NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Life Insurance Products
Arun holds a whole life policy with a surrender value and has paid premiums for several years. He is facing a short-term cash need but wants to retain the life cover. Which option best suits this need?
Taking a policy loan against the surrender value best meets the need, since it provides cash while keeping the policy and life cover in force. Surrender and lapse end the cover, and paid-up conversion gives no cash and reduces the benefit.
- ASurrender the policy for its surrender value
- BTake a policy loan against the surrender valueCorrect
- CConvert it to a paid-up policy
- DLet the policy lapse
Explanation
A policy loan provides cash while the policy stays in force, so cover continues, subject to repayment of loan and interest. Surrender and lapse end cover, and paid-up conversion reduces cover and does not give cash.
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