Primerica Life Producer Practice Test

What occurs when a life insurance policy is surrendered for its cash value?

1. Coverage continues with reduced benefits

2. Policy is terminated and cannot be reinstated

3. Cash value is transferred to a new policy

4. Coverage is suspended for 30 days

The correct answer is: Policy is terminated and cannot be reinstated

When a life insurance policy is surrendered for its cash value, the policy is terminated and cannot be reinstated. This means that once the policyholder has opted to take out the cash value, they relinquish the insurance coverage associated with that policy. The insurer pays out the accumulated cash value, but in doing so, the policyholder forfeits any remaining death benefit and the contractual protection that the life insurance provided. This definitive action means that there is no longer an active policy in place, and therefore, the individual can no longer claim any benefits related to the original policy or have the option to restore it later. The other options do not accurately reflect the implications of surrendering a policy. For instance, the idea of continued coverage with reduced benefits does not apply because surrendering a policy effectively ends that coverage entirely. Similarly, transferring cash value to a new policy doesn't occur automatically; the surrender process typically means the original policy is voided. Lastly, coverage being suspended for 30 days is not a recognized process in life insurance surrender, as the outcome is an outright termination of the policy.