Arizona Life and Health Practice Exam

What does a policyowner receive if a whole life policy is surrendered before its maturity date?

1. The Death Benefit

2. The Cash Value

3. The Premium Refund

4. The Accrued Interest

The correct answer is: The Cash Value

When a whole life insurance policy is surrendered before its maturity date, the policyowner is entitled to receive the cash value of the policy. Whole life insurance policies are designed to build cash value over time, which accumulates on a tax-deferred basis. This cash value is a significant feature of such policies, making them not only a death benefit coverage but also a form of savings. When a policy is surrendered, the policyowner gives up the death benefit and any future coverage under the policy, but in return, they receive the cash value that has accrued based on the policy's terms and duration. This cash value can be influenced by factors such as the amount of premiums paid and the length of time the policy has been in force. Receiving the cash value rather than the death benefit, premium refund, or accrued interest reflects the nature of a whole life policy. Surrendering the policy means relinquishing the life insurance coverage, so the death benefit would no longer be applicable. Premium refunds and accrued interest are not typical outcomes in this context, as they do not align with the specific rights of a policyowner upon surrender.