Tennessee Insurance Practice Exam

What happens to the cash value in a Whole Life policy if the policyholder stops paying premiums?

1. The cash value is forfeited

2. The cash value can still be accessed

3. The cash value increases significantly

4. Cash value is transferred to the beneficiary

The correct answer is: The cash value can still be accessed

In a Whole Life policy, if the policyholder stops paying premiums, the cash value can still be accessed. Whole Life policies accumulate cash value over time, which is a key feature of these types of life insurance. If premiums are not paid, the policyholder typically has options to utilize the cash value. For example, the insured can take a loan against the cash value or use the cash value to cover the premium payment, keeping the policy in force. Alternatively, if the policyholder decides to surrender the policy, they will receive the accumulated cash value. It's important to note that while the cash value is still accessible, the policy may lapse if not managed properly, thus potentially impacting the death benefit. However, the ability to access the accumulated cash value allows the policyholder some financial flexibility even in situations where premium payments are no longer being made.