Which provision in a life insurance policy pays an amount not surpassing the guaranteed cash value?

• A. nonforfeiture provision
• B. rider provision
• C. policy loan provision
• D. dividend option

Answer: (C)

The key idea is that a policy loan provision lets you borrow against the policy’s cash value, and the amount you can borrow is limited to that guaranteed cash value. In permanent life insurance with cash value, the insurer lends you funds using the cash value as collateral. The loan can’t exceed the cash value, and interest accrues on what you borrow. If you don’t repay, the loan (plus interest) reduces the death benefit by that amount, and persistent unpaid loans can eventually cause the policy to lapse.

This is distinct from the nonforfeiture provision, which deals with options if you stop paying premiums (such as receiving a cash surrender value or converting to paid-up insurance), from rider provisions, which add extra coverage or features, and from dividend options, which govern how dividends from participating policies are paid or used. The policy loan provision is the one that explicitly ties payouts to the guaranteed cash value and caps the loan at that amount.