Which situation accurately describes a reduced paid-up nonforfeiture option?

Which situation accurately describes a reduced paid-up nonforfeiture option?

A.Policy has a decreased face amount

B. Face amount of the new policy equals that of the original policy

C.Cash value is surrendered to policyowner

D.Premiums must continue to be paid

Answer: A.Policy has a decreased face amount

When the policyholder uses this option, it is called as a reduced paid-up nonforfeiture. It is the point at which the face value (the death benefit) of the policy is reduced or decreased from the original amount. This decrease in premium is derived from the policy’s stockpile of net cash value.

This policy carries on the insured’s life insurance permanent, absorbing neither additional contributions nor reducing of death benefit from the base amount.

The other options (2, 3, and 4) are incorrect descriptions of the reduced paid-up no forfeiture option:

2. The face amount is different from the policy amount originally written; this amount is reduced.

3. Cash value, instead of being surrendered, is invested through a smaller face-value paid-up policy.

4. As the premium initially paid becomes fully paid up, the amount of death benefit decreases correspondingly. Therefore, the policyholder no longer needs to pay any other premiums.