Which non-forfeiture option uses cash surrender values to purchase paid-up term insurance for the full face amount of the policy?

The correct choice regarding which non-forfeiture option uses cash surrender values to purchase paid-up term insurance for the full face amount of the policy is extended term insurance. This option allows the policyholder to use the cash surrender value accumulated in the policy to buy term insurance for the same face value as the original policy.

In this case, the insurer provides coverage for a specified term using the cash value, ensuring that the original death benefit remains intact, although it is now in the form of a temporary-term policy rather than whole life insurance. This option is advantageous as it maximizes the benefit for the insured's beneficiaries while the policyholder retains the full coverage amount for the duration of the term purchased.

Other options, while related to non-forfeiture provisions, do not function in the same way. For example, extended paid-up insurance converts the policy into a paid-up whole life policy, reducing the coverage amount but eliminating further premiums. Reduced paid-up insurance also offers a permanent policy but at a decreased death benefit. Reduced term insurance is not a standard term used in the context of non-forfeiture options. Thus, extended term insurance best describes the scenario presented in the question.