When a life insurance policyholder dies, the death benefit is paid to the named beneficiaries. However, if the policyholder stops paying premiums, the policy will lapse and the death benefit will be forfeited. Nonforfeiture clauses are designed to protect the policyholder's investment in the event of lapse, by providing options for continuing the coverage in some form.
One option available under a nonforfeiture clause is called "reduced paid-up insurance." This option allows the policyholder to continue the coverage for a reduced death benefit, without having to pay any further premiums. The reduced death benefit is equal to the sum of the premiums paid to date, plus interest.
Another option available under a nonforfeiture clause is called "extended term insurance." This option allows the policyholder to continue the coverage for a reduced death benefit for a limited period of time, after which the coverage will lapse. The length of the extended term is determined by the insurance company, and is generally based on the age of the policyholder and the amount of premiums paid to date.
Finally, some nonforfeiture clauses allow the policyholder to convert the policy to a whole life or Universal life policy. This option allows the policyholder to keep the coverage in force, without having to pay any further premiums. The death benefit will be reduced, but the policy will remain in force for the policyholder's lifetime.
Reading into nonforfeiture clauses is important for life insurance policyholders, so that they understand their options in the event of lapse. It is also important for beneficiaries, so that they understand what will happen to the death benefit if the policyholder stops paying premiums. Which of the following is not a Nonforfeiture option? C) A policy loan
A policy loan is not a Nonforfeiture option. What is to forfeit mean? When you forfeit a life insurance policy, you give up your right to the policy and any death benefit that would be paid out. In most cases, you will also forfeit any premiums that you have paid into the policy.
What is true Nonforfeiture values? The true nonforfeiture value is the sum of money that a policyholder would receive if they surrendered their life insurance policy. This value is typically less than the face value of the policy, as the insurer is not required to pay out the full amount if the policy is surrendered early. The true nonforfeiture value is determined by the insurer and is based on a number of factors, including the policyholder's age, the type of policy, and the length of time the policy has been in force.
What is the incontestable clause? The incontestable clause is a provision in a life insurance policy that bars the insurer from contesting the policy after it has been in force for a certain period of time, typically two years. After that point, the insurer can only deny a claim for non-payment of premiums or for fraud.
Which of the following is an example of a Nonforfeiture options?
The following is an example of a Nonforfeiture options:
- Cash Surrender Value: The policyholder can surrender the policy for its cash value.
- Reduced Paid-Up Insurance: The policyholder can reduce the face value of the policy and continue paying premiums on the reduced amount.
- Extended Term Insurance: The policyholder can extend the term of the policy, typically for a reduced death benefit.