A nonforfeiture clause is merely an insurance policy clause stipulating that an insured party can get full or partial benefits or a partial refund of premiums after a lapse due to nonpayment. The clause may entail returning some portion of the total premiums paid, the cash surrender value of the policy, or a reduced benefit based on premiums paid before the policy lapses.
After surrendering a while-life insurance policy, the death benefit ceases to exist. Before issuing payment to the policy owner, outstanding loan amounts are satisfied with the cash value. With that being said, below are among the popular nonforfeiture options you should know.
Extended-Term Insurance
This nonforfeiture option allows the policy owner to use the cash value in purchasing a term-insurance policy with a death benefit equal to that of the original whole-life policy. Keep in mind the policy is calculated from the insured’s attained age. However, the term policy is destined to end after a fixed number of years.
That’s as detailed in the policy’s nonforfeiture table. Keep in mind this option might be automatic for some companies when surrendering a whole life insurance policy. No wonder you should keenly examine this before signing on the dotted line.
Cash Surrender Value
With this nonforfeiture option, the policy owner receives the remaining cash value within six months. This is under the nonforfeiture cash payment option. Remember, the cash surrender value is applicable to the savings element of whole life insurance policies payable before death.
But during the early years of a whole life insurance policy, the savings portions only brings about little return compared to the premiums paid. We can never conclude without mentioning the fact that cash surrender value is the accumulated portion of a permanent life insurance policy’s cash value.
Of course, this is made available to the policyholder upon surrender of the policy. Depending on the policy’s age, the cash surrender value cold be less than the actual cash value. Be sure to research more regarding the different nonforfeiture options to better understand what they entail in the first place.