What will an insurer typically do if a policy loan interest payment is missed?

When a policy loan interest payment is missed, an insurer will typically add the interest due to the loan balance. This practice allows the policyholder to avoid immediate financial penalties or the cancellation of the policy. Instead of requiring instant payment of the missed interest, the insurer incurs the interest and accumulates it, which in turn increases the overall loan amount.

This approach aligns with the nature of life insurance policies that contain loan provisions, as they are designed to provide financial flexibility to the policyholder. The policyholder can continue to use the policy’s cash value without immediate repercussions, although this method does mean that future payments will be calculated on a higher loan balance, potentially affecting the eventual death benefit or cash value available.

In contrast to this practice, other measures such as cancellation of the policy or charging penalty fees would not be standard responses for a missed payment on a loan interest, as they could incur significant consequences for the policyholder. A reminder notice, while helpful, is not a direct strategy for handling missed interest payments in this context; instead, the focus is placed on managing the outstanding balance effectively.