Primerica Life Producer Practice Test

What happens if a life insurance policy is canceled by the policyholder?

1. The insurer retains all premium payments

2. The policy automatically converts to term insurance

3. The policy may qualify for a cash surrender value

4. No action is taken by the insurer

The correct answer is: The policy may qualify for a cash surrender value

When a life insurance policy is canceled by the policyholder, it may qualify for a cash surrender value, depending on the type of policy and how long it has been in force. This is most commonly seen in permanent life insurance policies, such as whole life or universal life insurance. These types of policies accumulate cash value over time, and if the policyholder decides to cancel the policy after it has built up a sufficient cash value, they may receive that amount back. In contrast, term insurance typically does not have a cash surrender value; therefore, if a term policy is canceled, the policyholder would not receive any money back. Additionally, while some insurers may retain premium payments for policies that are canceled, it is not a universal rule, as it greatly depends on the specific terms and conditions of the insurance policy. The option suggesting that no action is taken by the insurer is not accurate, as there are processes involved in policy cancellation that include the potential for cash value payout. Thus, the most applicable answer reflects the possibility of receiving cash surrender value upon cancellation.