New Jersey Life and Health State Practice Exam

Which of the following is NOT a nonforfeiture option in whole life insurance?

1. Paid-up insurance

2. Extended term insurance

3. Interest only

4. Partial surrender

The correct answer is: Interest only

In the context of whole life insurance, nonforfeiture options are benefits that allow policyholders to receive value from their policy if they decide to stop paying premiums after it has accrued cash value. The aim of these options is to ensure that the policyholder does not completely forfeit the benefits of the policy. Paid-up insurance and extended term insurance are indeed recognized nonforfeiture options. Paid-up insurance allows the policy to be converted into a reduced amount of paid-up whole life coverage, while extended term insurance allows the policyholder to use the cash value to purchase term insurance for a specified period. Both options enable policyholders to maintain some level of coverage without ongoing premiums, effectively utilizing the cash value that has built up. Interest only, on the other hand, refers to a distribution option for policy proceeds rather than a nonforfeiture choice. It typically applies when a death benefit payout is delayed, allowing beneficiaries to receive interest on the death benefit while they decide what to do with the funds. Thus, it does not fit the definition of a nonforfeiture option. Partial surrender is also not a traditional nonforfeiture option but rather a method to access cash values without completely terminating the policy. While this can provide liquidity, it alters