PSI Life Exam Practice Test

Which provision must a life insurance policy contain regarding late payments?

1. A reinstatement provision during which interest may be charged for late payments

2. A waiver of premium provision for disability

3. A guaranteed insurability option provision

4. A grace period provision with no interest charge

The correct answer is: A reinstatement provision during which interest may be charged for late payments

The correct answer is that a life insurance policy must contain a grace period provision with no interest charge. This provision is essential because it outlines the time frame allowed for a policyholder to make a late payment without risking a lapse in coverage. It specifies that if a premium is due but not paid, the policy remains in force for a specific period, typically 30 days, during which the insurer will not charge interest on the overdue payment. This provision protects the policyholder by offering a temporary buffer against policy cancellation due to non-payment, ensuring continued coverage and peace of mind during unforeseen circumstances. In a life insurance context, other provisions mentioned, such as reinstatement provisions or waiver of premium for disability, serve different functions and are not universally mandated in all policies. The reinstatement provision often requires evidence of insurability and may involve an interest charge for late payments. The waiver of premium for disability is a specific benefit that applies under certain conditions rather than being a requirement for all life insurance policies. The guaranteed insurability option is an additional feature allowing for increased coverage in the future but does not address the situation of late payments directly.