What can increase if the interest on a policy loan is unpaid at the policy anniversary?

When a policy loan has unpaid interest at the policy anniversary, this unpaid interest is generally added to the existing loan balance. As a result, the present value of the loan increases by the amount of the unpaid interest. This means the total amount owed under the policy loan grows, which can affect the overall cash value and death benefit of the policy.

In essence, when interest is not paid, it compounds and becomes part of the principal. Therefore, option C accurately reflects the situation where the present loan amount increases due to the accumulation of unpaid interest. This understanding is essential for policyholders managing their life insurance loans, as it can significantly impact the policy’s financial standing and future obligations.