If a loan is taken against a participating policy, how are dividends affected?

When a loan is taken against a participating policy, the dividends produced by that policy are unaffected. Participating policies are designed to pay dividends based on the insurance company's performance, specifically its surplus earnings. These dividends are generated from the policy's accumulation of cash value and are not directly impacted by any loans taken against the policy.

Despite taking out a loan, the policy remains in force, and the dividends are still calculated based on the original terms and the company's financial performance. This means that even if there is an outstanding loan, policyholders will still receive dividends as they normally would, based on the performance of the insurer.

Understanding this aspect is crucial for policyholders, as it helps them manage their expectations regarding returns on their investments, regardless of their borrowing activities against the policy.