Terminology - Non-Forfeiture Options

Non-Forfeiture Options

These options are only granted with policies that accumulate cash value such as Whole Life Insurance and Endowment Insurance.

These are options which exist to prevent the lapsing or forfeiture of policies due to non-payment of premiums. Common non-forfeiture options include:

• Cash Value Option - Policy owner can receive the cash value accumulated under his/her policy if he/she chooses to surrender the policy (often subjected to a certain waiting period.)
• Reduced Paid Up Insurance - Policy owner can use cash values accumulated to purchase a single premium paid-up policy with a reduced sum assured at the rate attached to the age when this option is exercised. The paid up policy will also usually be non-participating in nature.
• Extended Term Insurance - Policy owner can use the cash value accumulated to purchase an extended term policy for a sum assured equal to that of the original policy. The length of the term is however, dependent on the cash value available as well as the owner's age as it will be based on the owner's current age. Thus, a policy with high cash value may end up with an extended coverage that would be in force for a longer period of time. This is useful for people who may be experiencing financial difficulties and have problems paying the premiums. Note that this option may not always be available to all policies.

Terminology - Policy Loan

Policy Loan

This option may be available on policies that acquire cash value. This allows owners to use the policy as a collateral for a policy loan.

It is actually an advancement of the cash value under the policy owner's policy. Thus, it will reduce the amount payable in event of a claim or if the policy owner chooses to surrender the policy. As interest is payable on the loan, the amount payable will be reduced by the amount of the policy loan plus accrued interest.

An important note about policy loans is that if the policy owner fails to pay the interest due on policy anniversary, the outstanding interest will be added to the principal and later charged at the same rate as that of the principal. If this outstanding amount exceeds the cash value of the policy, the policy will be terminated and all premiums paid will not be refunded.

It is advisable to check for exact terms and conditions with your insurer before embarking on a policy loan.

Terminology - Death Benefit

Death Benefit

Refers to the amount the insured receives in the event of death. The payment is usually made in one lump sum.

In the event that the policy covers total and permanent disability, the amount under death benefit may be paid to the insured in a series of payments depending on the structure of the policy.

Terminology - Cash Value

Cash Value

Also known as Cash Surrender Value or Reserve.

An estimated value which the insured will receive, before certain adjustments, if he or she chooses to surrender a policy after a period of time. This only applies to participating policies.

For example, Mr A buys a participating whole life policy with a sum assured of $100,000 with an annual premium amount of $1,500. After 10 years, he chooses to surrender the policy. He receives $10,000 in return.

Please note that all these figures are for illustrative purposes only.