A no-lapse guarantee rider on a universal life policy provides that:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A no-lapse guarantee, also called a secondary guarantee, rider promises that the policy will remain in force for a stated period, often to a target age, even if the cash value drops to zero, provided the policyowner pays the required minimum premium as scheduled. It converts a universal life policy into a product that behaves more like guaranteed coverage with predictable protection. It does not guarantee premium levels or investment returns, and it does not excuse the owner from paying premiums. The guarantee is conditioned on meeting the premium schedule, which is the price of the protection.
Why the other options are wrong
- B) The rider does not freeze premiums; it conditions the guarantee on paying the required premium as scheduled. Premium flexibility is preserved, but the guarantee requires the required payment. The schedule must be followed to keep the promise alive.
- C) Investment return guarantees are not provided by the no-lapse rider; that is a fixed-account feature of the base policy. The rider addresses duration of coverage, not investment performance. The guarantee concerns how long coverage lasts.
- D) No rider maintains coverage when premiums are never paid; the guarantee requires premium payment. Nonpayment ends the guarantee like any other policy obligation. Premium payment is the price of the guarantee.
Memory hook
No-lapse guarantee: pay the required premium and the policy stays alive even on empty cash.