Home Finance A Quick Look into the Three Nonforfeiture Options

A Quick Look into the Three Nonforfeiture Options

You might already know that nonforfeiture options primarily apply to a life insurance policy that accumulates cash value. Once cash value has accumulated within a policy, the policy owner has the right to enact any one of the different nonforfeiture options available. Below is a quick look into the three nonforfeiture options you should know.

Cash Surrender

If at all the owner of the policy selects this nonforfeiture option, the policy will be cancelled and the insurer mails a check to the policy owner. When the policy owner selects cash surrender, there is no further life insurance coverage. Also, they might be forced to pay ordinary income tax if they receive more money than they paid into the policy in premiums.

Extended Term

With the extended term nonforfeiture option, the cash value from the original policy will be used to purchase a term policy that has the same face amount as the original policy. The face amount is merely the amount of insurance protection offered.

If you choose to leverage this option, there is no additional premium due from the policy owner. Furthermore, you’ll have the same amount of coverage as you had in the original policy, but only for a limited time. Keep in mind term insurance is temporary.

Reduced Paid Up

For those who decide to leverage the Reduced Paid Up nonforfeiture option, then the cash value from their original policy is used as a single premium to purchase them a paid-up whole life policy.  However, there are two things you should know about this selection for your licensing exam.

First and foremost, the amount of coverage under this new policy is reduced. Secondly, this new whole life policy will provide permanent coverage. Always ensure you know what you’re dealing with before taking the next step of action.

The above are the three nonforfeiture options you should know about. You can easily remember these nonforfeiture options with the acronym C-E-R. Always take it upon yourself to better understand how each one of them works before leveraging the perfect one for your situation.