Which nonforfeiture option uses cash surrender values to select paid-up term insurance for the full face amount of the policy?

Rationale

Extended term insurance uses cash surrender values to select paid-up term insurance for the full face amount of the policy.

Extended term insurance allows policyholders to use their policy's cash surrender value to purchase term insurance for the full face amount of the original policy, effectively extending coverage without requiring premium payments. This option provides a temporary solution that maintains the full face value.

A (Reduced term insurance.) YOUR ANSWER

Reduced term insurance involves converting a whole life policy into a term policy with a lower face amount, but it does not use the cash surrender value to maintain the full coverage. Instead, it reduces the coverage amount and typically does not extend the term insurance for the full face value of the original policy.

B (Extended term insurance.) CORRECT

This is the correct answer, as extended term insurance utilizes the cash surrender values to purchase term insurance equal to the full face amount of the original policy. This option allows the policyholder to maintain the full coverage temporarily without requiring further premium payments.

C (Reduced paid-up insurance.) YOUR ANSWER

Reduced paid-up insurance allows the policyholder to stop paying premiums and convert the policy into a paid-up whole life policy for a reduced face amount. This option does not involve term insurance and does not use cash surrender values for a full face amount, thus not aligning with the question's criteria.

D (Extended paid-up insurance.) YOUR ANSWER

Extended paid-up insurance provides a permanent policy with no further premiums required, using the cash surrender value to maintain a reduced paid-up amount. However, it does not convert to term insurance for the full face amount like extended term insurance does.

Conclusion

In summary, extended term insurance is the only nonforfeiture option that utilizes cash surrender values to select paid-up term insurance for the full face amount of the policy, ensuring comprehensive coverage during the term. Other options like reduced term, reduced paid-up, and extended paid-up insurance either reduce the face amount or do not provide term insurance, making them unsuitable for the question's requirements.

Which nonforfeiture option uses cash surrender values to select paid-up term insurance for the full face amount of the policy?

Extended term insurance uses cash surrender values to select paid-up term insurance for the full face amount of the policy.

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