South Carolina Life Insurance Practice Exam

What will the cash value be used for when selecting the extended term nonforfeiture option?

1. To purchase whole life insurance

2. To buy term insurance with the same face amount

3. To pay future premiums

4. To increase policy coverage

The correct answer is: To buy term insurance with the same face amount

When choosing the extended term nonforfeiture option, the cash value of the policy is utilized to purchase term insurance with the same face amount as the original whole life insurance policy. This option allows the policyholder to keep a form of life insurance in force, even if they can no longer pay premiums on the original whole life policy. By converting the accumulated cash value into a term insurance policy, the insured effectively retains coverage without requiring additional premium payments. The term insurance will typically remain in effect for a specified duration, determined by the cash value amount. This approach provides a means of maintaining life insurance protection for the policyholder's beneficiaries even after the whole life policy lapses due to non-payment of premiums. In contrast, the other options do not accurately describe the mechanics of how the cash value is applied in the context of the extended term nonforfeiture option. For example, purchasing whole life insurance or increasing policy coverage doesn't align with the characteristics of this nonforfeiture provision, as it specifically aims to convert cash value into temporary term insurance rather than enhancing coverage or switching to a different type of permanent policy. Additionally, the cash value is not used to pay future premiums in this option, as it serves to convert the policy instead of