A universal life policy includes a no-lapse guarantee rider. What does this rider guarantee?

Why A is correct

A no-lapse guarantee rider on a universal life policy provides that the policy will remain in force even if the cash value is not sufficient to cover monthly charges, as long as the policyowner pays the minimum premiums required by the guarantee on time. Without the rider, a UL policy lapses when the cash value runs out; the rider substitutes a premium-based guarantee for the value-based test. The guarantee is typically subject to conditions such as paying the required premium each year and not taking loans or withdrawals beyond specified limits. This rider addresses the lapse risk inherent in interest-sensitive products.

Why the other options are wrong

• B) The rider guarantees the policy stays in force, not that cash value never falls below the initial premium. Cash value can fluctuate with charges and credited rates.
• C) Inflation-indexed death benefit growth is the function of a COLA rider. A no-lapse guarantee rider does not increase the death benefit for inflation.
• D) The rider does not waive premiums. It requires the specified minimum premiums to be paid on time to keep the no-lapse guarantee in effect.

Memory hook

No-lapse guarantee = pay the promised minimum, stay covered. Cash value can fade; the guarantee keeps the promise.

Why A is correct

The no-lapse guarantee, or no-lapse provision, rider protects against lapse caused by low cash value in a universal life policy. As long as the policyowner pays the required premium amount on schedule, the policy stays in force even if the cash value is not enough to cover monthly charges. The guarantee does not fix interest crediting rates, does not waive premiums, and does not increase the benefit. It is commonly sold with guaranteed universal life products to give the owner assurance that coverage will remain in force for the guaranteed period.

Why the other options are wrong

• B) The rider guarantees coverage, not an interest rate; crediting rates are set separately by the insurer.
• C) Premiums are still due under the rider; it guarantees the policy stays in force when they are paid, not that they are waived.
• D) The death benefit amount is unchanged; the rider protects against lapse, not benefit increases.

Memory hook

No-lapse = pay the promised premium and the policy cannot die, even when the cash value tank runs low.

Why A is correct

A no-lapse guarantee, sometimes called a secondary guarantee, rider on a universal life policy keeps the death benefit in force even if the policy's cash value is insufficient or reaches zero, provided the policyowner pays at least the minimum premiums required by the rider each period. Without the rider, a UL policy could lapse when monthly charges exhaust the cash value; the guarantee protects coverage as long as the premium conditions are met. If the required premiums are not maintained, the guarantee terminates.

Why the other options are wrong

• B) The rider does not fix the premium forever; UL premiums remain flexible, and the rider only specifies a minimum premium path to preserve the guarantee. The premium remains flexible, and only the minimum premium path is fixed to keep the guarantee alive.
• C) A fixed guaranteed growth rate is a feature of fixed-account or whole life interest guarantees, not the no-lapse guarantee, which protects the death benefit rather than the cash value.
• D) The rider is not a tax device; death benefits retain their normal tax treatment regardless of the rider. The rider has no tax effect, and the death benefit is taxed under the normal rules either way.

Memory hook

No-lapse = even with zero in the tank, keep paying the minimum and coverage survives.