Minnesota Life Insurance License Practice Exam

What provision in a life insurance policy allows a beneficiary to be paid even if a premium is missed?

1. Grace period

2. Reinstatement clause

3. Cash value accumulation

4. Conversion privilege

The correct answer is: Grace period

The grace period is a provision in a life insurance policy that allows policyholders to make premium payments after their due date without losing their coverage immediately. This period typically lasts anywhere from 30 to 31 days, depending on the policy. If the policyholder misses a premium payment, the grace period ensures that the policy remains in force and that any claims made during this time will still be paid to the beneficiary, provided that the missed premium is paid during the grace period. This provision is crucial as it protects both the policyholder and the beneficiaries from unforeseen circumstances that may prevent timely payment of premiums. The reinstatement clause, while also useful, relates to the policyholder's right to reinstate a lapsed policy by paying overdue premiums and possibly providing evidence of insurability, rather than directly addressing missed payments without consequences. Cash value accumulation refers to the growth of the policy's cash value, which doesn’t relate to missed premiums and how benefits are paid. The conversion privilege allows the policyholder to convert a term life insurance policy to permanent coverage without evidence of insurability but does not relate to the issue of premium payments.