State RegulationsTX specificDifficulty 3/5
A Texas life policyowner pays the renewal premium on the last day of the grace period, and the billing statement includes an interest charge on the late premium. Is that charge permitted?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under TIC 1101.005, coverage continues during the grace period but the insurer may charge interest on a premium that is paid during that period; the grace period is a right to pay late, not a right to pay free. The practical consequence is that a policyowner who pays inside grace can owe slightly more than the due-date premium, so a producer should say so at billing time rather than implying that late payment inside grace is costless.
Why the other options are wrong
- A) The right to charge interest is not conditioned on a death during grace; it applies whenever premium is paid late within the period.
- C) An interest charge does not shorten the grace period, which remains the full statutory period regardless of the cost of paying late.
- D) Interest in a reinstatement setting is a different concept; TIC 1101.005 permits interest on premiums paid during the grace period itself.
Memory hook
Grace buys you time, not free money.