Texas Life Agent Practice Exam

Which of the following terms describes a policyholder's withdrawal of cash value from a life insurance policy?

1. Accelerated benefit

2. Loan provision

3. Cash surrender

4. Cash distribution

The correct answer is: Cash surrender

The term that best describes a policyholder's withdrawal of cash value from a life insurance policy is "cash surrender." This refers specifically to the action taken by the insured to access the cash value that has accumulated in a whole life or universal life insurance policy. When a policyholder opts for cash surrender, they terminate the policy, and in return, they receive the cash value minus any surrender charges. This process effectively cancels the insurance coverage tied to that policy. Other terms may describe related actions but don't fit as precisely. For instance, "accelerated benefit" typically refers to provisions allowing policyholders to access portions of death benefit while still alive, often in cases of terminal illness, rather than directly withdrawing cash value. "Loan provision" pertains to taking a loan against the cash value of the policy, which does not require surrendering the policy itself and results in a debt that must be repaid. "Cash distribution" is a broader term that could refer to any cash outflows from the policy but does not specify the context of withdrawing accumulated cash value. Hence, "cash surrender" is the most accurate term for this specific action.