A universal life policy includes a no-lapse guarantee rider. What does this rider guarantee?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
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.