New Jersey Life Producer Practice Exam

What allows an insurance policy to remain active after a missed premium payment for a given period?

1. Extended coverage

2. Conditional coverage

3. Grace period

4. Deferred coverage

The correct answer is: Grace period

A grace period is a provision included in many insurance policies that provides a specified timeframe after a premium payment is due during which the policyholder can still make the payment without losing coverage. This period typically ranges from 10 to 30 days, depending on the specific terms of the policy. During the grace period, the insurance policy remains in force, and the insurer cannot cancel the policy due to non-payment of the premium, as long as the payment is made within that time. This provision protects the policyholder from unintentional lapses in coverage and provides them with an opportunity to settle payment without facing immediate consequences. In contrast, other options such as extended coverage relate to temporary situations where additional protection is provided under specific conditions, conditional coverage typically pertains to certain situations under which the coverage might apply, and deferred coverage usually means coverage that begins at a later date, which does not apply to the scenario of missed premium payments.