28. Which of the following represents a reduced paid-up nonforfeiture option?
Answer: A
The policy will have a decreased face amount.
In a reduced paid-up nonforfeiture option, the policyholder opts to stop paying premiums while still receiving a reduced face amount. This means that the death benefit will be lower than the original policy value.
A) The policy will have a decreased face amount.
This option accurately describes the nature of a reduced paid-up nonforfeiture option. When a policyholder chooses this option, they effectively convert their whole life policy into a paid-up policy with a lower death benefit, thus acknowledging the decrease in coverage.
B) Further premiums must be paid on the reduced policy.
This option is incorrect. A reduced paid-up nonforfeiture option does not require any further premium payments after the initial policy has been converted. The policyholder ceases premium payments and retains a reduced death benefit.
C) The new face amount is the same as the original policy.
This statement is incorrect as well. The essence of a reduced paid-up nonforfeiture option is that the new face amount is less than the original policy amount. The reduction is a fundamental characteristic of this option.
D) A full share of expense loading must be included in the premium on the reduced coverage.
This option is also incorrect. Since the reduced paid-up option eliminates the need for premiums, there is no expense loading or premiums required for the reduced coverage. The policyholder simply retains a lower death benefit without additional costs.
Conclusion
The correct answer, indicating that the policy will have a decreased face amount, directly aligns with the definition of a reduced paid-up nonforfeiture option. All other options fail to accurately describe the nature of this option, as they either suggest ongoing payments or incorrect coverage amounts. Thus, A is the only option that correctly represents this nonforfeiture choice.