What is reduced paid-up insurance?

• A. A nonforfeiture option where the cash value buys a smaller, fully paid-up permanent policy.
• B. A nonforfeiture option that resets the policy to level term.
• C. A nonforfeiture option that pays out the cash surrender as a lump sum.
• D. A nonforfeiture option that extends term coverage with same premium.

Answer: (A)

Nonforfeiture options let you recover some value if you stop paying premiums. Reduced paid-up insurance uses the policy’s accumulated cash value to purchase a new, fully paid-up permanent policy with a smaller death benefit. No further premiums are due, and the coverage remains in force for the insured’s life, though at a reduced amount. This preserves some protection rather than surrendering for cash or converting to term insurance.