Which of these statements about whole life insurance is true?

Prepare for the Life Insurance Policies Exam with our test questions on policies, provisions, options, and riders. Sharpen your skills with flashcards and multiple-choice questions with detailed explanations. Ace your exam with confidence!

The statement regarding the potential tax implications when a whole life policy is surrendered is accurate. When a policyowner decides to surrender a whole life insurance policy, they may receive a cash value amount, which is the savings component of the policy. If the cash value exceeds the total premiums paid into the policy, the difference is treated as taxable income by the IRS. As a result, this could trigger a tax obligation for the policyowner, making it important to understand the financial implications of surrendering the policy.

Regarding the other statements, they each have specific inaccuracies. Taking out a policy loan up to the face amount is not always possible, as the maximum loan amount is typically a percentage of the cash value, not the full face amount. The assertion that coverage is temporary is also incorrect, as whole life insurance provides lifelong coverage as long as premiums are paid. Finally, the claim about the death benefit being unaffected by outstanding loans is misleading; while the full death benefit remains the same, any outstanding loans will be subtracted from the death benefit at the time of the insured's passing. This creates the necessity for policyowners to be mindful of the loans they take out against their policies.

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