South Carolina Life and Health Practice Exam

What process allows policyholders to withdraw a portion of their life insurance cash value during their lifetime?

1. Loan against policy

2. Withdrawal

3. Full surrender

4. Accelerated benefit

The correct answer is: Withdrawal

The process that allows policyholders to withdraw a portion of their life insurance cash value during their lifetime is referred to as a withdrawal. When a policyholder opts for a withdrawal, they can access some of the cash value that has accumulated within a cash value life insurance policy, such as whole life or universal life insurance. This option enables policyholders to access funds without needing to take out a loan, thereby avoiding interest charges associated with loans against the policy. A withdrawal reduces the cash value of the policy, and it is important for policyholders to understand that this action may also impact the death benefit amount. Unlike taking a loan, which must eventually be repaid (potentially with interest), a withdrawal does not need to be repaid, but it also means that these funds will no longer be part of the policy’s death benefit. In contrast to other terms: a loan against the policy refers to borrowing against the cash value, where the policyholder must repay the loan later. Full surrender involves terminating the policy entirely in exchange for its cash value, and accelerated benefit allows policyholders to access death benefits under specific circumstances such as terminal illness but does not typically apply to accessing cash value. Therefore, the withdrawal method specifically addresses the ability to take a portion of