A policyowner stops paying premiums, has not taken a paid-up policy, and makes no nonforfeiture election. If the policy's nonforfeiture provision designates a default option, the coverage is most commonly converted to:

Why A is correct

Under the nonforfeiture provisions of a life policy, when a policy lapses after cash value exists and the owner makes no election, the typical automatic option is extended term insurance: the cash value is used as a net single premium to buy term coverage equal to the policy's face amount for as long as the cash value will support it. This keeps the full death benefit in force for a limited period without further premiums. The other nonforfeiture options, cash surrender and reduced paid-up, require an affirmative election in most policies.

Why the other options are wrong

• B) Reduced paid-up whole life lowers the face amount permanently; it is an election, not usually the automatic default.
• C) Converting to universal life is not a nonforfeiture option; the nonforfeiture choices are cash, reduced paid-up, and extended term.
• D) An annuity is a separate product and is not a nonforfeiture option under a life policy.

Memory hook

Default nonforfeiture = cash value buys term, keeping the full benefit alive as long as it can.