State RegulationsTX specificDifficulty 2/5
Under the Texas policy loan statute, what is the maximum amount a Texas policyowner may borrow on a life insurance policy, and what secures the loan?
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Under TIC 1101.009, a policy loan may not exceed the policy's cash value plus dividend additions, although the owner may always borrow less, and the loan is secured solely by the policy — the insurer cannot demand a personal guarantee, beneficiary consent, or any other collateral, and it may collect interest in advance to the end of the current policy year. The practical consequence is that the only collateral is the contract itself, so an unpaid loan reduces the death benefit, and the policy does not become void until the total owed equals or exceeds the cash value.
Why the other options are wrong
- A) The insurer cannot arbitrarily reduce the available amount below cash value plus dividend additions, and no third-party consent is required.
- B) Total premiums paid is not the measure of the loan; cash value governs, and no separate security may be taken.
- D) The face amount is not the loan ceiling, and the insurer may not take a personal guarantee as additional security.
Memory hook
You can borrow the cash value, and the policy is the only collateral.