If the interest on a policy loan is not paid at the policy anniversary, what may happen to the loan?

When a policyholder takes a loan against their life insurance policy, the loan typically accumulates interest. If this interest is not paid by the policy's anniversary, it can be added to the existing loan balance. This means the amount owed to the insurer increases, impacting the overall cost of borrowing against the policy. The reason this is crucial is that unpaid interest can compound over time, leading to a larger loan balance that must be repaid.

In contrast, options suggesting that the loan might be forgiven or that a late fee might be charged are not standard practices in the context of policy loans. Moreover, while a lapse may occur under certain circumstances related to the policy's cash value and payments, the specific mechanism of adding unpaid interest to the loan balance is a direct and common consequence of not addressing the interest charges by the anniversary date.