Texas Life Agent Practice Exam

Under which provision would a life insurance policyholder be allowed to take a loan against the policy?

1. Cash value provision

2. Policy loan provision

3. Withdrawal provision

4. Non-forfeiture provision

The correct answer is: Policy loan provision

The policy loan provision is the correct answer because it specifically allows policyholders to borrow against the cash value of their life insurance policy. This provision is a key feature of permanent life insurance policies, which accumulate cash value over time. When a policyholder takes a loan, they can access funds without having to surrender the policy, and they typically do not need to provide evidence of creditworthiness. The borrowed amount, plus any interest accrued, is deducted from the death benefit if not repaid before the policyholder passes away. This provision offers flexibility and can provide financial relief in times of need, making it an essential component of many permanent life insurance plans. The cash value provision refers to the accumulation of cash value within the policy, but it does not specifically address the ability to take a loan against that value. The withdrawal provision generally allows policyholders to withdraw part of the cash value; however, this can reduce the death benefit and may have tax implications, which is different from simply borrowing against the policy. The non-forfeiture provision protects the policyholder’s benefits in the event they stop paying premiums, but it does not pertain to taking loans against the policy. Understanding the details of each provision helps policyholders make informed decisions about how to manage their