Texas General Lines — Life, Accident, Health and HMOTexas Statutes and Rules Specific to Life InsuranceMedium
A life insurance agent in Texas is explaining the policy provisions to a new client. The client is concerned about the policy potentially lapsing if they miss a premium payment. The agent assures them that the policy includes a provision designed to prevent immediate lapse. Which provision is the agent referring to?
- AThe Reinstatement Provision
- BThe Nonforfeiture Options
- CThe Incontestability Clause
- DThe Grace Period Provision
Show answer & explanationAnswer & explanation
Correct answer: D. The Grace Period Provision
The Grace Period provision allows the policyholder an extra period (usually 30 or 31 days) after the premium due date to pay the premium without the policy lapsing. If the insured dies during this period, the death benefit is paid, minus the overdue premium.
Why the other options are wrong
- A. The Reinstatement Provision allows a lapsed policy to be restored, but it doesn't prevent the initial lapse.
- B. Nonforfeiture Options (e.g., cash surrender, extended term, reduced paid-up) deal with what happens after a policy lapses, not preventing the lapse itself.
- C. The Incontestability Clause prevents the insurer from challenging the policy's validity after a certain period, unrelated to premium payments.
Grace Period (Life Insurance)
A mandatory policy provision that provides a period (usually 30 or 31 days) after the premium due date during which a policy remains in force, even if the premium is not paid. If death occurs during this period, the death benefit is paid, less the overdue premium.
- Prevents immediate policy lapse.
- Typically 30 or 31 days.
- Policy remains in force during this time.
- Death benefit still paid (minus overdue premium) if insured dies.
Memory trick: Grace period gives you time, to pay your premium, so divine.