Non-Forfeiture Clause

A non-forfeiture clause in a life insurance policy states that the policyholder cannot forfeit the policy's value if the policy lapses due to missed premium payments.

Description

In simple words, the non-forfeiture clause in life insurance mentions that an insured party can get full or partial benefit or a partial refund of premium after the policy lapse due to non-payment of premium.

The insured can choose how to receive the benefit under the policy in case of policy lapse due to non-payment of premiums.

The non-forfeiture clause comes into play when the owner of the whole life insurance policy surrenders the policy. Due to policy lapse, the policy owner may not lose the entire life insurance policy and opt for these to receive the benefit under the policy:

Opt for the reduced coverage under the policy for the remaining policy term.

Use the accumulated cash value to pay the future premium.

Purchase extended insurance with accumulated cash value.

Get cash surrender value in cash, partially or fully.

Example

Ronit owned whole life insurance for which he could not pay the premium. He only spent the premium for 7 years and then could not afford to pay it further. As per the non-forfeiture clause, Ravi chose to receive the benefit under the policy on the reduced paid-up value.