reported to any credit agency, and payment or non-payment against them doesn't affect the policyholder's credit rating. If the policy has not become a "modified endowment", the loans are withdrawn from the policy values as premium first and then any gain. Taking Loans on UL affects the long-term viability of the plan. The cash values removed by loan are no longer earning the interest expected, so the cash values don't grow as expected. This shortens the life of the policy. Usually those loans cause a greater than expected premium payment as well as interest payments. Outstanding loans are deducted from the death benefit at the death of the insured. Withdrawals If done within IRS Regulations, an Equity Indexed Universal Life policy can provide income that is tax-free. This is done through withdrawals that do not exceed the total premium payments made into the policy. Also, tax-free withdrawals can be made through internal policy loans offered by the insurance company, against any additional cash value within the policy. (This income can exceed policy premiums and still be taken 100% tax-free.) If the policy is set up, funded and distributed properly, according to IRS regulations, an Equity Indexed UL policy can provide an investor with many years of tax-free income. Most universal life policies come with an option to withdraw cash values rather than take a loan. The withdrawals are subject to contingent deferred sales charges and may also have additional fees defined by the contract. Withdrawals permanently lower the death benefit of the contract at the time of the withdrawal. Withdrawals are taken out premiums first and then gains, so it is possible to take a tax-free withdrawal from the values of the policy (this assumes the policy is not an MEC, i.e. "modified endowment contract"). Withdrawals are considered a material change that causes the policy to be tested for MEC. As a result of a withdrawal, the policy may become a MEC and could lose its tax advantages. Withdrawing values affect the long-term viability of the plan. The cash values removed by withdrawal are no longer earning the interest expected, so the cash values don't grow as expected. To some extent this issue is mitigated by the corresponding lower death benefit. Collateral assignments Collateral assignments are often placed on life insurance to guarantee the loan upon the death of debtor. If a collateral assignment is placed on life insurance, the