Tennessee Life Producer Practice Exam

What happens to a life insurance policy if the insured does not pay their premium by the end of the grace period?

1. The policy remains active with full benefits

2. The policy lapses with no coverage

3. The policy is converted to a term policy

4. The insured receives a refund on paid premiums

The correct answer is: The policy lapses with no coverage

When a life insurance policyholder fails to pay their premium by the end of the grace period, the policy will lapse, resulting in no coverage for the insured. The grace period is a specified duration after the premium due date during which the policy remains in force, allowing the insured to make their payment without losing coverage. However, if the premium is not paid by the end of this grace period, the insurer is no longer bound to provide coverage, and the policy effectively ends. This lapse means that any death benefit or other policy benefits are no longer available to the insured or their beneficiaries, reinforcing the importance of timely premium payments to maintain policy validity and coverage.