Life & Health Insurance Exam (National Portion)General InsuranceEasy
A life insurance policy specifies that the premium is due on the 1st of each month. If the policyholder fails to pay the premium on time, the policy will remain in force for a specific period, typically 30 or 31 days, during which the policyholder can still pay the premium without losing coverage. This provision is known as the:
- AIncontestable clause
- BFree-look period
- CGrace period
- DReinstatement clause
Show answer & explanationAnswer & explanation
Correct answer: C. Grace period
The grace period is a standard policy provision that allows the policyowner additional time (usually 30 or 31 days) to pay a premium after its due date without the policy lapsing.
Why the other options are wrong
- A. The incontestable clause prevents the insurer from denying a claim due to misstatements on the application after a certain period (e.g., 2 years).
- B. The free-look period allows the policyowner to review a new policy and return it for a full refund within a specified time (e.g., 10 days).
- D. A reinstatement clause allows a lapsed policy to be restored, usually with proof of insurability and payment of back premiums.
Grace Period
A period of time after the premium due date during which a policy remains in force without payment of the premium. If the insured dies during this period, the death benefit is paid, minus the overdue premium.
- Typically 30 or 31 days
- Policy remains in force
- Overdue premium deducted from claim if death occurs
Memory trick: Life policies have built-in safety nets, like a soft landing for late payments.