In a premium loan repayment method, what typically happens if the loan interest exceeds the cash value growth?

In the context of a premium loan repayment method, if the loan interest exceeds the cash value growth, the typical outcome is that the death benefit is reduced. This occurs because the outstanding loan balance, which includes accrued interest, is deducted from the policy's death benefit.

When a policyholder borrows against the cash value of a life insurance policy, they enter into a loan agreement where the insurer charges interest on the borrowed amount. If the interest on that loan surpasses the growth of the cash value, it means that the cash value is not sufficient to cover the increasing loan amount. Consequently, the insurer will adjust the death benefit to account for this higher loan balance when the insured individual passes away.

This reduction in the death benefit doesn’t mean that the policyholder has to make additional premium payments to cover the loan interest; rather, it reflects the accumulation of unpaid interest that detracts from the policy's overall value. Understanding this concept is crucial for policyholders who wish to use the cash value of their life insurance effectively without facing unintended consequences on their death benefits.