PSI Ohio Insurance Practice Exam

Standard nonforfeiture benefits include what type of insurance?

1. Decreasing term insurance

2. Reduced paid-up insurance

3. Whole life insurance

4. Universal life insurance

The correct answer is: Reduced paid-up insurance

Standard nonforfeiture benefits are provisions in life insurance policies that protect the policyholder's vested interest in the policy even if they stop making premium payments. These benefits ensure that the policyholder does not lose all value in their insurance contract if they choose to discontinue payments. Reduced paid-up insurance is one of the options that represents a standard nonforfeiture benefit. When a policyholder opts for reduced paid-up insurance, they effectively use the cash value accumulated in their policy to purchase a smaller amount of insurance that remains in force for the rest of their life without requiring further premium payments. This allows the policyholder to maintain a form of coverage, utilizing the value built up in their original policy. In contrast, while whole life insurance accumulates cash value and may offer nonforfeiture benefits, the specific nature of reduced paid-up insurance makes it a direct representation of this concept, as it converts the existing cash value into a new policy. Other options, like decreasing term insurance, typically do not have cash value or nonforfeiture benefits, and universal life insurance, although it has some flexible features, does not specifically characterize the standard nonforfeiture benefits in the same way as reduced paid-up insurance does.