Yolanda owned a $500,000 whole life policy on her own life with a CSV of
$120,000. She took an $80,000 policy loan to use as the down payment for a
cottage, and the loan’s interest rate is 5%, compounded annually. Two years
later, she decided to surrender the policy. At that time, the CSV had increased
to $136,000 and she still had not made any payments on the loan.
Yolanda will receive $47,800 upon surrendering her policy, which is calculated
as the CSV of $136,000, minus the $80,000 outstanding loan and minus
accrued interest of $8,200.
If she had died instead of surrendering the policy, her beneficiary would have
received $411,800, which is calculated as the death benefit of $500,000,
minus the $80,000 loan and the $8,200 in accrued interest.