What is a "non-forfeiture option" in life insurance?

A "non-forfeiture option" in life insurance refers to the various choices available to policyholders who decide to discontinue paying premiums on their policy. These options ensure that the insured does not completely lose the benefits of their policy, even if they can no longer afford to pay premiums. Essentially, non-forfeiture options allow the cash value accumulated in the policy to be utilized in a way that provides some financial benefit to the policyholder.

For instance, if a policyholder has a whole life insurance policy and decides to stop paying premiums, they may have the option to receive the cash surrender value, convert the policy into reduced paid-up insurance, or use the cash value to provide extended term insurance. Each of these choices offers a way to retain some value from the policy, reflecting the principle that policyholders should not forfeit all their investment in the policy simply due to a lapsed premium payment.

Understanding non-forfeiture options is vital as it provides policyholders with flexibility and a safety net, ensuring that their previous investment in insurance remains safeguarded to some extent, even if they can no longer maintain payments.