South Carolina Life Insurance Practice Exam

Which nonforfeiture option provides coverage for the longest period of time?

1. Cash Surrender Value

2. Extended Term Insurance

3. Paid-Up Insurance

4. Reduced Paid-Up Insurance

The correct answer is: Extended Term Insurance

The option of Extended Term Insurance provides coverage for the longest period of time among nonforfeiture options. When a policyholder stops paying premiums, the insurance company may allow the policy’s cash value to be used to purchase extended term insurance, which maintains the same face value as the original whole life policy. Extended Term Insurance uses the accumulated cash value to convert the existing policy into a term policy for a specified period, usually based on the amount of cash value available. This option ensures that the policyholder’s beneficiaries remain protected, allowing them to keep the full death benefit during the term without ongoing premium payments. In contrast, Cash Surrender Value would involve the policyholder giving up the coverage in exchange for the accumulated cash value, thereby terminating any insurance protection after the transaction. Paid-Up Insurance converts the policy into a fully paid-up whole life plan, but this often results in reduced coverage. Reduced Paid-Up Insurance allows for a smaller amount of coverage but maintains insurance protection indefinitely. However, Extended Term Insurance offers the longest duration of coverage since it provides full death benefits for the longest term possible based on the cash value.