Question 42

Extended Term is the “automatic” Nonforfeiture Option for a standard insured risk.

In most cases, when a policyholder stops paying premiums, the automatic Nonforfeiture Option that is applied is the Extended Term option. This allows the policyholder to maintain a level of life insurance coverage for a limited time without further premiums.

A) Cash

The Cash option is not the automatic Nonforfeiture Option for a standard insured risk. While policyholders can choose to receive the cash surrender value, this is not the default choice and typically requires a request from the policyholder.

B) Reduced paid-up

Reduced paid-up insurance is an option that allows the policyholder to continue coverage with a reduced death benefit, but it is not considered the automatic Nonforfeiture Option. Instead, this option must be selected by the policyholder rather than being automatically applied.

C) Extended Term

Extended Term is indeed the automatic Nonforfeiture Option for a standard insured risk, meaning that if premiums are not paid, the policy automatically converts to a term policy for a set period without requiring any action from the policyholder.

D) One Year Term

One Year Term is not the standard automatic Nonforfeiture Option. While it describes a type of term insurance, it does not reflect the typical practice of automatically converting a lapsed policy under Nonforfeiture provisions, which is generally the Extended Term option.

Conclusion

Extended Term is the correct answer because it is the default choice applied to policies when premiums are not paid, ensuring policyholders retain some level of coverage. Other options like Cash and Reduced paid-up require policyholder action and are not automatically enacted, while One Year Term does not represent the common practice in Nonforfeiture provisions. Thus, Extended Term stands out as the definitive automatic choice.