Massachusetts State Life Insurance Practice Exam

If a policyowner chooses to surrender their life insurance policy for cash, what happens to their coverage?

1. The coverage continues for a year

2. The coverage is lost immediately

3. The coverage is transferred to a beneficiary

4. The coverage is converted to a different type of policy

The correct answer is: The coverage is lost immediately

When a policyowner surrenders their life insurance policy for cash, the immediate consequence is that the coverage is lost. Surrendering a policy means the policyowner has decided to terminate their life insurance contract, which effectively ends any death benefits or coverage associated with that policy. Upon surrender, the policyholder will receive the cash value accumulated in the policy if it is a permanent life insurance policy such as whole or universal life. However, this cashing out of the policy means that the insured individual will no longer have any life insurance protection. The transaction results in the complete cancellation of the policy, and no further claims can be made for benefits under that specific policy. This understanding is crucial for policyowners to consider the implications of surrendering their policy, as it affects their financial planning and risk coverage significantly.