Which provision in a whole life policy allows a policy owner to terminate the policy in exchange for a reduced paid-up policy?

• A. Nonforfeiture provision
• B. Reinstatement provision
• C. Beneficiary designation
• D. Payor rider

Answer: (A)

Nonforfeiture provisions protect a policyholder from losing all value when premiums aren’t continued. One available nonforfeiture option is to use the policy’s cash value to purchase a paid-up life policy with a reduced face amount. This means you can terminate ongoing premium payments and still maintain life coverage, though at a smaller amount, with all benefits fully paid and no further premiums required. This mechanism preserves some protection rather than letting the policy lapse completely.

The other concepts don’t fit this question: reinstatement is about restoring a lapsed policy after meeting certain conditions, beneficiary designation determines who receives the death benefit, and a payor rider changes who pays premiums or triggers payment if the primary payer can’t.