What happens to the cash value of a policy if the insured chooses to select the reduced paid up nonforfeiture option?

When the insured selects the reduced paid-up nonforfeiture option, the cash value of the policy is utilized to purchase a new policy with a lower face amount. This means that the accumulated cash value does not simply disappear; instead, it is converted into a reduced form of the original policy, allowing the insured to retain some form of life insurance coverage without having to pay further premiums.

This choice allows the insured to continue benefiting from the insurance coverage based on the cash value accumulated in the original policy, while effectively changing the structure of the policy to a paid-up status. Thus, the cash value transitions into the new policy, where it is associated with a reduced face amount, rather than being lost or simply transferred elsewhere. This is an important aspect of nonforfeiture options, which are designed to protect the policyholder's interests should they choose to discontinue premium payments.