Loan value is the highest amount of credit/loan that a lender/bank is willing to give based on the value and nature of the asset that is used to secure the loan. The assessment of loan is the first step to granting of any kind of secured loan, including a mortgage loan where the pledged property serves as the security. In case of loans made against life insurance coverage, the current cash value of the policy is used to decide the loan value.
When deciding the loan value for a mortgage loan or personal loan the lender will examine the value of the property that is pledged. Generally, a certain percentage less than the actual market value of the property is granted as loan. This is to ensure that, in case the borrower fails to pay back, the lender can still recover the original investment.
Similar is the case when cash is borrowed against insurance policy. The current cash value of the policy is considered first. The loan amount granted will be a slight percentage lesser than the actual current cash value. Thus in case of non payment, the policy is dissolved by the lender to recover the cash lend to the borrower.