Massachusetts State Life Insurance Practice Exam

What happens to the face amount under the Reduced Paid Up Option?

1. The face amount remains unchanged

2. The face amount is increased

3. The face amount is decreased

4. The face amount is eliminated

The correct answer is: The face amount is decreased

Under the Reduced Paid-Up Option, the policyholder opts to stop making premium payments while using the cash value accumulated in the policy to purchase a reduced amount of insurance. This means that instead of maintaining the original face amount of the policy, the insurance coverage is adjusted to a lower amount based on the cash value available. This option allows the policy to continue in force without additional premium payments but results in a decrease in the overall face amount of the coverage when compared to the original policy terms. By choosing this option, the policyholder essentially converts their whole life policy into a new paid-up policy, but with a decreased face value that reflects the funds available at the time of conversion.