What is the purpose of nonforfeiture options?

• A. Nonforfeiture options prevent lapse by using the policy’s cash value, including extended term, reduced paid-up, and cash surrender.
• B. Nonforfeiture options increase premiums indefinitely.
• C. Nonforfeiture options convert the policy to MEC automatically.
• D. Nonforfeiture options guarantee higher death benefits.

Answer: (A)

Nonforfeiture options are built-in protections in cash-value life insurance that kick in when you miss or stop paying premiums. Their purpose is to prevent the policy from lapsing by using the policy’s accumulated cash value to continue some level of coverage or payout.

There are three common forms:

• Extended term: the cash value is used to buy the largest possible term policy with the same death benefit, so you keep coverage for as long as the cash value allows.

• Reduced paid-up: the cash value buys a new, fully paid-up policy with a smaller death benefit and no further premiums due.

• Cash surrender: the policy is surrendered for its cash value, ending the policy but giving you the accumulated value.

The other options aren’t correct because nonforfeiture provisions don’t raise premiums, don’t automatically convert the contract to a MEC, and don’t guarantee higher death benefits. They’re about preserving some value or coverage when premium payments stop.