Florida 2-15 Life, Health and Variable Annuity AgentFlorida Laws and Regulations Specific to Life Insurance and AnnuitiesEasy
A Florida resident is reviewing a life insurance policy and notices a provision that allows the policyowner to borrow money against the policy's accumulated cash value. What is this provision commonly known as?
- ACash Surrender Option
- BCollateral Assignment
- CPolicy Loan Provision
- DAutomatic Premium Loan
Show answer & explanationAnswer & explanation
Correct answer: C. Policy Loan Provision
The Policy Loan Provision allows the policyowner to borrow funds directly from the insurer, using the policy's cash value as collateral. These loans typically accrue interest.
Why the other options are wrong
- A. The Cash Surrender Option terminates the policy and pays out the cash value, it's not a loan.
- B. Collateral Assignment is when the policy is used as collateral for a loan from a third party, not the insurer.
- D. An Automatic Premium Loan is a specific type of loan used to pay overdue premiums, not a general borrowing provision.
Policy Loan Provision
A standard provision in cash value life insurance policies that allows the policyowner to borrow money from the insurer, using the policy's accumulated cash value as collateral.
- Available in cash value policies
- Borrow from the insurer
- Cash value acts as collateral
- Loan accrues interest
- Does not need to be repaid, but reduces death benefit
Memory trick: Need a loan? Your policy's cash value is your own bank!