Which nonforfeiture option is automatically selected if the policyowner has not made a selection?

The correct answer is the extended term option. In life insurance policies, nonforfeiture options are important provisions that allow policyowners to receive benefits or values from their policy if they choose to discontinue premium payments. If the policyowner does not actively select a nonforfeiture option when the cash value of the policy is available, the insurance company will typically default to the extended term option.

The extended term option allows the policyholder to convert the cash value of the policy into term insurance, maintaining the same face amount for a specified period without requiring further premiums. This option is beneficial as it ensures some level of coverage remains in place after the policy has lapsed due to non-payment, thus providing the policyowner with continued protection, albeit temporarily.

Other options, such as cash surrender value or reduced paid-up insurance, might not be automatically selected unless specified by the policyowner. Paid-up additions are typically additional coverage purchased with dividends rather than a default option. Thus, the extended term option serves as a safety net for policyholders who may not wish to lose their coverage entirely, aligning with the principle of offering a guaranteed benefit even when premium payments have ceased.