1. Which of the following represents a reduced paid-up nonforfeiture option?
Answer: D
The policy will have a decreased face amount.
A reduced paid-up nonforfeiture option allows the policyholder to stop paying premiums while still keeping some level of coverage, which results in a decreased face amount compared to the original policy.
A) Further premiums must be paid on the reduced policy.
This statement is incorrect because one of the key features of a reduced paid-up nonforfeiture option is that no further premiums are required after the policy is converted to a reduced paid-up status.
B) The new face amount is the same as the original policy.
This option is incorrect as it contradicts the fundamental principle of a reduced paid-up nonforfeiture option, where the face amount is reduced when the policy is converted.
C) A full share of expense loading must be included in the premium on the reduced coverage.
This statement is also incorrect since, under a reduced paid-up option, there are no premiums to be paid, and thus the concept of expense loading does not apply.
D) The policy will have a decreased face amount.
This statement is correct because, when a policy is converted to a reduced paid-up nonforfeiture option, the face amount is decreased, reflecting the reduced level of coverage that the policyholder retains without further premium payments.
Conclusion
The correct answer is D, as it accurately reflects the nature of a reduced paid-up nonforfeiture option, which inherently involves a decrease in the face amount of the policy. Options A, B, and C fail to represent the characteristics of this option, particularly regarding premium payments and the retention of original face value.