What feature distinguishes whole life policies from term policies regarding loans?

Whole life policies have a key feature that distinctly sets them apart from term policies: the ability to accumulate cash value and allow policyholders to take loans against that cash value. This cash value builds over time as part of the whole life policy's guaranteed benefits, providing financial leverage for the policyholder. When a loan is taken against the cash value, it does not require repayment in the traditional sense; instead, the outstanding amount simply reduces the death benefit if not repaid.

In contrast, term policies do not build cash value at all; they are purely protection-oriented for the duration of the term purchased. Therefore, policyholders cannot borrow against a term policy’s cash value, as there is none accumulating throughout the policy term. This fundamental difference is critical for understanding the financial mechanics and flexibility offered by whole life insurance compared to term insurance.