Tennessee Life Producer Practice Exam

What does a Nonforfeiture clause provide to the policyowner?

1. Guaranteed values even if the policy is sold

2. Guaranteed values even if the policy has lapsed

3. Reduced premiums after a certain period

4. Increased cash value upon death

The correct answer is: Guaranteed values even if the policy has lapsed

A Nonforfeiture clause is an important feature in a life insurance policy that protects the policyholder by ensuring they are entitled to certain benefits even if they stop paying premiums and the policy lapses. Essentially, this clause guarantees that the policyholder will receive a specific value or benefit, preserving some of the policy's worth after non-payment. In this context, the correct answer is that a Nonforfeiture clause provides guaranteed values even if the policy has lapsed. This can typically take the form of a cash surrender value, reduced paid-up insurance, or extended term insurance, all of which enable the policyholder to maintain some form of benefit even after discontinuing premium payments. This is crucial for policyholders, as they may face unforeseen circumstances that lead to financial difficulties, making it hard to keep up with premium payments. The Nonforfeiture clause helps mitigate the financial loss associated with these situations. The other choices do not accurately represent the function of a Nonforfeiture clause. For instance, guaranteed values related to the sale of the policy, increased cash benefits upon death, or reduced premiums do not represent the primary benefits that stem from the clause itself.