South Carolina Life and Health Practice Exam

Which of these is NOT considered to be a common life insurance nonforfeiture option?

1. Cash surrender value

2. Reduced paid-up insurance

3. Life income annuity

4. Extend term insurance

The correct answer is: Life income annuity

A life insurance nonforfeiture option refers to the benefits that a policyholder is entitled to if they discontinue premium payments before the end of the policy term. These options are designed to ensure that the policyholder does not lose all the benefits accrued during the life of the policy. Cash surrender value allows the policyholder to receive a lump-sum cash payment in exchange for canceling the policy. This is a straightforward financial transaction that enables policyholders to access the cash value they have built up. Reduced paid-up insurance allows the insured to retain a reduced amount of coverage without the need to make any more premium payments. Essentially, it converts the existing policy into a new one for a lower coverage amount, effectively utilizing the cash value that has already accumulated in the policy. Extended term insurance uses the cash value of the policy to purchase term insurance for the same face amount as the original policy for a specified period. It allows the policyholder to maintain the original death benefit for a limited time without paying additional premiums. In contrast, a life income annuity is not a nonforfeiture option; rather, it is a type of payout option typically associated with annuities, not life insurance policies. It provides guaranteed income for the lifetime of the annuit