Definition of Nonforfeiture Clause and an Example
Understanding Nonforfeiture Clauses
Nonforfeiture clauses explain how a policyholder can receive the cash value of their policy, allowing them to either take a lump sum or apply the funds to a continuous coverage. When a permanent life insurance policy ends due to non-payment, or when the policyholder chooses to forgo coverage, the nonforfeiture clause helps protect the accumulated cash value. Nonforfeiture clauses define how a policyholder can receive the cash value of their policy, allowing them to either take a lump sum or apply the funds to continuous coverage.
Advantages and Disadvantages of Nonforfeiture Clauses
Advantages:
- Retention of accumulated cash value
- Option to continue life insurance coverage
Disadvantages:
- Reduced death benefit
- Loss of coverage
Conclusion
The nonforfeiture clause ensures that the accumulated cash value of a permanent life insurance policyholder is not lost. Although it is an important means of financial protection, it requires the policyholder to make wise choices when opting for payment methods. At times, there may be no longer a need for life insurance coverage. In such cases, receiving a lump sum can be beneficial. However, when an insurance policy ends due to non-payment and the policyholder needs life insurance coverage, options that reduce coverage may leave them inadequately protected.
Source: https://www.thebalancemoney.com/what-is-a-nonforfeiture-clause-5216994
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