Nonforfeiture Benefits 不能作廢條款

The Concept of Nonforfeiture Benefits 不能作廢利益的概念

Under a level premium system, premiums in the early years exceed the current cost of death cover. The excess and its investment return build up a reserve, which gives the policy its cash value. A nonforfeiture provision ensures that a policyholder who stops paying premiums can still benefit from this value rather than walking away with nothing.

Policies with a cash value, such as whole life and endowment insurance, normally carry these benefits. Term insurance mainly provides pure death cover and usually has no cash value, so once premiums stop and the grace period ends, the policy lapses and the holder generally receives no refund.

Cash value does not exist from day one. Because acquisition costs are high, it may be very small or nil in the first year or two. Guaranteed values are usually set out in a table of nonforfeiture values, and any surrender payment may also include non-guaranteed bonuses under the policy terms. The exact rights depend on the individual policy wording.

The Three Main Options 三項主要選擇

Surrender value: the policyholder gives up the policy for cash and receives the net surrender value, which is the cash value plus any accumulated bonuses, less any outstanding policy loan and interest. The policy then ends, and all cover ends with it.

Reduced paid-up insurance: the net cash value is used as a single premium to buy a lower sum insured of the same type of insurance. The plan type and duration stay the same and no more premiums are due. The policy still has a cash value, which continues to grow. This suits someone who wants lasting cover but no further premiums.

Extended term insurance: the net cash value buys term insurance, usually for the original sum insured less any outstanding loan, with no more premiums due. How long the cover lasts depends on the net cash value and the life insured's age at the time, and if the life insured survives the term, the cover simply ends. For an endowment policy, if the net cash value more than pays for term cover to the original maturity date, the balance can generally buy a pure endowment payable on that date.

Comparing the Options and Their Consequences 如何比較及應注意的後果

Exams often test the trade-offs. Surrender gives cash but ends the cover. Reduced paid-up keeps the original period of cover at a lower sum insured. Extended term keeps a higher sum insured for a limited period, with no cover after it ends.

Riders usually do not continue after conversion. For example, waiver of premium and accidental death benefits normally end, subject to the policy terms. A policy loan also reduces the net cash value available, and so affects the surrender payment, the paid-up sum insured or the length of the extended term.

A surrendered policy generally cannot be reinstated. A policy converted to reduced paid-up or extended term can usually be reinstated if the policy conditions are met, such as providing evidence of insurability and paying the arrears with interest. The policy also states which arrangement applies automatically if the holder makes no choice.

Automatic premium loan is different from these three options. It uses the cash value as a loan to pay each premium due, so the original policy continues at its original sum insured. However, the loan and interest build up and eat into the cash value, and the policy can still lapse if the cash value becomes too low to pay the premium.