The correct answer is: C. Both A & B
A policy loan is a loan that is secured by the cash value of a life insurance policy. The policy owner can borrow money from the insurer up to the amount of the policy’s cash value. The loan must be repaid with interest, and the interest rate is usually higher than the rate on a bank loan.
When a policy loan is taken out, the policy is assigned to the insurer as security for the loan. This means that the insurer becomes the owner of the policy until the loan is repaid. However, the nomination already made will not be cancelled. This means that if the policy owner dies while the loan is outstanding, the nominee will still receive the death benefit, even though the insurer is the owner of the policy.
Here is a brief explanation of each option:
- Option A: The policy has to be assigned in favour of the insurer. This is correct because the policy is used as security for the loan.
- Option B: Such an assignment will not cancel the nomination already made. This is also correct because the nominee will still receive the death benefit, even though the insurer is the owner of the policy.
- Option C: Both A & B. This is the correct answer because both options are correct.
- Option D: None of the above. This is incorrect because both options are correct.