Tennessee Life Producer Practice Exam

What feature enables a policy loan in a life insurance policy?

1. Beneficiary designation

2. Cash value provision

3. Policy term length

4. Premium payment schedule

The correct answer is: Cash value provision

The correct choice is the cash value provision. This feature is crucial because it allows policyholders to borrow against the cash value that accumulates within certain types of life insurance policies, such as whole life or universal life insurance. As premiums are paid, a portion contributes to the cash value, which grows over time. Policyholders can access this cash value through loans, making it a significant component for those needing funds for emergencies or other expenses without having to surrender the policy. The loan itself does not require a credit check and can often be taken out relatively quickly compared to conventional loans. The other options do not provide this functionality. For example, while the beneficiary designation determines who will receive the policy's death benefit, it does not influence borrowing capability. Similarly, the policy term length pertains to the duration the life insurance coverage is in effect, and the premium payment schedule outlines payment timing without impacting the cash value or loan feature.