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 Insurance policy loans are unique because the borrower assumes no personal liability to repay the principal or to pay interest on the amount borrowed. Such loans are based on the reserve value of the insurance policies involved. If either the principal or the interest is not repaid, it is merely deducted from the reserve value of the policy. Since the insurance company 'never advances more than it already is absolutely bound for under the policy, it has no interest in creating a personal liability.' Orleans Parish v. N.Y. Life Ins. Co., 216 U.S. 517, 522 


Courts have held that interest on an insurance policy loan may be deducted so long as it is actually paid or accrued by the policyholder. If such interest is not paid but is allowed to be added to the principal amount of the loan, the amount of the interest is not deductible. Nina Cornelia Prime, 39 B.T.A. 487; Albert J. Alsberg, 42 B.T.A. 61. 


In Agnes I. Fox, 43 B.T.A. 895, it was held that the assignee of an insurance policy subject to a loan made prior to the assignment could deduct interest on that ...

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