Automatic Nonforfeiture Option Law and Legal Definition

Automatic Nonforfeiture Option for a specific life insurance policy is a specified nonforfeiture benefit that automatically becomes effective when a renewal premium is not paid by the end of the grace period and the policy owner has not elected another nonforfeiture option. Generally, a whole or cash value life insurance policy will lapse if premiums are not paid. However, in nonforfeiture option the owner is still entitled to (does not forfeit) the cash accumulated by the policy. Three common options are surrender for cash, the purchase of a smaller paid-up whole life policy or a term policy for the same limit of insurance. The owner of the policy may select among the options at time of application and is also allowed to change the option after the policy is issued by amending the policy.