Nonforfeiture options are available with most whole life insurance policies. With these options, you are allowed to keep your life insurance coverage after a lapse in premium payment. In the event that you miss your life insurance payments, then you can use your policy’s cash value toward a reduced paid-up insurance policy or an extended-term life insurance policy.
With the different nonforfeiture options available, it is vital that you understand what you’re dealing with before taking the next step. Here are some of the questions you need to ask aboutnonforfeiture options.
Why Do Nonforfeiture Clauses Exist?
The good thing about nonforfeiture clauses is that they offer consumer protection in the event a policy owner stops paying their premium. At times, a policy expires after expiration of the grace period. But what happens if cash has accumulated in the policy? When this is the case, state law prohibits insurance companies from keeping the cash and cancelling the policy.
What’s Cash Surrender Value?
You will always hear about the cash surrender value when talking about nonforfeiture options. Well, this applies to the savings element of whole life insurance policies. This value is payable before death. You can deem it to be the accumulated portion of a permanent life insurance policy’s cash value that is available to the policy owner upon surrender of the policy. Depending on the age of the policy, the cash surrender value could be way less than the actual cash value.
How Does a Nonforfeiture Clause Work?
In the event the policyholder continually makes premium payments for a sufficient amount of time, then a forfeiture clause could become active in one of two ways. The insured party’s coverage can be terminated automatically once the policy owner fails to make premium payments of when he/she decides to surrender the policy.
Before rushing into leveraging what nonforfeiture options offer policy owners, be sure to take it upon yourself to do a bit of research. Even though it might seem like a waste of your precious time, it is what you need to understand what you’re dealing with.