Rhode Island Life Insurance Practice Exam

Which Nonforfeiture Option allows for the continuation of cash value accumulation?

1. Cash Surrender Value

2. Reduced Paid-Up

3. Extended Term

4. Paid-Up Additions

The correct answer is: Reduced Paid-Up

The Reduced Paid-Up nonforfeiture option allows policyholders to continue accumulating cash value even after stopping premium payments. When a policyholder selects this option, the existing cash value of the life insurance policy is used to purchase a fully paid-up policy of a reduced face amount. This new policy will continue to earn cash value over time, allowing for sustained growth and coverage without requiring further premium payments. In contrast, Cash Surrender Value involves cashing in the policy, which stops any future growth of cash value. The Extended Term option converts the current policy into term insurance for a specified period, which does not accumulate cash value, as term policies are meant to provide coverage for a set time without a savings component. Paid-Up Additions increase the death benefit and cash value but require either premium payments or the conversion of cash value for purchase, rather than allowing for a continuation of cash value accumulation after premium payments cease.