Which of the following is NOT a nonforfeiture option?

• A. Cash
• B. Extended term
• C. Policy loan
• D. Reduced paid-up policy

Answer: (C)

The main idea here is how a life policy with cash value can be kept in force when you stop paying premiums. Nonforfeiture options are ways to use that cash value to preserve some protection without paying anymore, specifically:

• Cash surrender, where you take the cash value and surrender the policy.

• Extended term, where the cash value buys term insurance to keep coverage for as long as possible at the same death benefit.

• Reduced paid-up insurance, where the cash value buys a smaller policy that is fully paid up.

A policy loan, while it uses the cash value, is not a nonforfeiture option. It’s a loan against the cash value that leaves the policy in force while you owe interest. It reduces the cash value and can reduce the death benefit if the loan is not repaid. Since it’s a loan rather than a way to preserve or convert the policy’s protection, it isn’t considered a nonforfeiture option.