South Carolina Life Insurance Practice Exam

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

1. Loan Provision

2. Automatic Loan Provision

3. Cash Value Provision

4. Withdrawal Provision

The correct answer is: Automatic Loan Provision

The option that accurately identifies the provision allowing a policyholder to borrow against the cash value of a whole life policy is the Automatic Loan Provision. This provision is a key feature of many whole life insurance policies, enabling the policyholder to access funds through a loan without having to formally apply for one or undergo additional approval processes. When a whole life policy accumulates cash value over time, the Automatic Loan Provision permits the policyholder to borrow against this accrued amount. This can be particularly beneficial in times of financial need since it offers a straightforward way to access cash. The loan amount is typically deducted from the death benefit if not repaid, and interest is charged on the outstanding balance. The other options do not accurately describe this specific loan feature. The Loan Provision could be seen as a broader term but does not imply the automatic aspect of the loan feature. The Cash Value Provision refers more generally to the accumulation of value in the policy rather than the borrowing mechanism itself. The Withdrawal Provision, while it may allow for access to cash, typically refers to taking out funds directly from the cash value, which can have different implications and is not the same as borrowing against it.