Certified Financial Consultant (CFC) Practice Exam

What occurs when a policy is surrendered for its cash value?

1. The policy continues with reduced benefits

2. Coverage ends and the policy cannot be reinstated

3. The policyholder receives a loan instead

4. The insurer retains the cash value but provides partial coverage

The correct answer is: Coverage ends and the policy cannot be reinstated

When a policy is surrendered for its cash value, coverage ends and the policy cannot be reinstated. This means that the policyholder has opted to terminate their insurance policy in exchange for its accumulated cash value. Once the surrender occurs, the insurance contract is no longer in force, meaning that the policyholder loses all coverage benefits associated with that policy. Because the contract is concluded, the option to reinstate the policy is typically not available; the insurer’s obligations under that contract have been fulfilled once the cash value is paid out. In contrast to other choices, such as continuing the policy with reduced benefits or retaining some coverage, the act of surrendering effectively amounts to a complete termination of the contract. Additionally, the concept of receiving a loan instead or retaining cash value while providing partial coverage does not apply here, as surrendering a policy completely cancels the insurance coverage.