Which nonforfeiture option is the automatic option when a policy lapses due to nonpayment of premium?

The correct choice is the extended term nonforfeiture option because it is the automatic benefit provided to policyholders when their life insurance policy lapses due to nonpayment of premium. When a policyholder fails to pay their premiums and the policy lapses, the insurer automatically converts the existing cash value of the whole life insurance policy into a reduced amount of term insurance, maintaining the same death benefit for a specified period. This option allows the policyholder to retain some level of coverage without having to pay premiums at that time.

This automatic option is designed to protect the policyholder by ensuring that they do not lose their entire insurance benefit when experiencing financial difficulties. It enables them to maintain term coverage for a period of time, allowing them the opportunity to reinstate the policy or reassess their insurance needs without the immediate loss of coverage.

Other options like reduced paid-up and cash surrender are valid options but require the policyholder's action or decision to implement. The reduced paid-up option allows the policyholder to use the cash value to purchase a smaller, fully paid-up policy, while cash surrender would involve giving up the policy entirely in exchange for its cash value. The term insurance option listed, while related, is actually what the extended term option enables rather than being