A no-lapse guarantee rider on a universal life policy guarantees that the policy will not lapse as long as the policyowner:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Universal life coverage normally depends on whether the cash value can cover monthly cost-of-insurance deductions, which can be eroded by low interest crediting or rising charges. A no-lapse guarantee rider changes that test: the policy stays in force if the owner pays at least the stated minimum premium, regardless of how the underlying account performs. This makes the product behave more like a guaranteed-premium contract and gives the owner certainty that the coverage will remain in force. Any missed minimum premium can permanently terminate the guarantee, so agents must clearly explain the payment requirement.
Why the other options are wrong
- B) The guarantee looks to the premium payments made, not to the size of the cash value relative to the account value. Once the stated minimum premium is paid, the guarantee holds even if the account value runs low.
- C) Employment status is unrelated to the lapse protection of a personally owned universal life policy. The guarantee is tied to premium payments, not to the relationship between cash value and account value.
- D) The rider operates with scheduled minimum payments, not with a required single premium payment. The owner's employment status has no connection to a personally owned universal life policy's lapse protection.
Memory hook
No-lapse rider: keep paying the stated minimum and the policy lives, whatever the market does. A guarantee against math.