Texas Life Agent Practice Exam

Which non-forfeiture option continues to build cash value for the policyholder?

1. Extended term option

2. Reduction in cash value

3. Reduced Paid-Up

4. Cash surrender value

The correct answer is: Reduced Paid-Up

The Reduced Paid-Up option is the correct choice because it allows the policyholder to use the existing cash value of their whole life insurance policy to purchase a paid-up policy with a reduced face amount. This means that while the original policy is no longer active, the policyholder still retains some level of insurance coverage, and this new policy continues to build cash value over time. In contrast to other options, the Reduced Paid-Up choice effectively enables the policyholder to maintain a life insurance benefit, even if it is smaller than the original, while still allowing for the accumulation of cash value. The Extended Term option offers a temporary insurance coverage without cash value growth, and the Reduction in Cash Value option diminishes the policy's cash value without providing continued coverage or a savings component. Cash surrender value represents a one-time payout to the policyholder if they choose to cancel the policy, and, therefore, does not have any ongoing cash value growth. Thus, opting for Reduced Paid-Up not only preserves a portion of the death benefit but also ensures that the cash value continues to grow, which is valuable for policyholders looking to maintain some financial benefit from their insurance policy.