What is NOT true regarding policy loans?

The statement about borrowing money from the cash value of a life insurance policy being taxable is not true. Generally, loans taken against the cash value of a life insurance policy are not considered taxable income as long as the policy remains in force and is not surrendered or lapsed. This is because you are essentially borrowing your own money, which you are expected to pay back. If you were to not repay the loan and the policy lapses, the amount unpaid may then become taxable, but under normal circumstances, the initial borrowing does not incur tax.

The other statements are accurate representations of how policy loans generally work. Loans do not reduce the death benefit as long as the policy remains active and the loans are within the limits of the cash value. However, if the loan is not repaid, the death benefit paid to beneficiaries will be reduced by the amount of the outstanding loan and any accrued interest. Interest must be paid to prevent the loan balance from growing, which can ultimately impact the death benefit. Repayment can indeed be optional, offering policyholders flexibility in managing their loans without the immediate pressure of repayment.