Under what condition can policy loans be charged interest?

The correct answer indicates that interest on policy loans can be charged only after cash value accumulates in the policy. This is because life insurance policies that allow for policy loans typically have a cash value component that grows over time. Until the cash value exists, there aren't any funds available for borrowing, and thus no loan can be issued nor interest charged.

Once the cash value builds up, the policyholder can take loans against it. The interest applied to these loans accumulates based on the amount borrowed and the length of time the borrowed amount remains outstanding. This policy mechanic ensures that the loan is secured by the cash value, and the interest charged compensates the insurer for the risk and opportunity cost associated with lending.

In contrast, other options imply conditions under which interest could be charged that don't align with standard insurance practices. For example, the notion of charging interest only on the remaining balance does not typically reflect the operational mechanics of policy loans, as interest accumulates from the amount initially borrowed rather than the decreasing balance. Additionally, stating that interest is charged on all loans immediately overlooks the prerequisite of having cash value. Lastly, requiring agreement on interest at purchase is not a common industry practice; the policy's terms already outline how interest will be handled, which is typically