Minnesota Life Insurance License Practice Exam

Which option describes policy surrender value?

1. The total premium paid

2. The amount paid out at the insured's death

3. The cash value available upon cancellation of the policy

4. The future payout after full payments

The correct answer is: The cash value available upon cancellation of the policy

Policy surrender value refers to the amount of cash that a policyholder can receive from the insurance company if they decide to cancel or "surrender" their insurance policy before its maturity or before the insured event occurs, such as the death of the insured. The surrender value is typically accumulated through the cash value of certain types of permanent life insurance policies, such as whole life or universal life insurance policies, where a portion of the premiums contributes to a cash value. When a policy is surrendered, the policyholder may receive the surrender value rather than continuing to pay premiums or receiving a death benefit. The surrender value is important as it represents a financial asset that the policyholder can access or utilize, which reflects the policy's savings component. In contrast, the total premium paid is the cumulative amount paid for the policy over time, while the amount paid out at the insured's death refers to the death benefit, not the surrender value. The future payout after full payments might refer to the ultimate benefit of the policy but, again, does not denote the surrender value, which is specifically tied to the cancellation of the policy.