State RegulationsVA specificDifficulty 1/5
A Virginia life policyholder has an outstanding policy loan and cannot repay it. Under Virginia law, may the policy be forfeited solely because the loan is not repaid?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Va. Code § 38.2-3308 prohibits a Virginia life insurance policy from containing a provision that forfeits the policy solely because a policy loan is not repaid. The loan is secured by the policy's value — typically through deduction from proceeds or surrender value — but nonpayment alone cannot strip the policyholder of coverage. This borrower protection is a hallmark of Virginia's life policy provisions.
Why the other options are wrong
- A) The loan-to-cash-value ratio does not authorize forfeiture; Va. Code § 38.2-3308 bars forfeiture solely for non-repayment of the loan.
- C) A default notice does not create a forfeiture right; no notice mechanism overcomes the prohibition in Va. Code § 38.2-3308.
- D) How the loan proceeds were spent is irrelevant; Va. Code § 38.2-3308 protects the policy from forfeiture solely for non-repayment regardless of the use of funds.
Memory hook
A loan can trim the payout, but it can never be the sole trigger of forfeiture.