West Virginia State Life Insurance Practice Exam

Replacement of a life insurance policy occurs when the cash value loans exceed what percentage?

1. 10%

2. 15%

3. 20%

4. 25%

The correct answer is: 25%

When discussing the replacement of a life insurance policy in the context of cash value loans, it's important to understand the regulations that govern such transactions. In West Virginia, as well as in many other states, the guidelines specify that a replacement occurs when the cash value loans exceed 25% of the total cash value of the policy. This threshold is significant because it indicates a level of financial obligation on the policyholder's part that could lead to potential policy lapses or diminished benefits. If the cash value loans surpass this percentage, it raises concerns about the viability and sustainability of the original policy, prompting the need for careful evaluation before replacing it with a new policy. Understanding this percentage is crucial for both clients and agents, ensuring that they are making informed decisions that align with regulatory requirements and their financial goals. This knowledge helps in safeguarding clients' interests and ensuring they have the coverage they need without falling into financial pitfalls related to excessive borrowing against their life insurance policies.