Tennessee Life Producer Practice Exam

Which Nonforfeiture Option allows a policy to continue building cash value?

1. Cash Surrender Value

2. Reduced Paid-Up

3. Extended Term

4. Reinstatement Option

The correct answer is: Reduced Paid-Up

The Reduced Paid-Up option is a nonforfeiture option that allows a policyholder to use the cash value of a life insurance policy to obtain a fully paid-up policy with a lower face amount. The critical aspect of this option is that it continues to accumulate cash value even after the original premiums are no longer being paid. This allows the policyholder to retain some portion of their life insurance coverage while still benefiting from the growth of cash value within that reduced policy. As a result, it provides the policyholder with a way to maintain investment in the policy while minimizing future financial commitments. In contrast, the other options do not allow for the continuation of cash value growth. Cash Surrender Value results in the termination of the policy and the release of its cash value, but no further cash value accrues after surrender. Extended Term allows the policy to maintain coverage for a limited time based on its cash value, but does not accumulate any new cash value during that time. The Reinstatement Option allows a lapsed policy to be returned to active status, but it does not pertain to nonforfeiture options or imply ongoing cash value accumulation. Hence, the Reduced Paid-Up option is the most suitable answer for continuing cash value development.