New Jersey Life and Health State Practice Exam

In which context does an insurer offer reduced claim payments due to outstanding premium obligations?

1. Policy lapse provision

2. Unpaid provision

3. Claim adjustment provision

4. Premium payment provision

The correct answer is: Unpaid provision

The concept of reduced claim payments due to outstanding premium obligations is best captured by the unpaid provision. This provision stipulates that an insurer may withhold or reduce claim payments if the policyholder has not fulfilled their premium payment obligations. It serves as a safeguard for the insurer, ensuring that the policyholder maintains current payments, as an active policy is necessary to receive full benefits. If the premiums are not paid, the insurer has the right to adjust the claim payment based on the outstanding amount. This mechanism encourages policyholders to stay current with their payments to ensure their coverage remains effective when a claim arises. In contrast, while the policy lapse provision deals with policies that have become inactive due to non-payment, it doesn’t specifically address the reduction of claim payments while the policy is still technically active. The claim adjustment provision focuses more on the calculation and evaluation of claims rather than payment conditions related to premiums. The premium payment provision generally states the obligation of the insured to pay premiums but does not address the consequences of non-payment regarding claims specifically.