PSI Life Exam Practice Test

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Prepare for the PSI Life Exam Test. Study using interactive flashcards and multiple-choice questions, each with detailed hints and explanations. Get exam-ready efficiently!

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If an insured has a cash value of $1,500 and an outstanding loan of $500, what will the insured receive under the cash surrender value option?

$1,000
$1,500
$500
$2,000

The correct answer is: $1,000

When an insured decides to surrender their life insurance policy for its cash value, they are entitled to receive the cash value minus any outstanding loans against that value. In this scenario, the insured has a cash value of $1,500 but also owes $500 on a loan taken against the policy. To determine the cash surrender value, you need to subtract the outstanding loan amount from the total cash value. Therefore, the calculation would be: $1,500 (cash value) - $500 (outstanding loan) = $1,000 (cash surrender value). This means the insured will receive $1,000 when they opt for the cash surrender value option. Understanding this concept is crucial as it highlights how loans against a life insurance policy affect the overall financial benefit the insured can receive.