Policy Loans

Policy loans are usually available from universal life and whole life insurance contracts

  • you can borrow from the cash value (e.g., 90%)
  • the insurer deducts the outstanding loan the death benefit


  • the loan is confidential between you and the insurer
    • loan doesn't show on your credit records —> no effect on other borrowing
  • no tax consequences is the loan is taken and repaid in the same calendar year (confirm if also true for loan > ACB)


  • the loan is treated as a partial disposition (since Mar 31, 1978)
    • so the portion of the loan in excess of the ACB is taxable income in the year of receipt
    • solution: limit loans to the ACB

Loan Repayment

  • when repaying the loan, can deduct
\begin{align} min \left[ Loan Repayment, Net Policy Gain \right ] \end{align}
\begin{align} Net Policy Gain = Policy Gain When Loan Taken - \sum Deductions In Previous Tax Returns \end{align}

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