What is a key advantage of obtaining a policy loan rather than making a withdrawal?

A key advantage of obtaining a policy loan rather than making a withdrawal is that a policy loan is not taxed. When you take out a loan against your life insurance policy, you are essentially borrowing your own money. As such, the amount you borrow is not considered taxable income, which can be a significant benefit.

In contrast, withdrawals from a life insurance policy may have tax implications, especially if they exceed the amount you have paid in premiums. While policy loans are subject to repayment, their non-taxable nature provides an attractive option for policyholders who need immediate access to funds without incurring tax liabilities.

This aspect of policy loans allows policyholders to leverage the cash value of their insurance without losing the financial advantage that comes from the cash value accumulation. Overall, it is the non-taxable aspect that underscores why policy loans can be a preferable choice for accessing funds compared to making withdrawals.