Certified Financial Consultant (CFC) Practice Exam

If an insured's policy has a non-forfeiture clause, what does this allow the insured to do?

1. Cancel their policy without penalty

2. Access a cash value if they stop paying premiums

3. Transfer their policy to another insurer

4. None of the above

The correct answer is: Access a cash value if they stop paying premiums

A non-forfeiture clause is an important feature of life insurance policies, particularly in whole life or universal life insurance. This provision ensures that if the policyholder stops paying premiums, they are not simply forfeiting all the benefits they have accrued. Instead, the non-forfeiture clause allows the insured to access a cash value, which represents a portion of the premiums paid and the interest accrued, should they choose to discontinue the policy. This clause provides financial protection and flexibility, enabling policyholders to withdraw the cash value, use it to pay premiums, or convert it into a reduced paid-up insurance policy. Thus, if an insured stops making premium payments, the policy will not simply lapse; they have the option to receive cash benefits instead, which is a significant advantage for the policyholder. The other options do not accurately reflect the purpose of a non-forfeiture clause. Canceling a policy without penalty pertains to different contractual provisions, transferring a policy to another insurer typically involves a different set of rules or a replacement policy, and stating "none of the above" would not capture the fundamental benefits provided by the non-forfeiture clause.