Which standard nonforfeiture option converts a whole life policy's surrender value into a paid-up policy?

The choice of reduced paid-up insurance as the correct answer relates to the specific characteristics of nonforfeiture options available within whole life policies. When a policyholder decides to stop paying premiums, the nonforfeiture options allow them to retain some value from the policy instead of losing it completely.

Reduced paid-up insurance transforms the policy's accumulated cash value into a new, fully paid-up whole life policy for a lesser amount of coverage. This means that the cash surrender value of the original policy is used to pay for a new policy, effectively providing continuous life insurance coverage without requiring further premium payments. This option is beneficial for policyholders who want to maintain life insurance protection despite no longer being able to afford premiums on their original policy.

In contrast, other options such as extended term insurance provide coverage for a specified period by utilizing the cash value to purchase term insurance, rather than creating a new paid-up whole life policy. The reduced paid-up insurance option thus stands out for its focus on maintaining a whole life insurance policy, albeit at a reduced sum, which aligns with the need to convert a cash value into continued coverage.