An insured has a policy with a stated cash value of $1,500 and the insured still owes $500 on a previous loan from this cash value. How much money will the insurer give the insured on the cash surrender value option?

Rationale

$1,000.00 is the cash surrender value the insurer will provide to the insured.

The cash surrender value is calculated by subtracting any outstanding loans from the stated cash value of the policy. In this case, with a cash value of $1,500 and a loan of $500, the insured will receive $1,000 upon surrendering the policy.

A ($500) YOUR ANSWER

This amount represents only the outstanding loan balance and does not account for the cash value of the policy. The insurer will not simply return the loan amount; instead, they will provide the cash surrender value after deducting the loan from the total cash value.

B ($1,000) CORRECT

This is the correct answer, as it represents the total cash value of the policy ($1,500) minus the outstanding loan ($500). Therefore, when the policy is surrendered, the insured will receive $1,000.

C ($1,500) YOUR ANSWER

This option reflects the total stated cash value of the policy but ignores the outstanding loan. Since the insured owes $500, the insurer cannot disburse the full cash value; instead, they must deduct the loan amount before providing the surrender value.

D ($2,000) YOUR ANSWER

This figure incorrectly suggests an amount greater than the stated cash value of the policy. The cash surrender value cannot exceed the cash value itself, which is capped at $1,500, making this option invalid.

Conclusion

The cash surrender value of an insurance policy is determined by subtracting any outstanding loans from its stated cash value. In this scenario, the insured will receive $1,000 after deducting the $500 loan from the $1,500 cash value, highlighting the importance of understanding how loans impact the benefits received upon policy surrender.

An insured has a policy with a stated cash value of $1,500 and the insured still owes $500 on a previous loan from this cash value. How much money will the insurer give the insured on the cash surrender value option?

$1,000.00 is the cash surrender value the insurer will provide to the insured.

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