Washington Life Producer Practice Exam

What happens if an insured fails to pay premiums on a whole life insurance policy?

1. The policy is fully refunded

2. The coverage lapses

3. The insurer pays a partial benefit

4. The cash value is paid immediately

The correct answer is: The coverage lapses

When an insured fails to pay premiums on a whole life insurance policy, the most common and likely outcome is that the coverage lapses. Whole life insurance policies are designed to provide lifelong coverage as long as the premiums are paid. If payments are not maintained, the insurer will typically stop the coverage after a grace period, after which the policy no longer provides benefits to the insured or their beneficiaries. However, it's important to note that some whole life policies may accumulate cash value over time, which can be accessed or utilized in certain ways, but failure to pay premiums primarily leads to the loss of coverage. This lapse happens because the insurer depends on regular premium payments to maintain the policy and its associated benefits. Thus, in this situation, the policyholder would lose the insurance protection that the whole life policy offers.