Colorado Life Producer License Practice Test

What are the nonforfeiture options available in life insurance policies?

1. Cash surrender, reduced paid up, or extended term

2. Cash refund, permanent insurance, or enhanced coverage

3. Death benefit payout, cash withdrawal, or premium refunds

4. Investment options, savings plans, or annuity transfers

The correct answer is: Cash surrender, reduced paid up, or extended term

The correct answer highlights the various nonforfeiture options available in life insurance policies, which are specifically designed to provide policyholders with alternatives to allow them to retain some value or coverage even if they stop paying premiums. Cash surrender allows the policyholder to cancel the policy and receive a cash value, reflecting the accumulated savings within the policy. This is a straightforward option that provides immediate cash, which can be utilized as needed. Reduced paid-up insurance is another option where the policyholder can stop paying premiums but will receive a decreased life insurance benefit that is fully paid-up based on the cash value. This means that the policyholder retains coverage without further payments. Extended term insurance allows a policyholder to convert their whole life insurance policy into term insurance for a specified number of years, utilizing the cash value as the premium for the same death benefit amount. This enables the policyholder to maintain life insurance coverage for a limited period. Options related to cash refund, permanent insurance, enhanced coverage, death benefit payout, cash withdrawal, or premium refunds do not accurately reflect the definitions of nonforfeiture options. These terms do not represent the established alternatives provided under nonforfeiture laws, which focus on preserving the value of the insurance policy in a manner specified above