A viewer asked two things. If she took a loan from her death benefit, would it accrue 5% interest a month? And is it true that you can borrow a percentage of your death benefit at one time? Both questions rest on a mix-up, and it's a common one.
A policy loan isn't taken from the death benefit. Your cash value serves as collateral for the loan, and the carrier also sets aside an equal slice of the death benefit as part of that collateral. You're borrowing against the cash value. The death benefit that's left over is smaller until you pay the loan back, which means a loan reduces the death benefit while it's outstanding. If you die with a loan out, the carrier subtracts the balance from what it pays.
Then the interest. Five percent means 5% per year, not per month. Policy loan interest works like a bank line of credit in one respect: it builds up daily, based on your average daily balance. The annual rate is divided across 365 days, so each day adds a tiny amount. Where policy loans differ is the billing. Most carriers charge the interest once a year, either when you take the loan or at your policy anniversary, depending on the carrier. I don't know of any that bill monthly.
Here's what that looks like in dollars. A $20,000 loan at 5% builds up about $2.74 a day, or $1,000 over a year. If the carrier charges in arrears at the anniversary, you'd see a $1,000 charge once. If it charges in advance, you'd pay that $1,000 at the start of the loan year. Either way the rate is the same, and the first policy loan walkthrough shows what the request process looks like.
Her questions, taken one at a time, are in a short video about whether you can borrow from a life insurance death benefit.
Check your contract for two lines before you borrow: the loan interest rate and whether it's fixed or variable, and when the interest is charged. If you don't plan to repay the balance, read what happens if you never pay the loan back first.