What occurs to the face amount of a policy when a reduced-paid up non-forfeiture option is selected?

What occurs to the face amount of a policy when a reduced-paid up non-forfeiture option is selected?

• A. It decreases over the term of the policy
• B. It remains the same as the original policy
• C. It is reduced to the cash value amount
• D. It is increased when extra premiums are paid

Answer: (C)

When a reduced-paid up non-forfeiture option is selected, the face amount of the policy is reduced to the cash value amount. This option allows a policyholder to stop paying premiums while maintaining a form of coverage. Essentially, the policyholder is opting to convert the existing policy into a new one with a lower face amount, effectively using the cash value accumulated in the original policy to fund the new reduced paid-up policy. This approach provides the policyholder with continued life insurance protection without the burden of ongoing premium payments. The cash value serves as the foundation for the new policy, resulting in a decrease in the face amount compared to the original policy. As a result, the reduced amount reflects the value that can be converted based on the cash reserves within the policy rather than the entirety of the initial coverage.

When a reduced-paid up non-forfeiture option is selected, the face amount of the policy is reduced to the cash value amount. This option allows a policyholder to stop paying premiums while maintaining a form of coverage. Essentially, the policyholder is opting to convert the existing policy into a new one with a lower face amount, effectively using the cash value accumulated in the original policy to fund the new reduced paid-up policy.

This approach provides the policyholder with continued life insurance protection without the burden of ongoing premium payments. The cash value serves as the foundation for the new policy, resulting in a decrease in the face amount compared to the original policy. As a result, the reduced amount reflects the value that can be converted based on the cash reserves within the policy rather than the entirety of the initial coverage.