Question

Which of the following nonforfeiture options does not allow the insured to reinstate the policy:

Select one:
a. None
b. Extended term option
c. Reduced paid-up
d. Cash surrender

Answer 1

The cash surrender option does not allow for policy reinstatement as it terminates the policy for its cash value, while extended term and reduced paid-up options maintain some level of coverage.

Step-by-step explanation:

The nonforfeiture option that does not allow the insured to reinstate the policy is the cash surrender option. When a life insurance policy owner chooses the cash surrender option, they are essentially terminating the policy in exchange for the policy's cash value at that time. This means that the insurance coverage ends, and the policy cannot be reinstated. In contrast, the extended term option allows the policy's cash value to be used to buy term insurance for a specified period. The reduced paid-up option converts the policy into paid-up permanent insurance with a lower benefit amount, but the policy remains in force. Both the extended term and reduced paid-up options preserve some insurance coverage, unlike cash surrender.