Which term describes the amount a policyholder can borrow against their life insurance policy?

The term that describes the amount a policyholder can borrow against their life insurance policy is indeed "policy loan." This refers to the mechanism by which the policy owner can borrow money from the insurance company using the accumulated cash value of their permanent life insurance policy as collateral. The cash value builds up over time and is accessible to the policyholder, allowing them to secure a loan without having to undergo credit checks or lengthy approval processes typically found in traditional loans.

By borrowing against the policy, the policyholder can maintain the life insurance coverage while accessing funds for various needs, such as paying for emergencies, funding investments, or covering unexpected expenses. This loan option is particularly beneficial because it allows for flexibility in how and when the policyholder repays the loan; however, any outstanding balance will reduce the death benefit payable to beneficiaries if not repaid. Thus, understanding the concept of a policy loan is crucial for individuals managing their life insurance policies effectively.