Question

Which of the following is a provision in an interest-sensitive life policy that allows the policyowner to withdraw the policy's cash value interest-free?

a) Surrender value
b) Premium waiver
c) Free look period
d) Cost of insurance

Answer 1

The surrender value is the provision in an interest-sensitive life policy that allows for interest-free withdrawal of the policy's cash value.

Step-by-step explanation:

The provision in an interest-sensitive life policy that allows the policyowner to withdraw the policy's cash value interest-free is known as the surrender value. An interest-sensitive life insurance policy combines a death benefit with a cash value component that can accrue interest over time.

This cash value is a distinguishing feature of whole life insurance policies. It grows tax-deferred and can generally be borrowed against or withdrawn by the policyowner, under certain conditions. Withdrawing up to the amount of the cash value that has been built up over time is typically done without any interest charges, hence the term 'interest-free' in this context refers to the lack of interest charges on such withdrawals.