Tennessee Insurance Practice Exam

Which term describes the ability of an insurance applicant to access their policy's cash surrender value?

1. Liquidity

2. Profitability

3. Affordability

4. Salvage value

The correct answer is: Liquidity

Liquidity refers to the ease and speed with which an asset can be converted into cash without significantly affecting its value. In the context of insurance, when an applicant can access their policy's cash surrender value, they are essentially able to convert part of the policy's value into cash, which exemplifies the concept of liquidity. This is particularly relevant for permanent life insurance policies, where the cash surrender value can be withdrawn or borrowed against. The other terms don't align with this concept: profitability relates to the earnings generated from an investment, affordability pertains to the ability to pay for insurance premiums, and salvage value is typically associated with the estimated resale value of an asset at the end of its useful life. Thus, liquidity is the precise term that captures the ability to access the cash value in an insurance policy.