If a whole life policy lapses with sufficient cash value and the policyowner has made no nonforfeiture election, most policies will automatically:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
When no election is made at lapse, the automatic nonforfeiture option in most whole life policies is extended term insurance: the net cash value is used as a single premium to buy term coverage equal to the original face amount, which continues for as long as the cash value can support it. The three nonforfeiture options are cash surrender, reduced paid-up, and extended term. Because most policyowners do not make an election, the automatic extended term option protects the insured from losing all coverage. If the cash value is exhausted, coverage ends without further value. This rule reflects the law's concern that cash values should never be forfeited by a lapse.
Why the other options are wrong
- Receiving the cash value is the cash surrender option, which requires an affirmative election by the policyowner and terminates the policy.
- Nonforfeiture provisions exist precisely to prevent the forfeiture of cash value at lapse; the value is applied to a continuing benefit instead.
- No provision continues the policy free of charge; the extended term coverage is funded by the policy's net cash value.
Memory hook
No choice made? The cash value silently buys extended term, so the face amount keeps running on its own dime.