Most variable-life policies feature the ability to take loans against the contractholder's account. When an investor borrows from a Variable Life, the amount of the loan is usually withdrawn from the subaccounts and transferred to a loan account that accrues interest at a defined rate, usually about 100 basis points below the interest rate of the loan. Thus, the difference between the loan account yield and the interest rate of the loan, the net interest, is the actual interest rate that the investor pays on the contract loan.
Benefits
Investors should take note of this figure, because the net interest rate can be misleading if the insurance company requires the investor to pay the annual interest on the contract loan at the beginning of the year instead of at the end. When this occurs, the investor is then deprived of the return that could be earned from the money by investing it for the year.
Origin
This information is taken directly from the insurance contract's prospectus.