Minnesota Life Insurance License Practice Exam 2025 – Complete Test Prep

In a whole life insurance policy, if premiums are not paid, the policy may lapse or enter reinstatement procedures. A lapse occurs when the policy is no longer active due to non-payment, meaning the insurer is relieved of its obligation to provide coverage. This can happen after a grace period, typically provided to ensure that the policyholder has a chance to make the payment.

If a policy does lapse, some insurers offer a reinstatement process. This allows the policyholder to restore the policy to its active status, often requiring the payment of overdue premiums along with any interest that has accrued. Reinstatement typically has a time frame, during which the policyholder can reactivate their coverage, usually within a few years after the lapse.

The other options do not accurately reflect standard insurance practices. Benefits being automatically transferred to a beneficiary isn't relevant to premium non-payment; insurers generally have no obligation to pay out benefits on a lapsed policy. The statement regarding insurers being unable to take any action for two years is misleading as insurers often can take action much sooner related to lapsed policies. Refunding all premiums paid is also inaccurate, as typically only the cash value may be available in certain circumstances, and most of the premium amounts contributed to coverage costs are not