecked capitalized interest can erode net cash value over time if the loan balance grows faster than the cash value.

Policy Stack tracks capitalized interest by comparing your current recorded loan balance against historical balances and the known loan rate. The difference between what you'd expect from the rate alone and the actual balance may reflect payments made or additional borrowing.

Related terms: Loan Balance, Policy Loan, Repayment Schedule