Arizona Life and Health Practice Exam

Under what provision can a policy be canceled for non-payment after a grace period?

1. Cancellation Clause

2. Termination Clause

3. Grace Period Clause

4. Retention Clause

The correct answer is: Termination Clause

The correct provision that allows a policy to be canceled for non-payment after a grace period is referred to as the Termination Clause. This clause outlines the conditions under which a policy can be terminated, including the stipulation that if premiums are not paid within the grace period, the insurer has the right to cancel the policy. The Termination Clause serves as a safeguard for insurers, ensuring that policies that are no longer financially supported by the policyholder can be ended to avoid further losses. The grace period allows policyholders time to make their payments without immediate penalty, which balances the insurer’s need for timely premium collection with the policyholder’s opportunity to rectify missed payments. In contrast, while the Cancellation Clause generally deals with the rights and responsibilities concerning cancellation, and the Grace Period Clause specifically pertains to the time allowed for premium payment, it is the Termination Clause that explicitly encompasses the cancellation for non-payment after the consideration of the grace period. The Retention Clause, on the other hand, typically pertains to the retention of risk by an insurer rather than the cancellation process.