What could happen if a policyholder stops paying premiums on a whole life insurance policy?

If a policyholder stops paying premiums on a whole life insurance policy, the policy typically lapses after a certain period of non-payment. Whole life insurance is designed to provide lifelong coverage as long as premiums are paid, and if payments stop, the insurance company will eventually terminate the policy. The grace period is often a set duration, usually a month, during which the policyholder can make the payment without losing coverage. If premium payments are not resumed after the grace period, the policy will lapse, meaning it no longer provides death benefit protection and any associated benefits.

Option A, stating that the policy remains active for one year, is misleading because while many policies offer a grace period for missed payments, they do not remain actively in force for an entire year without payment.

Option C suggests that the cash value is automatically paid out, which is not how whole life insurance works; the cash value accumulates and can be accessed through loans or withdrawals, but it’s not simply paid out upon non-payment of premiums.

Option D implies that the policy converts to term insurance, which does not occur unless specifically allowed by the policy terms, as whole and term life insurance are distinct products with different structures.