Tennessee Life Producer Practice Exam

When a policyowner cash surrenders a Universal Life insurance policy early, what might this signal?

1. A potential Anti-Money Laundering violation.

2. An indication of fraud.

3. A successful claim process.

4. A standard financial practice.

The correct answer is: A potential Anti-Money Laundering violation.

Cashing in a Universal Life insurance policy early can signal a potential Anti-Money Laundering (AML) violation because it raises concerns about the source and purpose of the funds involved. Insurance companies are required to monitor transactions for suspicious activity that could indicate money laundering, which involves concealing the origins of illegally obtained money. When a policyholder surrenders a policy early, especially if it is unusual for their financial behavior, it may trigger a review by the insurance company for compliance with AML regulations. This could involve scrutinizing the history of payments into the policy and the circumstances surrounding the policyholder’s decision to cash out. Monitoring such activities ensures that insurers comply with laws intended to prevent money laundering and other financial crimes.