South Carolina Insurance Practice Exam

Which of the following is true about beneficiaries of life insurance policies?

1. They must be named at the time of policy issue

2. Only relatives can be beneficiaries

3. They have rights to the cash value of the policy

4. They can be changed at any time by the policyholder

The correct answer is: They can be changed at any time by the policyholder

Beneficiaries of life insurance policies can indeed be changed at any time by the policyholder, making this the correct answer. A policyholder has the authority to update or modify the list of beneficiaries based on their wishes or changing circumstances, such as marital status, family dynamics, or other personal considerations. Having the flexibility to change beneficiaries is crucial because it allows the policyholder to ensure that the benefits will be directed to those they most desire to provide for at the time of their passing. This ability is typically built into most life insurance contracts, emphasizing the control the policyholder maintains over their policy. In contrast, the other statements present misconceptions about beneficiary designations. Beneficiaries do not have to be named at the time of policy issuance, allowing policyholders to make decisions over time. Furthermore, beneficiaries can include a wide range of individuals beyond just relatives, including friends, charities, or trusts. Lastly, beneficiaries do not have rights to the cash value of a policy; that cash value belongs to the policyholder until the policy is surrendered or the policyholder passes away. Only at that point do the beneficiaries receive the death benefit, not the cash value.