Life License Qualification Program (LLQP) Practice Exam

A policy loan is made possible by which of these life insurance policy features?

1. Policy loan clause

2. Cash value provision

3. Owner's rights provision

4. Consideration clause

The correct answer is: Cash value provision

A policy loan is primarily facilitated by the cash value provision of a life insurance policy. This feature indicates that the policy has built up a cash value over time, as certain types of life insurance, such as whole life or universal life policies, typically do. The owner of the policy can borrow against this accumulated cash value, which acts as collateral for the loan. The cash value provision is crucial because it determines the amount that can be borrowed. The amount available to be loaned usually depends on the existing cash value and the insurer's policies regarding loans. As the loan accumulates interest, it could affect the death benefit and the overall cash value if not repaid. In contrast, while the policy loan clause specifically facilitates the terms and conditions under which policy loans may be taken, it is the cash value that actually makes those loans possible. Other features like the owner's rights provision outlines the rights held by the policyholder, and the consideration clause relates to the payment of premiums, neither of which directly enables a policy loan. Therefore, the cash value provision is key to understanding how a policy loan is made possible within life insurance policies.