Life & Health Insurance Exam (National Portion)Life InsuranceEasy
A life insurance policyowner decides to surrender their whole life policy for its cash value. Which nonforfeiture option allows the policyowner to receive the policy's cash value minus any outstanding loans?
- AReduced Paid-Up Insurance
- BExtended Term Insurance
- CAutomatic Premium Loan
- DCash Surrender Value
Show answer & explanationAnswer & explanation
Correct answer: D. Cash Surrender Value
The Cash Surrender Value nonforfeiture option allows the policyowner to receive the accumulated cash value of their policy when it is surrendered, after any policy loans are deducted. The policy then terminates.
Why the other options are wrong
- A. Reduced Paid-Up Insurance uses the cash value to purchase a smaller amount of paid-up whole life insurance.
- B. Extended Term Insurance uses the cash value to purchase a single premium term policy for the same face amount as the original policy.
- C. Automatic Premium Loan is a policy provision, not a nonforfeiture option, that prevents a policy from lapsing due to unpaid premiums.
Cash Surrender Value
The amount of money a policyholder receives when they voluntarily terminate a permanent life insurance policy before its maturity or the insured's death.
- Available for whole life and other permanent policies.
- Policy terminates upon surrender.
- Value is the accumulated cash value minus any outstanding loans or surrender charges.
Memory trick: When the policy 'CASHES OUT', it's the end of the road.