An outstanding loan on a life insurance policy can affect both eligibility and the potential value of a settlement, but it does not necessarily disqualify the policy. Policy loans reduce the net death benefit because the loan amount must be repaid before proceeds are distributed.
Buyers consider the reduced benefit when calculating offers. If the loan is small relative to the total value, the policy may still attract interest. However, if the loan is large or growing quickly due to interest, the net benefit may become too low for buyers to justify the cost of future premiums. In some cases, the loan can be resolved during the settlement transaction, depending on buyer structure and state rules. The key is whether the policy’s remaining value, after subtracting the loan balance, still fits buyer requirements. Seniors with loans should still check eligibility because many policies qualify even with outstanding balances.
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