If an insured stops making payments on a loan taken from his cash value policy, what is likely to happen?

When an insured stops making payments on a loan taken from a cash value life insurance policy, the most likely outcome is that the policy will terminate when the loan amount equals the cash value.

Here's the reasoning behind this: Many cash value life insurance policies allow policyholders to take loans against the cash value. However, if payments are not made on these loans, the outstanding loan balance will accrue interest, increasing over time. If the total loan amount (including any accumulated interest) equals or exceeds the cash value of the policy, the insurance company may terminate the policy. This is because the insurer has an interest in recouping its money, and if the loan balance matches the cash value, the policy essentially has no remaining value that can be used to support coverage.

This outcome emphasizes the importance of maintaining payments on any loans taken against a cash value policy. If left unchecked, the unpaid loan can lead to termination, which could result in the loss of life insurance coverage and any associated benefits.