Cash Value Nonforfeiture Choices

Understanding Nonforfeiture Rights and Policy Values

Nonforfeiture options are statutory rights that protect the accumulated cash value in a permanent life insurance policy if premium payments stop. State nonforfeiture laws protect available value in cash-value life policies, but the choices offered depend on the policy type and contract; not every permanent policy offers extended term and reduced paid-up insurance. Nonforfeiture values are not available in pure term life insurance because term policies do not develop cash value. If premiums stop on a cash value life policy, nonforfeiture provisions give the owner choices for any available value, subject to the policy terms and outstanding debt.

As a policyowner, you have a contractual right to the policy's available cash value, but you do not own the insurer's underlying assets. You also hold a contractual right to available nonforfeiture value, subject to the policy terms and any outstanding debt. A permanent policy's nonforfeiture values may be small or zero in its early years, so you should always check the policy guaranteed value table. A permanent policy nonforfeiture table typically shows guaranteed values at stated policy anniversaries, subject to policy debt and the contract terms.

Paid-up additions can increase the policy value available for nonforfeiture benefits. Dividends left to accumulate at interest are generally handled separately under the contract. The policyowner generally does not have to provide evidence of insurability to elect a nonforfeiture option. The insured's attained age is one key factor in determining how much extended term or reduced paid-up coverage the available value can purchase.