What type of policy might allow an insured to take a reduced paid-up option?

A whole life policy is the correct choice for allowing an insured to take a reduced paid-up option. This option is a non-forfeiture benefit available in whole life insurance policies, which are designed to last for the insured's entire life and accumulate cash value over time.

When the policyholder decides not to continue premium payments, they can choose the reduced paid-up option, which effectively converts their policy into a smaller, fully paid-up whole life policy. The existing cash value is used to purchase this reduced amount of insurance coverage, allowing the insured to maintain lifelong coverage without ongoing premium payments.

This feature is integral to whole life policies, reinforcing their investment aspect by accumulating cash value that can be utilized in various ways, including the reduced paid-up option. Other types of policies, such as universal life, group life, and term life, either do not offer this option or have different structures that don't support the same flexibility regarding paid-up statuses. For example, term life policies provide coverage for a specified period without any cash value accumulation and thus do not offer options like reduced paid-up.