Nonforfeiture Clause
Candlefocus EditorWhen a policy has a nonforfeiture clause, the policyholder may be able to receive full or a partial refund of premiums, or even receive an alternative benefit, such as extended coverage or reduced premiums. The type of benefit that the policyholder is entitled to depends upon the exact terms of the nonforfeiture clause in the policy. Generally, if the policy is still in effect, the nonforfeiture clause will provide some form of refund or benefit. However, if the policy lapses, the policyholder may be entitled to a different benefit.
For example, with a permanent life insurance policy, a policyholder could use the policy’s “cash value” as a source of cash if the policy lapses or if premiums are not paid. The cash value is the accumulated savings from the premiums that the policyholder has paid over the years. The policyholder can access the cash value of their policy in two ways. They can withdraw it in a lump sum or take the proceeds as a loan. If the policyholder decides to take the loan option, the nonforfeiture clause should protect them from being liable for the loan if the policy lapses.
The nonforfeiture clause is an important protection for policyholders and can help them maintain a level of control over their policy, even when funds are tight. Not all policies have a nonforfeiture clause, however, so it is important to check the policy documents to determine if one is included. It is also important to read and understand all of the terms included in the nonforfeiture clause. This will help protect the policyholder and improve their chances of being able to access the benefits they are entitled to.