Texas Life Agent Practice Exam

What must a policy owner request to receive an advance from the cash value of a life insurance policy?

1. Withdrawal

2. Policy loan

3. Cash surrender

4. Accelerated benefit

The correct answer is: Policy loan

The correct action for a policy owner to take in order to receive an advance from the cash value of a life insurance policy is to request a policy loan. A policy loan allows the policyholder to borrow against the accumulated cash value of their life insurance policy. This loan does not require a credit check because it is secured by the cash value itself, making it an accessible option for policyholders who need funds. When a policy owner takes a policy loan, they are not required to pay taxes on the amount borrowed unless the policy is surrendered; however, they must remember that any unpaid loans, along with interest, will reduce the death benefit and cash value of the policy if not repaid. This feature allows for flexibility in financial planning, enabling the policyholder to access their own funds as needed. The other options present different concepts. A withdrawal would also allow access to cash values but typically refers to taking a portion of the cash value outright rather than borrowing it with the intention of repayment. Cash surrender, on the other hand, involves terminating the policy altogether to receive its cash value, and accelerated benefits relate to accessing death benefits under certain conditions, typically for terminal illness or significant medical issues. Thus, the policy loan is specifically designed for borrowing against the cash value