Washington Life Producer Practice Exam

How is the cash value in a whole life insurance policy typically treated if the policy is canceled by the policyholder?

1. It is converted to term insurance

2. It is paid out to the policyholder

3. It is forfeited entirely

4. It is donated to charity

The correct answer is: It is paid out to the policyholder

When a whole life insurance policy is canceled by the policyholder, the cash value that has accumulated over the life of the policy is typically paid out to the policyholder. This cash value represents the savings component of a whole life policy that grows over time based on premiums paid and the insurer's interest earnings. Whole life insurance not only provides a death benefit but also builds a cash value that can be accessed through loans, withdrawals, or upon cancellation of the policy. When the policyholder decides to cancel the whole life policy, they are entitled to receive the cash value because they have been paying premiums that contribute to this amount. This payout can provide financial relief or funds for other uses at a time when the policyholder might need access to cash. Understanding this process is important as it helps policyholders make informed decisions regarding their insurance policies and financial planning.