AD Banker Life and Health Practice Exam

Question: 1 / 445

What is generally true about a surrender charge over time?

It increases as the policy ages

It remains constant throughout the policy's life

It decreases as the cash surrender value grows

The correct answer highlights that a surrender charge typically decreases as the cash surrender value increases over time. This is a standard feature in many life insurance policies, particularly whole life and universal life policies.

Initially, when a policyholder decides to surrender their policy, the insurer enforces a surrender charge, which is a fee deducted from the cash value of the policy. Over time, as the policy matures and the cash surrender value accumulates through premium payments and interest, the surrender charge usually diminishes. This decrease often occurs because insurers want to encourage policyholders to maintain their policies longer, so the penalty for early withdrawal lessens as the insured benefits from the policy's growth.

Understanding this dynamic is crucial for policyholders to make informed decisions about when to access their cash value or surrender their policies.

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It applies only during the first year of the policy

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