Massachusetts Life Producer Practice Exam

What feature allows policyholders to take a loan against the cash value of their life insurance policy?

1. Loan provision

2. Cash surrender value

3. Deferred premium option

4. Accelerated benefit

The correct answer is: Loan provision

The feature that allows policyholders to take a loan against the cash value of their life insurance policy is known as the loan provision. This provision is specific to permanent life insurance policies, such as whole life or universal life, that accumulate cash value over time. When a policyholder takes out a loan against their policy, they can access the accumulated cash value without having to surrender the policy. The loan does not need to be repaid immediately, but any unpaid loan balance, along with interest, will be deducted from the death benefit if the policyholder passes away before repaying the loan. Other features mentioned in the options serve different functions. The cash surrender value represents the amount a policyholder would receive if they decided to terminate the policy and is not directly related to the ability to take a loan. The deferred premium option allows a policyholder to postpone premium payments but does not pertain to borrowing against the cash value. The accelerated benefit is a rider that allows access to the death benefit under certain conditions, typically in cases of terminal illness, rather than enabling loans against cash value. Thus, the loan provision is the correct answer, as it specifically addresses the ability to borrow against the cash value of a life insurance policy.