Rhode Island Life Insurance Practice Exam

Which of these nonforfeiture options continues a build-up of cash value?

1. Cash surrender value

2. Reduced paid-up

3. Extended term

4. Paid-up additions

The correct answer is: Reduced paid-up

The option that allows for a continued build-up of cash value is the reduced paid-up option. When a policyholder chooses this nonforfeiture option, they are effectively converting their existing whole life insurance policy into a reduced amount of paid-up insurance. This means that no further premiums are required, but the policy remains in force and continues to accumulate cash value over time. In the case of reduced paid-up insurance, the policyholder retains the benefits of a whole life policy, such as the cash value growth and death benefit, albeit at a lower face amount than the original policy. This option is particularly advantageous for those who want to maintain some level of coverage while no longer being able or willing to pay premiums. The other mentioned options, like cash surrender value and extended term, typically do not accumulate cash value after the change. Cash surrender value results in the policyholder receiving a lump sum payment and terminating the policy, whereas extended term provides coverage for a specified period but does not continue to build cash value. Paid-up additions, while enhancing the total death benefit and cash value of the policy, do not directly relate to a nonforfeiture option since they involve additional premiums.