Final answer:
The automatic nonforfeiture option in life insurance policies is the extended term option, which provides continued coverage using the policy's cash value when premiums are no longer paid.
Step-by-step explanation:
The nonforfeiture option that is considered the automatic option in life insurance policies is the extended term option. When a policyholder stops paying premiums and a policy has accrued sufficient cash value, this option automatically provides continued life insurance coverage for a term as long as possible with the available cash value. The policyholder does not need to take any action for this nonforfeiture option to take effect.
The extended term option utilizes the policy's existing cash value to purchase term insurance equal to the face amount of the original policy. The term for which the coverage can be extended depends on the cash value amount and the insured's age at the time of the premium default. The coverage will last until the cash value is fully depleted under the terms of the extended term insurance.