Minnesota Life Insurance License Practice Exam

What happens if an insured does not pay premiums within the grace period?

1. The policy will be reinstated automatically

2. The policy will lapse

3. The insured will be charged late fees only

4. The coverage amount will be reduced

The correct answer is: The policy will lapse

When an insured fails to pay premiums within the grace period, the policy will lapse. The grace period is a specified time frame after the premium due date during which the insured can still make a payment without losing coverage. If the premium is not paid by the end of this grace period, the insurance policy will no longer be in effect, and the insurer is not obligated to provide coverage. Understanding this concept is vital for policyholders because it emphasizes the importance of timely payments to maintain coverage. The lapse of a policy can have significant consequences, such as losing benefits or being unable to make a claim for any event covered by the policy. A grace period provides some leeway for policyholders, but it does not guarantee continued coverage indefinitely.