Grace Period

The provision that uses cash value to cover a premium unpaid by the end of the grace period is the:

1. A.Waiver of premiumA rider that does pay premiums for the owner, but only once the insured is disabled as the policy defines disability. It is not triggered by a healthy owner simply missing a payment.
2. B.Automatic premium loanCorrect - APL prevents lapse using cash value.
3. C.ReinstatementRight rule, wrong moment. Reinstatement is the remedy after a policy has already lapsed, whereas the stem describes a provision that prevents the lapse by drawing the unpaid premium from cash value.
4. D.Free lookA right to return a newly delivered policy for a refund of premium. It operates only at the start of the contract and does nothing to keep an established policy in force when a premium goes unpaid.

Why: The automatic premium loan provision borrows against cash value to keep the policy in force.

The grace period provision in a life policy provides that...

1. A.A lapsed policy can be restored with proof of insurabilityThat is reinstatement, not the grace period.
2. B.The insurer cannot contest the policy after two yearsThat is incontestability, a separate provision.
3. C.The policy stays in force for a set period after a missed premium due dateCorrect — the grace period keeps coverage in force despite a late premium.
4. D.The owner may cancel within a set period for a full refundThat describes the free-look provision, not the grace period.

Why: The grace period is a window running from the premium due date during which the policy stays in force even though the premium is late. Paying within it prevents a lapse entirely. The length is set by the applicable state's law and stated in the policy, so the contract governs; if the insured dies during the window the death benefit is still payable, reduced by the premium owed.

The grace period in a life insurance policy:

1. A.Lets the owner skip premiums permanentlyTurns a short indulgence into permanent relief. The provision keeps coverage in force only for the period the contract states, after which an unpaid premium still lapses the policy.
2. B.Provides a free policy loanConfuses this provision with the automatic premium loan, which does draw on cash value and charges interest for doing so. The grace period lends nothing; it simply holds coverage open while payment is late.
3. C.Refunds the last premiumDescribes the free look. This provision concerns a premium not yet paid, not the return of one the insurer has already collected.
4. D.Allows late premium payment without a lapseCorrect - it prevents lapse for a short window.

Why: The grace period is a window running from the premium due date during which the policy stays in force even though the premium is late. Paying within it prevents a lapse entirely. The length is set by the applicable state's law and stated in the policy, so the contract governs; if the insured dies during the window the death benefit is still payable, reduced by the premium owed.

A customer wants to make her IRA contribution for the prior tax year. A participant in an employer's 401(k) plan wants to make a contribution for the same prior year. How does the timing flexibility available to each of them differ?

1. A.The IRA contribution can still be made up until the tax filing deadline for the prior year, while a 401(k) contribution must generally be made through payroll deferral during the plan year itself and cannot be made after that year has ended.Correct. IRA contributions get a filing-deadline grace period; 401(k) contributions are payroll-based and tied to the plan year itself.
2. B.Both contributions follow the identical timing rule, since all retirement contributions for a given tax year must be completed by the end of that calendar year.Wrong. IRA contributions have a grace period past year-end that 401(k) payroll contributions do not have.
3. C.The 401(k) contribution has the more flexible deadline, extending well past the filing deadline, while the IRA contribution must be made by the end of the tax year itself.Wrong. This reverses the actual flexibility; the IRA contribution has the extended deadline, not the 401(k) contribution.
4. D.Neither contribution can be made for a prior year once that year has ended; both must be applied to the current year regardless of the participant's intent.Wrong. An IRA contribution can still be made and designated for the prior year up until its filing deadline.

Why: An IRA contribution for a given tax year enjoys a grace period that runs past the end of that calendar year, up until the tax filing deadline for that year, giving the customer extra time to fund a prior-year contribution. A 401(k) contribution works differently -- it is generally made through payroll deferral during the plan year itself, and once that year has closed, there is no equivalent grace period to make a contribution for it after the fact.