What happens to a death benefit if a loan is not repaid?

When a policyholder takes out a loan against their life insurance policy, the amount borrowed is deducted from the death benefit that the beneficiaries would receive upon the death of the insured. If the loan is not repaid, the outstanding balance of the loan, which includes accrued interest, is subtracted from the total death benefit. This results in a reduced amount being paid out to the beneficiaries, as they will receive only the remaining amount after the loan balance is deducted.

This principle is important in understanding how life insurance policies work in relation to loans. The death benefit is essentially a contract that provides financial support to beneficiaries, but any outstanding debts against the policy will directly impact this support. Therefore, it's crucial for policyholders to manage any loans taken against their policy effectively to ensure that their beneficiaries receive the intended benefit.