Question 83

Extended term insurance uses cash surrender values to select paid-up term insurance for the full face amount of the policy.

Extended term insurance allows policyholders to use the cash surrender value of their life insurance policy to purchase a term insurance policy that maintains the full face amount for a specified period without requiring further premium payments.

A) Reduced term insurance.

Reduced term insurance is not a recognized nonforfeiture option. This term suggests a reduction in coverage, but it does not specifically relate to the use of cash surrender values to purchase a term policy that maintains the full face amount.

B) Extended term insurance.

Extended term insurance is the correct answer because it specifically utilizes the cash surrender value of the original policy to convert it into a term insurance policy that covers the full face amount for a designated duration, ensuring the policyholder maintains their insurance protection without additional premiums.

C) Reduced paid-up insurance.

Reduced paid-up insurance allows the policyholder to convert their whole life policy into a paid-up permanent insurance policy with a reduced face amount. This option does not involve term insurance and thus does not fulfill the criteria of selecting term insurance for the full face amount.

D) Extended paid-up insurance.

Extended paid-up insurance allows the policyholder to convert their policy into a paid-up permanent insurance policy without further premiums but does not involve term insurance. Therefore, it does not use cash surrender values to select term insurance for the full face amount.

Conclusion

The correct answer, extended term insurance, is definitive as it directly utilizes the cash surrender values to purchase a term policy for the full face amount, providing continued coverage. Other options either misinterpret the nature of nonforfeiture provisions or do not relate to term insurance, confirming that they do not meet the criteria of the question.