Rhode Island Life Insurance Practice Exam

What feature allows policyholders to withdraw cash value from their life insurance policy?

1. Policy loan

2. Rider options

3. Cumulative bonus

4. Withdrawal provision

The correct answer is: Policy loan

The feature that allows policyholders to withdraw cash value from their life insurance policy is known as a policy loan. In life insurance policies that build cash value, such as whole life or universal life insurance, policyholders have the option to borrow against the cash value accumulated in their policy. This means they can access funds when needed without surrendering the policy itself. When a policyholder takes a loan, the amount borrowed must be paid back with interest; otherwise, any unpaid loan balance will be deducted from the death benefit upon the insured’s passing. This feature provides flexibility and liquidity for policyholders, making life insurance not only a safety net for their beneficiaries but also a potential source of funds for emergencies or other financial needs. The other options, while related to life insurance, do not specifically provide the mechanism for withdrawing cash value in the same direct manner. Rider options typically refer to additional benefits that can be added to a policy, cumulative bonuses relate to company-specific dividends or bonuses that may be credited to a policy, and withdrawal provisions, while they could imply accessing funds, are not commonly the term used to describe the borrowing aspect of cash value in life insurance.