Final answer:
Extended term as a nonforfeiture option uses a life insurance policy's cash value to provide the same amount of coverage, ensuring the highest level of insurance protection for a defined period without further payments. This option is crucial for retirees who may be on a fixed income and wish to maintain their insurance coverage without the financial strain of ongoing premiums.
Step-by-step explanation:
The benefit of choosing extended term as a nonforfeiture option is that it allows an individual to have the highest amount of insurance protection without additional payments for a certain period. It provides the same face amount of coverage as the original permanent policy using the policy's accumulated cash value to purchase that extended term insurance. This can be especially important for individuals concerned with saving for old age who may no longer have the capacity to earn income and want the security of life insurance without the concern of ongoing premium payments.
Many retirees rely on fixed income sources such as pensions or defined benefits plans, both of which can be substantially affected by inflation over time. The loss of purchasing power due to inflation can pose a significant issue for those on a fixed income. Utilizing the nonforfeiture benefit can serve as a financial planning tool to ensure continued protection during retirement without incurring further costs.