Massachusetts State Life Insurance Practice Exam

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What does a policyowner relinquish when exercising the cash surrender option?

  1. The right to dispute premiums

  2. All rights to benefits under the policy

  3. The right to name beneficiaries

  4. All rights to complete ownership

The correct answer is: All rights to benefits under the policy

When a policyowner exercises the cash surrender option, they receive the cash value of the life insurance policy but simultaneously relinquish all rights to benefits under that policy. This means that the owner forfeits any death benefit that would have been payable upon their passing, as the policy is effectively canceled. The cash surrender option allows the policyowner to access the savings component of their policy, but in doing so, they lose the insurance coverage and any associated benefits tied to the life insurance product. Consequently, this option is typically exercised when the policy is no longer needed or when the owner wants to access funds for other purposes, but it is crucial to understand the implications on the overall insurance benefits.

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