Study for the Ohio Insurance Test. Prepare with flashcards and multiple choice questions, each question accompanied by hints and explanations. Excel in your exam!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.


What would likely happen if a policy lapses due to non-payment of premium?

  1. The insured remains covered for a grace period

  2. The policyholder receives a refund

  3. The policy is reinstated automatically

  4. The coverage ends immediately without notice

The correct answer is: The insured remains covered for a grace period

When a policy lapses due to non-payment of premium, it is typically the case that the insured remains covered for a grace period. Insurance policies usually include a grace period clause that allows the policyholder additional time to make a premium payment without losing coverage. During this period, which can range from 10 to 30 days depending on the policy, the insured is still considered to have active coverage. This provision is designed to provide some financial flexibility and to prevent immediate loss of coverage due to a missed payment. In contrast to the other options, a refund is not standard practice for a policy that lapses; generally, the premium payments are considered earned by the insurer for the coverage period before the lapse. Automatic reinstatement of a policy usually requires the policyholder to submit an application and possibly pay any missed premiums, rather than taking place automatically after a lapse. Additionally, while coverage may technically end when the grace period expires without payment, it does not end immediately without notice, as the grace period provides a clear communication of impending lapse to the policyholder.