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Principles of Risk Management and Insurance, 13th Edition by Michael McNamara, George E. Rejda

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Nonforfeiture Options

If a cash-value policy is purchased, a policyholder pays more than is actuarially necessary for the life insurance protection. Thus, he or she should get something back if the policy is surrendered. The payment to a withdrawing policyholder is known as a nonforfeiture value or cash-surrender value.

All states have standard nonforfeiture laws that require insurers to provide at least a minimum nonforfeiture value to policyholders who surrender their policies. There are three nonforfeiture options or cash-surrender options:

  • Cash value

  • Reduced paid-up insurance

  • Extended term insurance

Cash Value

The policy can be surrendered for its cash value, at which time all benefits under the policy cease. A policy normally does not build ...

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