State RegulationsTX specificDifficulty 2/5
A Texas policyowner with an outstanding policy loan stops paying premiums and elects the extended term nonforfeiture option. What coverage results?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under TIC Chapter 1105 (1105.001-.153) and 28 TAC 3.3844, extended term insurance applies the net value of the policy as a single premium to buy term coverage at the insured's attained age, and because an outstanding loan reduces the value available, it also reduces the amount or the length of the extended term coverage. Practically, a Texas policyowner with a large loan may find the extended term period much shorter than expected, which is why the loan balance should be discussed when a lapse is coming.
Why the other options are wrong
- A) is wrong because a monthly income is a settlement option for proceeds, not a nonforfeiture benefit.
- C) is the reduced paid-up option, which lowers the face amount rather than shortening the term of the full amount.
- D) is wrong because extended term coverage is paid up out of the policy value; no further premiums are payable and the length of the term is what changes.
Memory hook
Extended term: full amount, shorter time, loan shrinks it.