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MPF intermediaries
MPFMPF Intermediaries ExaminationGrace has a universal life policy. After the first policy year she stops paying premiums. The policy will lapse when:
Answer: its cash value no longer covers the coming charges. Premiums can be skipped after the first year, but once the cash value is too small to meet the next period's expense and mortality charges (for example, the next 60 days), the policy lapses.Why not the others:• twelve months pass without any premium being received: Skipping premiums is allowed; the trigger for lapse is the cash value, not the time without a premium.• she fails to pay any premium in the second policy year: Missing premiums after the first year does not by itself end the policy.• the insurer lowers the interest rate it credits to the policy: A lower credited rate slows the growth of the cash value but is not itself a lapse event.Watch out: Applying the traditional rule that an unpaid premium leads to lapse; universal life lapses when the cash value runs out.Rule: Universal life: premiums flexible after the first year; the policy lapses when the cash value cannot meet the coming expense and mortality charges.Source: IA Long Term Insurance (Paper III) Study Notes, 2022 Edition (8th ed., June 2022; for exams from 24 Oct 2022), 2.2.1(a), p. 2/6
Applying the traditional rule that an unpaid premium leads to lapse; universal life lapses when the cash value runs out.
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