Under a nonforfeiture option, the cash value is used to purchase which type of insurance?

• A. Reduced Paid-Up
• B. Cash Surrender Value
• C. Extended Term Insurance
• D. Paid-Up Additions

Answer: (C)

The concept being tested is how nonforfeiture options use the policy’s cash value to keep some life insurance in force after premiums stop. When you select this option, the cash value is used to buy term insurance that provides the same death benefit as the original policy for as long as the cash value can support it. In other words, you keep the same death benefit, but only for a finite period determined by the cash value. Once that term ends, coverage ends unless you renew or adjust something else.

This preserves the death benefit without continuing premium payments on the original policy. Other nonforfeiture options exist—reduced paid-up insurance reduces the permanent coverage to a smaller, paid-up amount; paid-up additions purchase additional paid-up insurance to increase both benefit and cash value; cash surrender value simply pays out the cash value. But the mechanism that uses cash value to fund temporary term coverage is extended term insurance.