AD Banker Comprehensive Practice Exam

Under the 'Unpaid Premiums' provision, what can an insurer do when premiums are unpaid at the time of a claim?

1. Deny the claim because the policy has actually lapsed due to unpaid premiums

2. Require the unpaid premium be paid before allowing any claim to be processed

3. Deduct unpaid premiums from benefits before paying the claim

4. Charge interest on any overdue premiums due at the time of the claim

The correct answer is: Deduct unpaid premiums from benefits before paying the claim

The correct answer reflects a common practice within insurance policies regarding unpaid premiums. When a claim is made, and there are unpaid premiums, the insurer typically has the right to deduct any outstanding amounts owed from the benefits due to the policyholder. This means that if a claim is filed, the insurer will not issue a full payment of the benefit amount; instead, it will first subtract the amount of premiums that have not been paid. This approach helps insurers manage the financial implications of providing coverage while ensuring that they receive compensation for the coverage that has been provided, even if the premiums have not been paid on time. Therefore, policyholders should be aware that any outstanding premiums could directly affect the payout they receive in the event of a claim. The other options do not correctly reflect the usual provisions in insurance policies. Denial of the claim for unpaid premiums typically suggests that the policy is inactive, whereas policies often still allow for claims to be processed with a deduction for unpaid premiums. Requiring full payment before processing claims adds undue burden to policyholders and is not a standard practice. Charging interest on overdue premiums may occur, but it is not the primary action taken at the time of a claim for unpaid premiums.