Massachusetts Life Producer Practice Exam

A life insurance policy provision that has the ability to reduce the death benefit is called?

1. Accelerated (living) benefit

2. Nonforfeiture option

3. Cash surrender value

4. Dividend option

The correct answer is: Accelerated (living) benefit

The provision that has the ability to reduce the death benefit is known as the accelerated (living) benefit. This feature allows policyholders to access a portion of the death benefit while they are still alive, typically in cases of terminal illness or other qualifying conditions. By accessing these funds early, the death benefit payable to beneficiaries after the policyholder's death is reduced accordingly. This feature is especially valuable for individuals facing significant medical expenses or those who want to alleviate financial burdens during a critical time. Other choices pertain to different aspects of life insurance policies. Nonforfeiture options provide policyholders with choices on how to handle the cash value in the event they stop paying premiums, but they do not inherently reduce the death benefit. The cash surrender value refers to the amount the policyholder would receive if they chose to terminate the policy and surrender it to the insurer, again not directly related to reducing the death benefit. Lastly, a dividend option involves how policyholders can use dividends received from their policy, but these options typically involve additional benefits rather than a reduction of the stated death benefit.