Nonforfeiture Benefits in Whole Life Insurance

Overview

• Nonforfeiture benefits apply to Whole Life Nonparticipating Policies and Whole Life Participating Policies.
• Participating policies allow receipt of dividends with multiple usage options.
• Term insurance offers no benefits upon cancellation; it is purely for risk protection.

Nonforfeiture Benefits

• Benefits available if a whole life insurance policy is canceled.
• Whole life insurance builds a savings account through additional premiums.

Types of Nonforfeiture Benefits

1. Cash Surrender Value

• On surrendering the policy, the cash surrender value is returned to the policyholder.
• This value is the savings accumulated in the policy minus any loans taken against it.

2. Automatic Premium Loan

• An automatic feature if premiums are not paid.
• Insurance company borrows from cash value to pay premiums.
• Coverage continues until cash value is depleted.
• Provides a 30-day grace period for premium payments.

3. Reduced Paid-Up Insurance

• Uses cash value to buy less insurance, but coverage lasts for the policyholder's lifetime.
• Example: $100,000 policy with $20,000 cash value may result in $43,000 coverage for life.
• Cash value acts as a single premium for the reduced coverage.

4. Extended Term Insurance

• Uses cash value to maintain the same coverage amount for a limited period.
• Example: $100,000 coverage may continue for 7.3 more years, maintaining the full amount.

Conclusion

• Nonforfeiture benefits allow policyholders to retain some value from whole life insurance even if they choose to cancel the policy.
• Options vary in terms of duration and amount of coverage based on the cash value accumulated.