Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
If a whole life insurance policy lapses and the owner does not choose an option, the insurer must apply the policy's nonforfeiture value in one of three ways. Which of the following is NOT one of the standard nonforfeiture options?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
The three standard nonforfeiture options are: (1) cash surrender value, (2) reduced paid-up insurance — a smaller fully paid policy for life, and (3) extended term insurance — term coverage for the full face amount for as long as the cash value lasts. Converting to an annuity is not a nonforfeiture option; if no choice is made, the insurer typically applies extended term automatically.
Why the other options are wrong
- A) Cash surrender is a standard nonforfeiture option.
- B) Reduced paid-up insurance is a standard nonforfeiture option.
- C) Extended term insurance is the standard automatic default option.
Memory hook
Three exits from a lapsed policy: cash out, shrink to paid-up, or stretch into term. No annuities at this exit — that is a different product.