Which provision prevents the policy owner's loss of the policy's cash value when they lapse or surrender the policy?

• A. Payor rider
• B. Collateral assignment
• C. Nonforfeiture provision
• D. Reinstatement provision

Answer: (C)

Nonforfeiture provisions are designed to protect the policy owner’s accumulated cash value if the policy lapses or is surrendered. When premiums aren’t paid and a policy could lapse, the nonforfeiture clause ensures the owner still receives value instead of losing the cash value entirely. It does this by providing options such as taking a cash surrender value, converting to reduced paid-up insurance, or converting to extended term insurance. These choices keep some value from being forfeited even though the original policy may lapse.

The other provisions serve different purposes. A payor rider designates another person to pay premiums if the insured or payer is unable. A collateral assignment uses the policy as loan collateral. A reinstatement provision allows bringing a lapsed policy back within a certain period after lapse, given certain requirements are met.