What Is a Policy Loan

A policy loan is a loan taken against the cash value of your whole life policy. Understanding how policy loans work is central to tracking your banking system in Policy Stack.

For the full loan-and-draw lifecycle — how a draw works, capitalized interest, LTV, and the repay-and-redraw cycle — see How Policy Loans & Draws Work.

How Policy Loans Work

When you take a policy loan, your carrier lends you money using your cash value as collateral. Your cash value is not withdrawn — it remains in the policy, continuing to earn dividends and grow. This is one of the key distinctions of your banking system: the cash value experiences uninterrupted compounding even while a loan is outstanding.

Key Characteristics

• Your cash value stays intact — it continues to earn dividends and grow regardless of the loan
• The carrier sets the loan rate — this is the interest rate charged on the policy loan balance
• Interest can capitalize — if you do not pay the interest separately, it is added to the loan balance as capitalized interest
• There is no fixed repayment schedule — you control when and how much capital to restore
• The loan reduces your available cash value — your available CV is the cash value minus any outstanding loan balance

Policy Loan vs. Traditional Loan

| | Policy Loan | Traditional Loan | |---|---|---| | Collateral | Your cash value | External assets or credit | | Compounding | Cash value continues to grow | Not applicable | | Repayment schedule | You decide | Set by the lender | | Late penalties | None | Fees and credit impact |

Loan Balance Over Time

Your policy loan balance can change in two ways:

1. Capitalized interest — interest accrues and is added to the balance, increasing it
2. Loan repayment — you make payments that reduce the balance, restoring capital to your system

Policy Stack tracks both of these changes and displays your current loan balance in your policy snapshots and dashboard.