Indiana State Life and Health Insurance Practice Exam

What might a policyowner’s early cash surrender of a Universal Life insurance policy indicate?

1. Federal Fair Credit Act Violation

2. Title 18 Fraud Violation

3. Anti-Money Laundering Violation

4. Unfair Trade Practice Violation

The correct answer is: Anti-Money Laundering Violation

The early cash surrender of a Universal Life insurance policy can be a signal of various underlying issues, but the most relevant implication is often related to anti-money laundering concerns. Universal Life insurance policies accumulate cash value and provide flexibility, making them attractive for individuals who might want to manipulate finances for illicit purposes. When a policyholder surrenders a policy early, particularly soon after it has been issued or with significant withdrawals that contrast sharply with expected behavior, it can raise red flags for compliance officers. These early surrenders might suggest attempts to launder money or mask the origins of funds, prompting scrutiny in line with anti-money laundering regulations. This context aligns with regulatory standards which require insurance companies to report certain suspicious activities. By understanding this relationship, one can see how early cash surrenders could lead to investigations centered on potential money laundering activities. Other options, while they address important legal concepts, do not specifically relate to the typical motivations or red flags associated with the early surrender of insurance policies.