Which of the following is NOT considered to be a nonforfeiture option in accounting for life insurance policies?

• A. Cash surrender value
• B. Dividend option
• C. Reduced paid-up insurance
• D. Extended term insurance

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of nonforfeiture options in life insurance policies. Nonforfeiture options are provisions that allow a policyholder to retain some benefits from a life insurance policy if they stop paying premiums. Common nonforfeiture options include cash surrender value, reduced paid-up insurance, and extended term insurance.
2. Step 2: Review the provided options and identify which ones are nonforfeiture options. Cash surrender value, reduced paid-up insurance, and extended term insurance are all standard nonforfeiture options in life insurance policies.
3. Step 3: Analyze the term 'Dividend option.' Dividends are typically associated with participating life insurance policies and represent a return of excess premiums. They are not considered a nonforfeiture option because they are not related to retaining benefits after premium payments stop.
4. Step 4: Compare the options and determine which one does not fit the definition of a nonforfeiture option. Dividend option is the correct answer because it is not a mechanism for retaining benefits when premiums are no longer paid.
5. Step 5: Conclude that the correct answer is 'Dividend option,' as it is not considered a nonforfeiture option in accounting for life insurance policies.