PSI Life Exam Practice Test

If a premium is due and the policyowner fails to pay before the insured dies, under which provision would the death benefit be paid?

1. Reinstatement Clause

2. Grace Period Clause

3. Nonforfeiture Clause

4. Exclusion Clause

The correct answer is: Nonforfeiture Clause

The correct answer is the Nonforfeiture Clause. This provision allows the policyowner to receive a form of benefit or coverage even if the premium has not been paid. In such cases where the insured dies after a premium is due but unpaid, the Nonforfeiture Clause can provide for the payment of a scaled-down death benefit based on the cash value of the policy or other stipulated options, ensuring that the policyholder or beneficiaries are not left without any benefit due to non-payment. Other options may seem relevant to the situation. The Reinstatement Clause typically addresses how a policy can be reinstated after it has lapsed, but it does not pertain to the immediate payment of benefits after the insured’s death. The Grace Period Clause provides a timeframe during which a policyholder can pay the premium after the due date without losing coverage; however, if the premium is not paid within this grace period and the insured passes away, the death benefit would not be guaranteed. The Exclusion Clause outlines specific situations or conditions under which the insurer will not pay benefits, but it does not apply in this context where the policy has potential value. Therefore, the Nonforfeiture Clause is the most applicable in ensuring a benefit is paid even if premiums are overdue