Rhode Island Life Insurance Practice Exam

What can happen if premiums are not paid on a permanent life insurance policy?

1. The policy value will automatically increase

2. The policy may lapse

3. The policy will convert to term insurance

4. The policy cannot be reinstated

The correct answer is: The policy may lapse

When premiums are not paid on a permanent life insurance policy, the policy may lapse. This means that the coverage provided by the policy could terminate if the premium payments are not made within a specified grace period. Permanent life insurance policies typically build cash value over time, which can sometimes provide a buffer for missed payments, but prolonged non-payment can lead to a lapse in coverage. Lapsing means the policyholder loses the insurance benefits associated with the policy. Without the necessary premiums, the insurer has no financial basis to continue the policy, and it will not remain in force. This option reflects a significant consequence of not adhering to the premium payment schedule.