Accessing Cash Values from Permanent Life Insurance Policies
KNOWLEDGE EXPECTED OF: CFP® Professionals
Highest Knowledge Level: Understanding
Knowledge Levels and Associated Verbs
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Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
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Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
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Application
Ability to put information to use / to use knowledge for relevant, practical purposes
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Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
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Define
To state exactly the meaning of
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Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
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Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
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Determine
To ascertain / to come to a decision, such as by investigation or reasoning
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Compare
To note the similarities and differences between two or more things
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Estimate
To determine an approximate value for
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Calculate
To find the value using mathematics
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Convert
To change from one form or purpose to another
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Evaluate
To reach a conclusion or make a through careful study
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Interpret
To give the meaning of / to construe or understand / to translate orally
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Hold cursor over or click on each term to read its definition.
Additional Knowledge Expected of CFP Professionals
- Identify methods whereby cash values may be accessed from a permanent insurance policy, such as:
- Policy loan
- Partial or full surrender of policy
- Assignment for collateral
- Explain for whom accessing cash values from a permanent insurance policy may be beneficial.
- Explain advantages and disadvantages of using an insurance policy loan.
- Identify types of insurance policies that may be used to obtain a policy loan, such as:
- Whole life
- Universal life
- Impaired term life
- Explain factors to consider when using a policy loan to access cash values from a life insurance policy, such as:
- Impact on death benefit upon death of the insured
- Impact on cash surrender value if policy surrendered
- Impact on use of non-forfeiture options
- Interest obligations
- Payment options
- Payment requirements
- Cost of borrowing
- Tax deductibility of interest
- Explain advantages and disadvantages of assigning the cash surrender value of a life insurance policy as collateral for a loan.
- Explain advantages and disadvantages of partially or fully surrendering an insurance policy to access the cash surrender value of the policy.
- Identify types of insurance policies for which the cash surrender value may be assigned as collateral for a loan, such as:
- Term1
- Whole life
- Universal life
- Explain factors to consider when assigning the cash surrender value of a life insurance policy as collateral for a loan.
- Impact on death benefit upon death of the insured
- Impact on cash surrender value if policy surrendered
- Impact on use of non-forfeiture options
- Interest obligations
- Payment options
- Payment requirements
- Cost of borrowing
- Tax deductibility of interest
- Explain potential outcomes if the loan balance exceeds the maximum allowable percentage of the cash surrender value that may be borrowed against.
- Policyholder is required to provide additional security to third party financial institution
- Policyholder surrenders policy to cover loan amount
- Policyholder faces tax implication on mortality gain of policy if surrendered
- Explain the possible ways that the loan balance may exceed the maximum allowable percentage of the cash surrender value that may be borrowed against.
- Identify that a tax liability may exist when accessing cash values from a permanent life insurance policy.
REFERENCES
1 While very rare, term policies that have cash surrender value may be assigned as collateral to a loan.
