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D. Gilson is a writer and author of essays, poetry, and scholarship that explore the relationship between popular culture, literature, sexuality, and memoir. His latest book is Jesus Freak, with Will Stockton, part of Bloomsbury’s 33 1/3 Series. His other books include I Will Say This Exactly One Time and Crush. His first chapbook, Catch & Release, won the 2012 Robin Becker Prize from S.
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UPDATED: Jul 31, 2024
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance company and cannot guarantee quotes from any single company.
Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
For those who hold a permanent life insurance policy, nonforfeiture options are available to protect the insured.
Life happens and sometimes insurance policies need to be surrendered or premiums cannot be consistently paid. Insurance companies want you protected no matter what happens. Read the article to learn more about the meaning of nonforfeiture in an insurance policy.
Find out if you qualify for a life insurance nonforfeiture option. Enter your ZIP code and get a free quote today.
For an insured party to have the ability to receive full or partial benefits or a partial refund of premiums after a lapse in their policy, they must have a nonforfeiture clause within their insurance policy.
Read More: Life Insurance Terms and DefinitionsUnder the clause, the insured may have 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.
A nonforfeiture clause can be in a permanent life insurance policy, long-term disability, and long-term care insurance policies.
The clause was created to protect the insured in case the policyholder stops paying premiums. State law forbids companies from keeping the accumulated cash value and canceling the policy should a policy expire.
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The nonforfeiture meaning in insurance refers to the policyowner’s right to retain some benefits even if they cease to pay premiums. These options are crucial in life insurance policies, especially in whole life insurance, where the policy has built up cash value over time. A provision in a whole life policy that allows policyholders to benefit from their accrued value is called the nonforfeiture provision. Nonforfeiture provision in life insurance ensures that policyowners do not lose their accumulated benefits entirely. All of the following are considered to be nonforfeiture options: cash surrender, reduced paid-up insurance, and extended term insurance. 3 nonforfeiture options offer flexibility, with the cash surrender nonforfeiture option allowing the policyholder to receive the policy’s cash value.
Among the nonforfeiture options, choosing the extended term can be particularly beneficial. The benefit of choosing extended-term as a nonforfeiture option is that it provides a term insurance policy with the same death benefit for a specified period. After the extended-term life nonforfeiture option is chosen, the available insurance will be active for a duration based on the policy’s cash value. For those looking to maintain some life insurance coverage without further premium payments, reduced paid-up insurance is another viable choice. Reduced benefit clause is often included to explain the reduced coverage amount. Comparatively, the paid-up nonforfeiture benefit and reduced paid-up additions option enable policyholders to continue coverage with no additional premiums. Additionally, paid-up additions in life insurance and paid-up additions for dividend options help build cash value, offering policyholders additional benefits. Understanding these provisions is crucial, especially when considering companies like Primerica, as the Primerica life insurance payout timeline might influence decision-making.
The nonforfeiture benefit becomes available when the policyholder decides to surrender the policy.
Life insurance policyholders can choose one of four nonforfeiture benefit options: cash surrender value, extended term insurance, loan value, and paid-up insurance.
If the policyholder does not make a selection, the terms of the policy will generally stipulate which option would go into effect if the policy lapses or is surrendered.
In short, the policyholder has options if they cannot continue to pay the premiums.
The cash surrender guarantees the policyholder their accumulated cash value.
If the policyholder decides on the extended-term insurance option, they are guaranteed the current death benefit of the whole life policy for a set time with no premium payment required.
The reduced paid-up option guarantees a lesser whole life death benefit remains in force for the rest of the insured’s life with no premium payments required.
It will also continue to build up a cash value through the accumulation of guaranteed interest. Also, the payment of life insurance dividends continues if the dividend option is set to paid-up additions.
It is important to note the option to exercise a nonforfeiture benefit only exists if the whole life policy has cash value — some policies have no cash value for the first few years.
In life insurance, a nonforfeiture option is a feature that provides policyholders with benefits even if they decide to discontinue premium payments. One common nonforfeiture option is the extended-term insurance nonforfeiture option , where the policy’s cash value is used to purchase a term insurance policy with the same face amount for a specified period. This allows policyholders to maintain some level of coverage without further premium payments.
There are various nonforfeiture options available, such as the reduced paid-up insurance option, where the policy’s cash value buys a smaller, fully paid-up policy. Under an extended term nonforfeiture option , the original policy’s cash value buys term insurance, providing temporary coverage. Knowing under which nonforfeiture option is best can be crucial for maintaining coverage. A nonforfeiture clause gives the policyowner rights to the accumulated cash value, ensuring they can choose from various nonforfeiture options life insurance offers. Typically, after the extended term life nonforfeiture option is chosen, the policyholder receives coverage for a limited period. These options, including the extended term option, are vital for policyholders to understand, and examples of nonforfeiture options demonstrate the flexibility and benefits of these clauses in life insurance policies.
There are two other life insurance nonforfeiture options. But unlike the four options mentioned above, these two are not made available by all insurance companies. Nonforfeiture definition refers to the rights of a policyholder to receive some portion of the benefits or a refund of the premiums paid, even if the policy lapses or is surrendered. The first is a single-premium, immediate annuity option.
The policyholder will be able to convert their policy to an annuity, which will pay the policy owner an amount for the rest of their life. The amount is based on the cash value of the lapsed or surrendered policy and the policy owner’s age. Additionally, under an extended-term nonforfeiture option the policy cash value is converted to a term insurance policy for a specific period, providing the same death benefit as the original policy but without the need for further premium payments.
The other option is an automatic premium loan. The cash value will allow the insurer to automatically deduct the premium amount overdue from the policy value. This is the insurance company making a loan against the policy’s cash value. (For more information, read our “Life Insurance Automatic Premium Loan Provision (Terms Explained)“).
The nonforfeiture benefit is available only for permanent life insurance policies. If you have a term life insurance policy or universal life insurance policy and you’re looking for a nonforfeiture option, then your best step to take is a 1035 exchange option.
As long as you are in good health and under the age of 80, you may exchange your term insurance policy for another term insurance policy with a level premium, or a permanent life insurance policy with a level premium. The only stipulation is that the insured of the old policy is the same person insured under the new policy.
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Case Study 1: John’s Whole Life Insurance Policy
John holds a whole life insurance policy for the past 15 years. Unfortunately, due to financial difficulties, he finds it challenging to continue paying the premiums. In this scenario, the nonforfeiture clause in John’s policy comes into play.
As a result, John has the option to choose the cash surrender value, extended term insurance, reduced paid-up insurance, or a loan against the policy’s cash value. Each option offers different benefits and considerations, providing John with the flexibility to make an informed decision.
Sarah has a universal life insurance policy and has diligently paid the premiums for several years. However, she decides that she needs to discontinue the policy due to changing financial circumstances. In this situation, Sarah explores the nonforfeiture options available to her.
Since universal life insurance policies typically accumulate cash value, Sarah can choose between the cash surrender value, extended term insurance, reduced paid-up insurance, or other options specified in her policy. By exercising a nonforfeiture option, Sarah can still derive value from her policy despite discontinuing premium payments.
Case Study 3: Michael’s Long-Term Disability Insurance Policy
Michael holds a long-term disability insurance policy, which includes a nonforfeiture clause. Unfortunately, he becomes unable to work due to a severe disability, leading to a lapse in his policy.
However, thanks to the nonforfeiture option, Michael can receive partial benefits or a refund of premiums paid before the policy lapsed. This provision provides a safety net for individuals like Michael, ensuring some financial protection in case of unexpected circumstances.
A non-forfeiture option is a provision in a life insurance policy that allows the policyholder to receive a benefit or value from the policy if they choose to surrender or terminate it before its maturity or if they are unable to pay the premiums. It ensures that policyholders do not lose the entire value of their policy when they decide to discontinue it.
The cash value of a life insurance policy is typically determined by the amount of premiums paid, the length of time the policy has been in force, and any investment gains or losses associated with the policy. The specific calculation methods may vary depending on the insurance company and the policy’s terms and conditions.
The tax implications of choosing a non-forfeiture option may vary depending on the specific circumstances and the tax laws of the jurisdiction where the policyholder resides. In general, surrendering a life insurance policy or accessing its cash value may have tax consequences. It is advisable to consult with a tax professional or financial advisor to understand the potential tax implications before making a decision.
Once a non-forfeiture option is chosen and executed, it is typically irreversible. However, policyholders may have the ability to make changes within the chosen option if allowed by the insurance company’s policies. For example, in the case of reduced paid-up insurance, the policyholder may have the option to increase the coverage amount by resuming premium payments.
Non-forfeiture options are generally included in permanent life insurance policies, such as whole life and universal life insurance. They are designed to provide value to policyholders who choose to discontinue their coverage. Term life insurance policies typically do not include non-forfeiture options since they are intended to provide coverage for a specific term only.
The benefit of choosing extended-term as a nonforfeiture option allows the policyholder to maintain the same death benefit amount for a specified period without paying additional premiums. This can provide continued coverage while utilizing the policy’s cash value to keep the insurance in force.
A nonforfeiture option is a provision in a life insurance policy that allows policyholders to retain some benefits or cash value if they decide to stop paying premiums. It ensures that the policyholder does not lose the equity built up in the policy.
The extended term nonforfeiture option allows the policyholder to use the cash value of their life insurance policy to purchase a term insurance policy with the same death benefit for a specific period. This extends coverage without requiring additional premium payments.
An example of a nonforfeiture option is the reduced paid-up insurance option, where the policy’s cash value is used to purchase a smaller, fully paid-up policy with no further premiums due.
The automatic premium loan provision allows the insurer to automatically use the policy’s cash value to pay a missed premium, preventing the policy from lapsing. This provision ensures continued coverage without the need for immediate out-of-pocket payments from the policyholder.
The cash surrender nonforfeiture option allows the policyholder to terminate the policy and receive the accumulated cash value in a lump sum. This option provides immediate access to the policy’s cash value but results in the loss of death benefit coverage.
When a whole life policy is surrendered for its nonforfeiture value, the automatic option is typically the extended term insurance option. This option uses the cash value to purchase term insurance with the same death benefit for a specific period.
When the insured selects the extended-term nonforfeiture option, the cash value will be used to purchase a term insurance policy that provides the same death benefit for a specified period, extending coverage without further premium payments.
When the insured selects the extended-term nonforfeiture option, the policy’s cash value is used to buy a term insurance policy with the same face amount as the original policy, providing continued coverage for a specified period without additional premiums.
The extended term nonforfeiture option allows the policy owner to have coverage equal to the net death benefit of the lapsed policy for a specified period using the policy’s cash value.
The automatic premium loan provision is not considered a nonforfeiture option. Nonforfeiture options typically include extended term insurance, reduced paid-up insurance, and cash surrender value.
The reduced paid-up insurance non-forfeiture option continues a buildup of cash value. This option uses the policy’s cash value to purchase a smaller, fully paid-up policy that continues to accumulate cash value over time.
The automatic premium loan provision is not derived from non-forfeiture values. Non-forfeiture values are specifically related to options such as extended term insurance, reduced paid-up insurance, and cash surrender value.
Nonforfeiture provisions are required in permanent life insurance policies, such as whole life and universal life insurance. These provisions ensure that policyholders can receive some value from their policy, even if they discontinue paying premiums. The nonforfeiture options may include cash surrender value, reduced paid-up insurance, or an extended term insurance option, allowing the policyholder to utilize the accumulated cash value of the policy. Term life insurance policies generally do not include nonforfeiture provisions, as they do not build cash value.