California Life-Only & Accident and Health AgentLife InsuranceEasy
A client has a life insurance policy with a face amount of $100,000. The policy has accumulated $15,000 in cash value. Due to unexpected financial hardship, the client needs immediate funds but wants to keep the policy in force. Which of the following options would best allow the client to access a portion of the cash value while maintaining coverage?
- ASurrender the policy for its cash value.
- BElect the Extended Term nonforfeiture option.
- CChange the beneficiary designation.
- DTake a policy loan.
Show answer & explanationAnswer & explanation
Correct answer: D. Take a policy loan.
A policy loan allows the policyholder to borrow against the cash value of their life insurance policy. The policy remains in force, and the loan can be repaid with interest, or the outstanding loan amount will be deducted from the death benefit upon the insured's death.
Why the other options are wrong
- A. Surrendering the policy would terminate coverage and provide the cash value, but the client wants to keep the policy in force.
- B. The Extended Term nonforfeiture option uses the cash value to purchase a new policy with the same face amount for a limited term, which doesn't provide immediate cash to the client.
- C. Changing the beneficiary designation does not provide access to the policy's cash value.
Policy Loan
A loan taken by the policyholder against the cash value of a permanent life insurance policy.
- Policy remains in force.
- Interest is charged on the loan.
- Unpaid loans reduce the death benefit.
Memory trick: Cash in hand, policy still stands.