Non-Forfeiture Options

"Non-Forfeiture Options" are provisions in certain types of life insurance policies that provide the policyholder with choices on how to utilize the policy's accumulated cash value if the policy is in danger of lapsing due to non-payment of premiums. These options ensure that the policyholder does not lose the entire value of the insurance coverage that has been paid into over time. Non-forfeiture options are particularly relevant in whole life and universal life insurance policies, which accumulate cash value as part of the insurance contract.

The main types of non-forfeiture options include:

1. Cash Surrender Value: This option allows the policyholder to cancel the policy and receive the accumulated cash value, minus any surrender charges or outstanding loans against the policy. This provides a lump sum of money that can be used at the policyholder's discretion.
2. Reduced Paid-Up Insurance: Choosing this option allows the policyholder to apply the accumulated cash value towards purchasing a fully paid-up policy with a reduced death benefit. This new policy requires no further premium payments and remains in effect for a reduced coverage amount.
3. Extended Term Insurance: This option uses the policy's cash value to purchase term life insurance for a specified period or term with the same death benefit as the original policy. Once the term expires, the insurance coverage ends unless the policyholder decides to renew or convert the coverage.

Non-forfeiture options provide a safety net for policyholders, ensuring that they receive some value from their policy even if they can no longer continue paying the premiums. These options are designed to protect the investment made in the policy and offer flexibility in managing the policy's cash value. Policyholders should carefully consider their financial needs and goals when selecting a non-forfeiture option, as each choice has different implications for the policy's death benefit, cash value, and future premiums.