If you hold a permanent life insurance policy, then you can probably take advantage of nonforfeiture options as a form of protection. Things do happen and sometimes insurance policies need to be surrendered or premiums can’t be consistently paid. Despite this, insurance companies still want you protected no matter what happens.
That’s where nonforfeiture options come into play. But how much do you know about nonforfeiture options and how can they protect the insured. Keep reading to find out more before deciding on anything.
What Is A Nonforfeiture Option?
For the insured to have the ability to receive full or partial benefits after a lapse in their policy, they need to have a nonforfeiture clause within their insurance policy. Under this clause, the insured may need to return some portion of the total premiums paid, the cash surrender value of the policy, or a reduced benefit based upon premiums paid before the policy lapsed.
The main aim of nonforfeiture options is to offer protection to the insured in case the policyholder stops paying premiums. State law forbids insurance companies from keeping the accumulated cash value and canceling the policy should a policy expire.
How Does The Nonforfeiture Option Work?
The nonforfeiture benefit is made available when the policyholder decides to surrender the policy. Life insurance policyholders are free to choose from cash surrender value, extended term insurance, loan value, and paid-up insurance. With cash surrender value, the policyholder surrendering the policy will be able to receive the accumulated portion of a permanent life insurance policy’s cash value within six months.
Things tend to be different with the extended-term insurance nonforfeiture option as it allows the policyholder to use the cash value to purchase a term insurance policy with a death benefit equal to that of the original whole-life policy.
Final Thoughts
There is more you need to know about nonforfeiture options than what is included in this quick guide. No wonder you should take it upon yourself to do a bit of research to find answers to all your burning questions.