Quiz: Policy Nonforfeiture Options

If a permanent life insurance policy lapses and the owner does NOT select a nonforfeiture option, the insurer will automatically: A. apply the extended term insurance option B. suspend coverage until the policyowner either reinstates or surrenders the policy C. apply the reduced paid-up option D. surrender the policy and pay out the cash value

A. apply the extended term insurance option If an owner of a lapsed policy issued on a standard basis does not choose a nonforfeiture option, the insurer automatically applies the extended term insurance option.

Jerry asks his insurance company to pay him the cash value of his permanent life insurance and cancel the policy. Jerry is using which of the following nonforfeiture options? A. reduced paid-up insurance option B. extended term option C. cash surrender option D. policy loan and withdrawal provision

C. cash surrender option Under the cash surrender option, the owner surrenders the policy and the insurer pays the cash value to the policyowner in a lump sum.

All of the following statements regarding the extended term nonforfeiture option are correct EXCEPT: A. The extended term option is not available if the original policy was issued on a substandard (rated) basis. B. An extended term option allows the policyowner to have insurance coverage for some period with no further premium payments required. C. If the extended term option is elected, the face amount of the term policy is the same as the face amount of the lapsed policy. D. Coverage under the extended term insurance option continues for the insured's entire life.

D. Coverage under the extended term insurance option continues for the insured's entire life. The coverage term is limited and dependent on the size of the cash value.

What is the maximum amount of time most states allow insurers to delay paying cash surrender values? A. nine months B. one month C. one week D. six months

D. six months Most states allow insurers to delay paying the cash surrender value for up to six months. However, few companies wait this long to pay.

A policyowner who lapses his whole life policy and applies its cash value to buy paid-up whole life coverage has chosen which of the following? A. extended term option B. cash surrender and withdrawal provision C. cash surrender option D. reduced paid-up option

D. reduced paid-up option The policyowner has chosen the reduced paid-up insurance option under which a policy's cash value buys a paid-up policy of the same type as the lapsed policy. The paid-up death benefit is the amount that the cash value buys as a single premium at the insured's age.

All of the following statements regarding the reduced paid-up life insurance nonforfeiture option are correct EXCEPT: A. The paid-up policy will not build any more cash value. B. A paid-up policy under the reduced paid-up insurance option requires no further premiums nor can any be paid. C. A policyowner of a lapsed policy can take the reduced paid-up option regardless of whether the lapsed policy was issued on a standard or substandard (rated) basis. D. If the lapsed policy was a participating policy, the paid-up policy remains eligible for dividends.

A. The paid-up policy will not build any more cash value. A policyowner can take the reduced paid-up option even if the lapsed policy was issued on a substandard (rated) basis.

What happens when a universal life insurance policy's cash value no longer covers the monthly deductions to cover the policy's insurance and operational costs? A. The policy goes on the extended term option. B. The policy lapses. C. The policy goes on the reduced paid-up option. D. The policy is surrendered for cash.

B. The policy lapses. When the cash value no longer covers those deductions, a universal life insurance policy lapses.

Melissa asks to continue her lapsed universal life insurance policy under the extended term option. How will the insurance company respond? A. It will ask Melissa to complete the nonforfeiture option selection form. B. It will tell Melissa that her policy does not have the extended term option and she may only take any remaining cash value in cash or let the policy continue without premiums until the cash value can no longer cover monthly deductions. C. It will tell Melissa that she cannot elect the extended term option but may elect either the reduced paid-up or cash value payment options. D. It will tell Melissa that lapsed universal life policies automatically go on the extended term option.

B. It will tell Melissa that her policy does not have the extended term option and she may only take any remaining cash value in cash or let the policy continue without premiums until the cash value can no longer cover monthly deductions. Unlike other permanent policies, universal life policies normally do not contain the standard nonforfeiture options for policy lapses.