Which statement about policy loans is NOT true?

When considering the statement about policy loans, it is essential to recognize that the correct statement asserts that borrowed money is typically not taxable. This reflects the nature of loans taken against the cash value of a whole life insurance policy, where the policyholder’s borrowing does not trigger a taxable event as long as the policy remains in force and is not surrendered.

In the context of policy loans, repaying them can occur at the policyholder's discretion, allowing flexibility in how the loan is managed. Insurers have the right to charge interest on the outstanding balance, which is standard practice in the insurance industry. This interest becomes a key factor in the overall cost of borrowing against the policy.

Consequently, the notion that money borrowed from the cash value is taxable is misleading. Tax implications generally arise only upon surrendering the policy when any gain is realized, making the statement that borrowed money from policy loans is taxable incorrect. This understanding clarifies why the emphasis is placed on the non-taxable nature of loaned funds under standard circumstances.