Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

1. Introduction to Accounting

Types of Accounting

Financial Accounting

1. Introduction to Accounting

Types of Accounting

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Multiple Choice

When a reduced paid-up nonforfeiture option is chosen in an insurance policy, what happens to the face amount of the policy?

The policy is canceled and all coverage ends.

The face amount remains the same, but premium payments stop.

The face amount increases due to accumulated dividends.

The face amount is reduced and the policy remains in force as paid-up insurance.

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Verified step by step guidance

Understand the concept of a reduced paid-up nonforfeiture option: This option allows the policyholder to stop paying premiums while keeping the policy in force. However, the face amount of the policy is reduced.

Clarify the term 'face amount': The face amount refers to the death benefit or the amount payable to beneficiaries upon the insured's death.

Analyze the impact of choosing the reduced paid-up option: When this option is selected, the policyholder uses the cash value accumulated in the policy to purchase a smaller amount of paid-up insurance. This means the policy remains active without further premium payments, but the coverage amount is reduced.

Compare the reduced paid-up option to other nonforfeiture options: Other options, such as cash surrender or extended term insurance, have different effects on the policy. The reduced paid-up option specifically reduces the face amount while maintaining coverage.

Conclude that the correct answer is: 'The face amount is reduced and the policy remains in force as paid-up insurance.' This aligns with the definition and mechanics of the reduced paid-up nonforfeiture option.