South Carolina Life Insurance Practice Exam

What feature allows a whole life policyholder to borrow against the policy cash value?

1. Participation in profits

2. Loan provisions

3. Accelerated death benefits

4. Conversion privileges

The correct answer is: Loan provisions

A whole life policy accumulates cash value over time, which the policyholder can access through borrowing. The feature that facilitates this borrowing is known as loan provisions. These provisions specify the amount that can be borrowed against the policy's cash value and outline the terms under which the loan must be repaid. The cash value is essentially a savings component of the whole life policy, and the policyholder can take a loan against this amount without having to undergo traditional credit checks or justify the use of funds. The borrowed amount will accrue interest, and if the loan is not repaid prior to the policyholder's death, the outstanding loan balance will be deducted from the death benefit. Participation in profits refers to the dividends policyholders may receive, but it does not directly grant access to the cash value. Accelerated death benefits are a feature allowing early access to some of the death benefit under certain conditions, but they do not relate to borrowing against cash value. Conversion privileges allow for the exchange of one type of insurance policy for another, without needing to undergo further underwriting, and is not related to cash value lending. Therefore, loan provisions are essential for accessing funds against the policy's cash value.