Life & Health Insurance Exam (National Portion)Policy Provisions, Options, and RidersEasy
A life insurance policyowner wants to ensure that the policy's cash value will not be forfeited if they stop paying premiums. Which nonforfeiture option allows the policyowner to convert the cash value into a new policy with a lower face amount, but for the same term as the original policy?
- AExtended Term Option
- BReduced Paid-Up Option
- CCash Surrender Option
- DAutomatic Premium Loan
Show answer & explanationAnswer & explanation
Correct answer: B. Reduced Paid-Up Option
The Reduced Paid-Up Option uses the policy's cash value to purchase a new, fully paid-up policy with a reduced face amount. The term of coverage remains the same as the original policy, ensuring continued protection.
Why the other options are wrong
- A. This option provides the original face amount for a reduced period of time.
- C. This option terminates the policy and pays out the cash value, ending all coverage.
- D. This is a loan provision, not a nonforfeiture option, and is used to pay overdue premiums.
Reduced Paid-Up Option
A nonforfeiture option where the policy's cash value is used to purchase a new, fully paid-up life insurance policy for a reduced face amount, but for the same term as the original policy.
- Uses cash value to buy a new policy.
- New policy is fully paid-up (no more premiums).
- Face amount is reduced.
- Coverage term remains the same.
Memory trick: Cash Value Helps Keep Your Policy Alive, One Way Or Another.