Maryland Life and Health Insurance License Practice Exam

An interest-sensitive life insurance policyowner may be able to withdraw the policy's cash value interest-free. The provision that allows this is called?

1. Partial Surrender

2. Full Withdrawal

3. Policy Loan

4. Cash Value Access

The correct answer is: Partial Surrender

The provision that allows a policyowner to withdraw the policy's cash value interest-free is known as a partial surrender. This option enables the policyowner to access a portion of the cash value amount built up in a life insurance policy without incurring interest charges that would typically apply to a loan. When a partial surrender is executed, the remaining cash value continues to earn interest, and the death benefit is adjusted according to the amount withdrawn. This feature provides financial flexibility, allowing policyholders to take advantage of their accumulated cash value while still maintaining life insurance coverage. In contrast, a full withdrawal would entail taking out the entire cash value of the policy, which might have different tax implications and could result in the termination of the policy. A policy loan, while allowing access to cash value, generally incurs interest and is typically repaid under the terms of the policy. Cash value access is a more generic term and does not refer to a specific provision in the policy. Therefore, partial surrender is the most accurate choice regarding interest-free access to cash value.