State RegulationsTN specificDifficulty 2/5
A Tennessee insured has borrowed against a life policy and stops repaying the loan. When may the insurer treat the policy as lapsed for nonpayment of the loan indebtedness?
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
T.C.A. § 56-7-2307(7) allows a life policy to lapse for unpaid loan indebtedness only when the total indebtedness equals or exceeds the loan value and then only after 1 month following mailed notice. The rule protects policyowners from surprise forfeitures, and the Tennessee Department of Commerce & Insurance enforces it as a required provision of individual life policies.
Why the other options are wrong
- A) Immediate lapse is exactly what the statute forbids; the 1-month mailed notice under T.C.A. § 56-7-2307(7) must come first.
- B) Tennessee law does permit lapse for unpaid loans, but only after the indebtedness threshold and notice conditions are met.
- D) The 3-year figure is the prerequisite for the policy-loan provision itself under T.C.A. § 56-7-2307(7), not the lapse trigger for nonpayment.
Memory hook
Debt hits loan value, notice mailed, 1 month later — only then the policy dies.