Which principle allows policyholders to take loans against their policy's value?

The principle that allows policyholders to take loans against their policy's value is cash value accumulation. In life insurance, particularly whole life and universal life policies, a portion of the premium payments goes toward building cash value over time. This cash value acts like a savings component within the policy, increasing as the policyholder continues to pay premiums.

Policyholders can borrow against this accumulated cash value, providing them access to funds without needing to terminate the policy. This feature is unique to certain types of permanent life insurance and is a significant benefit for those who may need liquidity or emergency funds while still maintaining their life insurance coverage. The loan amount typically does not need to be repaid in a traditional sense; however, any unpaid loan balance will reduce the death benefit payable to beneficiaries and may incur interest charges.

Other options, like universal coverage or term assurance, do not pertain directly to the ability to borrow against a policy's cash value. Universal coverage refers more broadly to the type of insurance rather than the specific mechanics of borrowing. Term assurance, on the other hand, generally does not accumulate cash value and therefore does not allow for loans.