Cash Surrender Value

### What is the main component deducted from the cash value to calculate the cash surrender value? - [x] Surrender charge - [ ] Premium payments - [ ] Inflation adjustment - [ ] Future interest payments > **Explanation:** The main components deducted from the cash value to determine the cash surrender value include surrender charges and any outstanding loans with their interest. ### Upon surrendering a life insurance policy, does the cash surrender value become taxable? - [ ] Yes, it is always taxable. - [ ] Yes, but only the interest component. - [x] No, it is not taxable income. - [ ] No, provided it is below a certain threshold. > **Explanation:** The cash surrender value is generally not taxable, provided it does not exceed the total amount of premiums paid into the policy. ### Can taking the cash surrender value of a life insurance policy impact future coverage? - [x] Yes, the policy is terminated. - [ ] No, future coverage remains intact. - [ ] Yes, but coverage is only reduced. - [ ] No, future coverage is doubled. > **Explanation:** Taking the cash surrender value results in the termination of the life insurance policy and the loss of future coverage. ### What term refers to a fee deducted when a policy is surrendered? - [x] Surrender charge - [ ] Early withdrawal fee - [ ] Administrative cost - [ ] Processing fee > **Explanation:** A surrender charge is a fee deducted from the cash value specified in the policy when the policyowner surrenders the insurance policy. ### Are cash value increases in a life insurance policy considered taxable income while the policy is active? - [ ] Yes, they are taxable each year. - [ ] Yes, but only above a certain limit. - [x] No, they are not taxable. - [ ] They are only taxable upon reaching retirement. > **Explanation:** Cash value increases within a life insurance policy are not considered taxable income in most jurisdictions while the policy is still active. ### Can the cash surrender value of a life insurance policy be used as collateral for a loan? - [x] Yes - [ ] No - [ ] Only if the policy is term insurance - [ ] Only after the policy has matured > **Explanation:** Yes, the cash surrender value can often be used as collateral for loans. ### What typically happens to the surrender charge over the duration of a life insurance policy? - [ ] It remains the same. - [x] It decreases over time. - [ ] It increases over time. - [ ] It varies depending on policy conditions. > **Explanation:** The surrender charge typically decreases over the duration of the life insurance policy. ### A universal life insurance policy provides what type of premium payments? - [ ] Only single payment - [ ] Only fixed payments - [x] Flexible premium payments - [ ] No premium payments after a certain date > **Explanation:** A universal life insurance policy provides flexible premium payments, allowing policyowners to adjust payments within certain limits. ### What aspect of a surrendered life insurance policy might still owe amounts even after receiving the cash surrender value? - [ ] Medical examination fees - [ ] Annual administrative fees - [ ] Future premium obligations - [x] Outstanding loans with interest > **Explanation:** Outstanding loans with interest are typically deducted from the cash surrender value of the policy. ### Which of the following types of life insurance policies does NOT accumulate cash value? - [ ] Whole life insurance - [ ] Universal life insurance - [ ] Variable life insurance - [x] Term life insurance > **Explanation:** Term life insurance does not accumulate cash value, and thus has no cash surrender value.