Which provision allows a policyowner to surrender the policy for a reduced paid-up policy of the same type?

• A. Paid-up addition rider
• B. Extended term rider
• C. Nonforfeiture provision
• D. Cash surrender option

Answer: (C)

Nonforfeiture provisions are designed to protect a policyowner when premium payments stop. They let you avoid losing the policy by using its accumulated cash value to establish another form of coverage. One of the options under this provision is to surrender the policy for a reduced paid-up policy of the same type. That means you keep life insurance, but with a smaller face amount, and you no longer owe future premiums.

The other options function differently: a paid-up addition rider increases the death benefit with additional paid-up coverage but doesn’t convert the policy into a reduced paid-up policy. an extended term rider uses the cash value to convert to term insurance, not to a reduced paid-up policy. and the cash surrender option pays out the policy’s cash value in cash, ending the policy rather than converting it to another paid-up form.