State RegulationsVA specificDifficulty 2/5
An insured in Virginia dies with an unpaid policy loan outstanding. Which statement correctly describes the treatment of the loan under Virginia law?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Under Va. Code § 38.2-3308, a policy loan is not a trigger for forfeiture, but the insurer is entitled to apply the unpaid loan balance and accrued interest against the death proceeds at settlement. The beneficiary receives the face amount minus the loan debt. The two halves of the rule work together: the policyholder could never lose coverage solely for non-repayment, and the insurer recovers the debt from the benefit when death occurs.
Why the other options are wrong
- A) The insurer need not forgive the loan; Va. Code § 38.2-3308 permits deducting the unpaid balance and interest from the proceeds.
- B) Death does not extinguish the loan; the debt is satisfied out of the death proceeds under Va. Code § 38.2-3308.
- C) No lawsuit or judgment is required; deduction from the proceeds is the standard mechanism recognized under Va. Code § 38.2-3308.
Memory hook
No lapse over a loan — but the debt comes off the top of the payout.