If there is a loan against a life insurance policy, can the insurance company deduct it from the payout to the beneficiary?

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If there is a loan against a life insurance policy, can the insurance company deduct it from the payout to the beneficiary?

My mom passed away this past weekend. Her life insurance company is deducting 4,500 from the payout, because she borrowed against it. I did not know she did that….can they do that?

Asked on March 13, 2018 under Estate Planning, New Jersey

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

It depends on the terms of the policy and/or separate loan agreement: if either says that they could do this, then they can, because in taking the loan, your mother agreed to those terms. Ask them to show you the terms or provisions or agreement allowing this.


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