South Carolina Life and Health Practice Exam

A whole life policy option where extended term insurance is selected is called a(n)?

1. Dividend option

2. Nonforfeiture option

3. Term option

4. Adjustable option

The correct answer is: Nonforfeiture option

The choice of a whole life policy option that allows the policyholder to select extended term insurance is accurately referred to as a nonforfeiture option. Nonforfeiture options are designed to protect the policyholder's accumulated benefits in the event that they stop paying premiums. When a policyholder chooses the extended term option, they are essentially opting to use the cash value of the whole life policy to purchase a term insurance policy for a specified period, rather than allowing the policy to lapse without any value. This option provides a way for the policyholder to maintain a death benefit for their beneficiaries even after ceasing premium payments, ensuring that their investment in the policy is not completely lost. The term insurance purchased with the accumulated cash value typically provides coverage for a specified number of years, based on the value and the age of the insured when the option is exercised. Understanding nonforfeiture options is crucial for policyholders, as it allows them to make informed choices regarding their insurance coverage and financial planning.