A provision in a whole life policy that allows a policyowner to terminate the policy in return for a reduced paid-up policy of the same type is called a(n)

• A. Reduction in benefits
• B. Surrender option
• C. Termination for reduced policy
• D. Nonforfeiture provision

Answer: (D)

Nonforfeiture provisions protect a policyholder who stops paying premiums by allowing the policy to continue in a reduced form rather than lapse. In a whole life policy, one option under this provision is to convert the policy into a reduced paid-up policy of the same type. The policy remains in force, but with a smaller death benefit and without further premium payments. This is exactly what’s described: terminating the original policy in exchange for a smaller, paid-up policy.

Other terms aren’t the precise mechanism here. A surrender option would typically involve cashing out the policy value, ending the coverage. A generic “reduction in benefits” isn’t the established nonforfeiture mechanism, and “termination for reduced policy” isn’t the standard terminology. The key concept is the nonforfeiture provision.