Primerica Life Producer Practice Test

What does the term “cash surrender value” refer to in a whole life policy?

1. The total premium paid

2. The amount available to the policyholder upon termination

3. The death benefit amount

4. The amount of interest accrued

The correct answer is: The amount available to the policyholder upon termination

The term "cash surrender value" in a whole life policy refers specifically to the amount available to the policyholder upon termination of the policy. In essence, it represents the savings component of a whole life insurance policy. As the policy accumulates cash value over time through premium payments and interest, the policyholder has the opportunity to access this accumulated amount if they decide to terminate the policy. This cash surrender value is significant because it provides the policyholder with financial security; they can withdraw or borrow against it, or receive it upon cancellation of the policy. Understanding this concept is crucial for policyholders because it highlights the dual nature of whole life insurance—providing both a death benefit and an investment-like cash value. The cash surrender value is generally less than the total premiums paid, as it does not fully account for any administrative fees or insurance costs incurred during the policy's life. In contrast, the other terms mentioned do not apply to the cash surrender value. The total premium paid takes into account all payments made without reflecting any cash value. The death benefit is the amount paid to beneficiaries upon the insured's death, and the amount of interest accrued relates to the growth of the policy's cash value but does not represent the actual cash value available upon cancellation.