West Virginia State Life Insurance Practice Exam

When a policy owner cash surrenders a Universal Life insurance policy in its early years, this may be a red flag for which of the following?

1. Fraudulent activity

2. Anti-Money laundering violation

3. Improper valuation of cash value

4. Increased mortality risk

The correct answer is: Anti-Money laundering violation

Cashing in a Universal Life insurance policy, especially in its early years, can signal a potential Anti-Money Laundering (AML) violation. This is because the early surrender of such policies may indicate that the transaction is not primarily for legitimate insurance purposes but rather for movement of money that could be linked to illicit activities. Insurers are vigilant in monitoring transaction patterns that deviate from typical consumer behavior, and frequent or unusual surrenders can raise suspicions regarding the legitimacy of the funds being processed. In the context of AML regulations, insurance companies are required to report activities that appear suspicious, and a rapid cash surrender can be a key flag for investigators. Insurers must ensure compliance with these regulations to prevent facilitating money laundering, where individuals might use insurance products to disguise the origins of illegally obtained funds.