A policy lien is a charge or encumbrance placed against the cash value or proceeds of a life insurance policy, usually to secure repayment of an obligation owed by the policyowner. Unlike a voluntary policy loan initiated by the owner, a lien may be imposed by the insurer, a creditor, or court order. The lien reduces the amount of death benefit or surrender value available until the underlying obligation is satisfied or released. Policy liens can arise from unpaid interest on older contracts, contested claims, reinsurance arrangements, or creditor claims when the policy has been pledged as collateral. The details of the lien-amount, interest terms, and conditions for release-should be documented in the policy file and disclosed on statements so that owners and beneficiaries understand the effect on projected benefits.

In day-to-day practice, advisors most often encounter policy liens when reviewing older life insurance contracts or policies used to secure business or personal loans. An in-force illustration or policy statement may reveal that a portion of the death benefit is subject to a lien, reducing proceeds available for estate liquidity, key person protection, or buy-sell funding. When a lien is discovered, producers typically contact the carrier's policy service department to determine the lien's origin, obtain payoff figures, and ask whether the lien can be released, refinanced, or otherwise resolved. Clear explanation to the client is important, because the presence of a lien can change beneficiary expectations and may require adjustments to broader estate or business planning strategies involving life insurance.