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What You Should Know
- Nonforfeiture options are available with whole life insurance, long-term disability coverage, and long-term care insurance
- Nonforfeiture options protect policyholders from losing life insurance coverage for missed payments
- Policyholders can choose from three common types of nonforfeiture options
Nonforfeiture options in life insurance refer to the different ways policyholders can maintain coverage after lapsing on premium payments. These options are available with whole life insurance, long-term disability coverage, and long-term care insurance.
The three types of nonforfeiture options available are:
- Cash surrender
- Reduced paid-up insurance
- Extended term insurance
Keep reading our guide to learn more about the nonforfeiture meaning and what these options mean to your life insurance policy. We’ll also compare quotes from the best life insurance companies so you can better decide if whole life insurance with nonforfeiture options is right for you.
Before you buy life insurance, enter your ZIP code above to compare free life insurance quotes from local companies offering nonforfeiture options.
What is a nonforfeiture option in life insurance?
Legally, nonforfeiture options protect policyholders from losing life insurance coverage for missed payments. If you miss your life insurance payments, you will surrender your policy back to the company. However, you are still entitled to full or partial benefits or a refund of premiums.
The nonforfeiture option you choose in your life insurance policy will determine whether you receive benefits or a refund after you surrender your policy.
What are the three nonforfeiture options? Most life insurance companies will allow policyholders to surrender a policy for its cash value or exchange it for a paid-up or extended term life insurance policy.
We discuss your nonforfeiture life insurance options in-depth below:
Cash Surrender Nonforfeiture Option
With this option, policyholders receive the full cash surrender value of their whole life insurance policy. This value is the savings the whole life policy accumulated while it was in place.
Since this value is receivable before death, it is also available as a nonforfeiture option. However, the surrender value is often significantly less than your death benefit. For example, a $1 million death benefit may only receive $50,000 cash at time of surrender.
If you have universal or variable life insurance, your cash surrender value may be worth more based on investments. Read our guide to whole vs. universal life insurance to learn more.
Reduced Paid-Up Nonforfeiture Option
If you want to keep your whole life insurance policy, choose a reduced paid-up nonforfeiture option. In this case, you will opt for reduced death benefits with no additional monthly payments.
This paid-up feature means you maintain life insurance coverage, and your survivors will still receive a death benefit after you pass. However, you may want to consider your budget and your family’s needs if you plan to reduce your life insurance coverage.
Extended Term Nonforfeiture Option
Much like the paid-up option, this route gives policyholders the chance to use the cash surrender value and buy a term life insurance policy. The advantage here is that the term life death benefit will be the same amount as your original whole life death benefit.
However, term life insurance only lasts for a set period. Your term is based on how long you paid whole life insurance premiums.
For example, if you bought whole life insurance when you were 20 and forfeited the policy at 60, you would receive a 40-year extended term life insurance policy.
Are there other nonforfeiture options available?
Yes, policyholders can also choose to convert the policy to an annuity. The annuity amount is determined by the cash value of the policy and the policyholder’s age.
Policyholders may also choose to use the cash value as a premium loan for the missed payments. Coverage and death benefits will remain intact as long as the cash value is equal to or exceeds the overdue amount.
Not every life insurance company will offer an annuity-based or premium loan nonforfeiture option. If these options are important to you, you will need to compare quotes from multiple life insurance companies in your area to find the insurer with the right policy.
What kind of life insurance policy has nonforfeiture options?
Whole life insurance policies are most likely to have nonforfeiture options because they come with an investment account. This investment amount becomes the surrender value required by the nonforfeiture disclosure.
Long-term care and long-term disability policies may also have nonforfeiture options. In some states,like New York, long-term care and disability insurance policies must have nonforfeiture clauses. This entitles those who need it to continue receiving care even after missing payments.
However, coverage levels and term lengths can be reduced based on how much remains in the policy's cash value.
How much do nonforfeiture options cost?
Nonforfeiture options won’t necessarily raise your life insurance rates. However, whole life insurance costs more than term life, and term life policies are not eligible for nonforfeiture options.
On average, whole life insurance rates average between $500-$900 per month, depending on your age and level of coverage.
Compare that to the $28-$98 monthly payments for a 20-year term life policy. So, if you want a nonforfeiture option, be prepared to pay significantly more for your policy. Read our term vs. whole life insurance guide to learn more and compare rates closely.
Which is the best nonforfeiture option for life insurance?
If you’re looking for the nonforfeiture option with the highest death benefits and most insurance protection, choose the extended term nonforfeiture option. This option allows you to keep your original coverage levels and benefits, just for a shorter period.
Suppose you’re switching life insurance companies. In that case, the best nonforfeiture option would be the cash surrender value. You will lose the rates and coverage you have with your current provider, but you can put the surrender value toward a more affordable life insurance policy with another company.
Your life insurance rates will be more expensive the older you are, so shop around before you decide to switch companies. Enter your ZIP code below to start comparing life insurance quotes for free so you can find the best policy with the right nonforfeiture options for you.
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