When a life insurance policy is cancelled using the extended term nonforfeiture option, how is the cash value used?

When a life insurance policy is canceled using the extended term nonforfeiture option, the cash value of the policy is utilized to purchase a new term policy with the same face amount as the original policy. The duration of this new term policy is determined by the amount of cash value available. Essentially, the cash value is converted into a temporary life insurance coverage, allowing the policyholder to maintain life insurance protection for as long as the cash value can fund it.

This approach is advantageous as it ensures that the insured still has coverage for a period without needing to pay further premiums, harnessing the accumulated value of the original policy. Thus, the correct answer reflects that the new coverage remains equal to the original policy amount for the time frame that the cash values will purchase, emphasizing the functionality of the nonforfeiture option effectively.