South Carolina Life Insurance Practice Exam

What occurs to the cash value when a whole life insurance policy matures?

1. The cash value is forfeited

2. The insured receives a one-time payout

3. It is converted into an annuity

4. Option A - level death benefit, and Option B - increasing death benefit

The correct answer is: Option A - level death benefit, and Option B - increasing death benefit

When a whole life insurance policy matures, the cash value is typically leveraged according to the policy's provisions. The cash value represents the savings component of the policy, which grows over time and can be accessed by the policyholder. In the context of the answer provided, options A and B describe differing scenarios related to the benefit that may be received upon maturation. However, option D encompasses the policies' choices that can apply at maturity. A whole life insurance policy generally offers a level death benefit or an increasing death benefit option. With the level death benefit, the insured is guaranteed to receive the face amount of the policy at maturity. In contrast, if the policy has an increasing death benefit option, this would mean that the death benefit increases over time, typically reflecting the cash value growth or some other adjustment. Thus, following the maturity of the policy, policyholders may either choose to receive the cash value as a one-time payout or select a death benefit option that reflects the growing value of their policy. This provides flexibility to policyholders in how they wish to utilize their policy's cash value upon maturation.