Tennessee Life Producer Practice Exam

Which provision allows the policyholder to receive an immediate cash benefit without losing their insurance coverage?

1. Extended Term Option

2. Cash Value Loan

3. Paid-Up Additions

4. Automatic Premium Loan

The correct answer is: Cash Value Loan

The cash value loan provision allows policyholders to borrow against the cash value of their life insurance policy while maintaining their coverage. This option provides immediate access to funds without requiring the policyholder to surrender their policy, ensuring that they do not lose their insurance protection. When a policyholder takes a cash value loan, they are essentially borrowing money from the insurance company using their policy's accumulated cash value as collateral. This is beneficial in times of financial need, as it allows for quick access to cash while still keeping the life insurance in force. The loan must be repaid with interest, but if it is not, any outstanding loan balance will be deducted from the policy's death benefit. The other options do not provide the same immediate cash benefit along with retaining coverage. For instance, the extended term option converts the policy to term insurance, thus altering the original coverage. Paid-up additions increase the death benefit based on additional premiums, but it does not provide immediate cash. The automatic premium loan uses the cash value to cover unpaid premiums, which might affect the policy if the loan is not managed properly.