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What typically happens if an applicant does not pay their premium?

  1. The policy will automatically renew

  2. The insurer will cancel the policy

  3. The policy remains in force until the renewal date

  4. The insurer will contact the applicant for a grace period

The correct answer is: The insurer will cancel the policy

When an applicant fails to pay their premium, the insurance policy is usually subject to cancellation by the insurer. Insurers rely on premium payments to maintain an active policy and cover the risk associated with providing insurance protection. If premiums are not remitted according to the schedule outlined in the policy, the insurer is typically empowered to terminate the agreement due to non-payment. In most cases, insurance policies include specific provisions regarding non-payment, which typically detail the insurer's rights to cancel the policy and the potential for grace periods. However, once the grace period elapses—if applicable—and the payment has not been received, the insurer will proceed with cancellation. This underscores the critical nature of timely premium payments in keeping an insurance policy in effect.