A policy loan in a whole life policy:

In a whole life policy, when a policy loan is taken by the policyholder, the amount borrowed will reduce the death benefit of the policy if it remains unpaid at the time of the insured's death. This is because the insurance company will deduct the outstanding loan balance from the total death benefit payable to the beneficiaries.

This mechanism functions as a way to secure the loan, ensuring the insurer has a means to recoup their funds. While the cash value of the policy may remain intact, the death benefit decreases to account for any unpaid loans, reflecting the insurer's obligation to settle the loan before distributing benefits.

The other options presented do not accurately describe the effects or requirements regarding a policy loan. While it’s true that a policy loan does not need to be repaid to avoid the policy becoming void, and it does usually accrue interest, those details are not applicable to the context of how a loan directly impacts the death benefit. Similarly, taking a loan does not increase the cash value; rather, it typically utilizes a portion of it.