Life & Health Insurance Exam (National Portion)Life InsuranceMedium
A life insurance policy states that the insured can surrender the policy for its cash value, borrow against the cash value, or elect to use the cash value to purchase a reduced amount of paid-up insurance. These options are known as:
- ADividend Options
- BSettlement Options
- CRiders
- DNonforfeiture Options
Show answer & explanationAnswer & explanation
Correct answer: D. Nonforfeiture Options
Nonforfeiture options are choices available to a policyowner who discontinues premium payments on a cash value policy, ensuring they do not forfeit the accumulated cash value.
Why the other options are wrong
- A. Dividend options relate to how policy dividends are used, not what happens upon policy surrender.
- B. Settlement options describe how the death benefit is paid out to the beneficiary, not how the policyowner accesses cash value.
- C. Riders are additional benefits added to a policy, not choices for existing cash value.
Nonforfeiture Options
Provisions in a cash value life insurance policy that protect the policyowner from forfeiting their accumulated cash value if they stop paying premiums.
- Available upon policy surrender or lapse
- Choices include cash surrender, reduced paid-up, extended term
- Mandated by law
Memory trick: When you stop paying premiums, nonforfeiture options give you a choice of exits for your cash value, so you don't lose it.