Which option allows a policyholder to buy a paid-up permanent policy using cash value?

A reduced paid-up policy is a feature that allows a policyholder to utilize the cash value portion of their whole life insurance policy to purchase a fully paid-up permanent insurance policy. When the policyholder decides not to continue paying premiums on their current policy, they can select the reduced paid-up option, which converts the cash value accumulated in the original policy into a new policy with a smaller face amount that does not require any further premiums. This allows the insured to maintain permanent life insurance coverage while avoiding the need for ongoing premium payments.

This option is particularly beneficial because it ensures that the policyholder retains a death benefit without incurring extra costs, leveraging the policy's built-up cash value effectively. The other choices, such as lump sum payment, unilateral contract, or flexible premium deferred annuity, do not specifically relate to converting cash value into a paid-up permanent policy and thus do not serve the same purpose as the reduced paid-up policy.