Quiz: Policy Loan and Surrender Provisions

With a traditional whole life insurance policy, policy loans can be as high as: A. 25 percent of the cash value, less any outstanding debt against the policy B. 75-90 percent of the cash value, less any outstanding debt against the policy C. 100 percent of the cash value, less any outstanding debt against the policy D. 50-75 percent of the cash value, less any outstanding debt against the policy

C. 100 percent of the cash value, less any outstanding debt against the policy

Paul dies with a $50,000 unpaid loan (including interest) against his $150,000 life insurance policy. What death benefit will the insurance company pay his beneficiary? A. $250,000 B. $50,000 C. $25,000 D. $100,000

D. $100,000 The insurer will pay $100,000-the death benefit less the unpaid loan amount.

All the following statements regarding the automatic premium loan (APL) are correct, EXCEPT: A. Under the APL, a policy loan is created to pay a premium on its due date. B. Some policies prohibit automatic premium loans from paying consecutive premiums. C. Some policies prohibit automatic premium loans from paying any more than a total of 12 monthly premiums. D. The policy's cash value must be at least equal to the unpaid premium for the automatic premium loan to be made.

A. Under the APL, a policy loan is created to pay a premium on its due date.

With a variable life insurance policy, policy loans can be as high as: A. 75-90 percent of the cash value, less any outstanding debt against the policy B. 50-75 percent of the cash value, less any outstanding debt against the policy C. 100 percent of the cash value, less any outstanding debt against the policy D. 25 percent of the cash value, less any outstanding debt against the policy

A. 75-90 percent of the cash value, less any outstanding debt against the policy

Which of the following best describes a partial surrender of a permanent (non-universal) life insurance policy? A. Under a partial surrender, the death benefit is reduced proportionately by the amount of the surrender. B. A partial surrender is a loan against the policy's cash surrender value. C. Under a partial surrender, the death benefit is not affected by the amount of the surrender. D. A partial surrender is the same as a cash withdrawal under a universal life insurance policy.

A. Under a partial surrender, the death benefit is reduced proportionately by the amount of the surrender. The death benefit under a partial surrender is reduced proportionately by the amount of the surrender.

If a policyowner partially surrenders an adjustable life insurance policy, which of the following happens to the policy's premium? A. It stays level. B. It goes down. C. It fluctuates up and down thereafter. D. It increases.

B. It goes down. The policy's death benefit is reduced, so the premium goes down.

All the following statements regarding traditional whole life insurance policy loans are correct EXCEPT: A. Most states limit the maximum loan interest rate to no more than 8 percent. B. Policy loans do not have to be repaid by the policyowner. C. Policy loans are available from the moment the policy is issued. D. The maximum loan amount may be as high as 100 percent of the cash value, less any prior debt against the policy.

C. Policy loans are available from the moment the policy is issued. Loans against the cash value are normally only available after the policy is in force for a specified time, typically three years.

Which of the following will happen if the outstanding balance of a whole life insurance policy loan, including accrued interest, ever exceeds the policy's cash value? A. The policy will automatically go on the extended term option. B. The policy will be surrendered for cash. C. The insurer will cancel the policy. D. The policy will remain in effect.

C. The insurer will cancel the policy. If the loan amount plus interest owed is greater than the cash value, then the insurer cancels the policy.