How are surrender charges typically deducted in a policy with a rear-end loaded provision?

In a life insurance policy that includes a rear-end loaded provision, surrender charges are deducted when the policy is discontinued. This means that if the policyholder decides to terminate the policy or withdraw funds from it before a specified time period, the surrender charges will be applied at that moment, effectively reducing the amount of cash value that the policyholder receives.

This structure is set up to protect the insurance company from early withdrawals and to ensure that the policyholder contributes to the cost of providing benefits over time. It encourages policyholders to maintain their policies longer to avoid these surrender charges, which can sometimes be significant during the early years of the policy.

Choices that suggest different timing for charge deductions, such as at the end of the policy term, upon maturity, or when premiums are paid, do not align with how rear-end loading is specifically designed to function. These incorrect options overlook the fact that surrender charges are only relevant upon discontinuation of the policy or withdrawal of funds.