A Texas policyowner wants continued coverage that keeps a cash value and matures at the end of the policy period, and is willing to accept a smaller death benefit to get it. Which nonforfeiture option fits, and how does an outstanding loan affect it?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Under TIC Chapter 1105 (1105.001-.153) and 28 TAC 3.3844, reduced paid-up insurance converts the policy's net value into a smaller, fully paid-up amount that continues to the end of the policy period and retains cash values, whereas extended term insurance buys the full amount for a limited period and carries no cash value. In either case an outstanding loan reduces the net value, so it lowers the paid-up amount or shortens the extended term. Practically, a Texas owner who wants permanent coverage with values should elect reduced paid-up and should expect the loan to cut the amount of that paid-up insurance.
Why the other options are wrong
- A) is wrong because extended term keeps the policy amount (net of the loan) and shortens the period of coverage; it is the reduced paid-up option that lowers the face amount.
- B) is wrong because extended term insurance has no cash value and no further premiums are payable.
- C) is wrong because taking the cash surrender value ends the coverage; it does not continue any death benefit.
Memory hook
Paid-up shrinks the amount; extended term shrinks the time.