Note 7. Cash Surrender Value of Life Insurance Policies, net
The cash surrender value of all life insurance policies held by us, net of loans and related accrued interest, was $45.4 million and $45.2 million as of December 31, 2013 and 2012, respectively.
Our wholly owned subsidiary, Earle M. Jorgensen Company ("EMJ"), is the owner and beneficiary of life insurance policies on all former nonunion employees of a predecessor company, including certain current employees of EMJ. These policies, by providing payments to EMJ upon the death of covered individuals, were designed to provide cash to EMJ in order to repurchase shares held by employees in EMJ's former employee stock ownership plan and shares held individually by employees upon the termination of their employment. We are also the owner and beneficiary of key man life insurance policies on certain current and former executives of the Company, its subsidiaries and predecessor companies.
Cash surrender value of the life insurance policies increases by a portion of the amount of premiums paid and by investment income earned under the policies and decreases by the amount of cost of insurance charges, investment losses and interest on policy loans, as applicable.
Income earned on all of our life insurance policies is recorded in the Other income (expense), net caption in the accompanying statements of income (see Note 13).
Annually, we expect to borrow against the cash surrender value of policies to pay a portion of the premiums and accrued interest on loans against those policies. In 2013, we borrowed $36.5 million against the cash surrender value of certain policies, which was used to partially pay premiums, principal and accrued interest owed of $46.8 million. In 2012, we borrowed $33.0 million against the cash surrender value of certain policies, which was used to partially pay premiums and accrued interest owed of $44.2 million. Interest rates on borrowings under some of the EMJ life insurance policies are fixed at 11.76% and the portion of the policy cash surrender value that the borrowings relate to earns interest and dividend income at 11.26%. The unborrowed portion of the policy cash surrender value earns income at rates commensurate with certain risk-free U.S. Treasury bond yields but not less than 4.0%. All other life insurance policies earn investment income or incur losses based on the performance of the underlying investments held by the policies.
As of December 31, 2013 and 2012, loans and accrued interest outstanding on EMJ's life insurance policies were approximately $447.8 million and $412.7 million, respectively. There were no borrowings available as of December 31, 2013 and December 31, 2012. Interest expense on borrowings against cash surrender values is included in the Other income (expense), net caption in the accompanying statements of income (see Note 13).