PSI Ohio Insurance Practice Exam

What is one reason why a policyholder might select a longer grace period?

1. To increase the policy’s death benefit

2. To manage cash flow better in difficult times

3. To reduce premium costs

4. To simplify policy changes

The correct answer is: To manage cash flow better in difficult times

A policyholder might select a longer grace period primarily to manage cash flow better in difficult times. This extended time frame allows the policyholder to delay the payment of premiums without immediate penalty. It can provide necessary financial flexibility during periods of economic hardship or unexpected expenses, making it easier for the policyholder to maintain their insurance coverage without the immediate burden of paying premiums. Choosing a longer grace period does not directly result in increasing the death benefit, reducing premium costs, or simplifying policy changes. These aspects are typically determined by other factors such as policy type, the insurer’s regulations, and the specific terms of the policy rather than the length of the grace period. Therefore, selecting a longer grace period is fundamentally a strategy for managing cash flow in challenging financial situations.