L&HNJmedium
Under a New Jersey whole life policy with a policy loan provision, what happens to the death benefit if the insured dies with an outstanding policy loan balance?
AThe death benefit is denied entirely and the policy is voided without any payment to the beneficiary
BThe death benefit is paid in full, with the outstanding loan balance and all accrued interest written off by the insurer
The outstanding loan balance plus accrued interest is deducted from the death benefit before payment to the beneficiary
DThe beneficiary must repay the loan within 31 days before any benefit is paid
Why this is the answer
The standard NJ policy loan provision lets the owner borrow against cash value at the contractual loan interest rate. If the insured dies with an outstanding loan, the insurer deducts the loan principal plus accrued interest from the death benefit before paying the beneficiary.
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