What is a non-forfeiture option?

A non-forfeiture option refers to the choices available to a policyholder regarding the cash value of a life insurance policy when it is terminated or lapsed. This option is particularly significant for whole life policies, which accumulate cash value over time.

When a policyholder decides to stop paying premiums, non-forfeiture options allow them to retain some benefits rather than losing everything. Common non-forfeiture options include taking the cash surrender value, converting the policy to paid-up insurance for a reduced benefit, or using the cash value to purchase extended-term insurance.

Since the other options do not accurately describe what a non-forfeiture option entails, they do not convey the essence of how these options specifically manage the policyholder's benefits in the event of policy termination. Therefore, focusing on the correct understanding of non-forfeiture options emphasizes their role in preserving some level of value when a policyholder can no longer maintain payments.