Utah Life Producer Practice Exam

Which option best describes policy nonrenewal?

1. Termination of an insurance policy by the insurer

2. Discontinuance of an insurance policy by the insured on the policy anniversary date

3. Mandatory renewal of an insurance policy

4. Continuation of benefits beyond the policy terms

The correct answer is: Discontinuance of an insurance policy by the insured on the policy anniversary date

The best description of policy nonrenewal is when the insured decides to discontinue the insurance policy on the policy anniversary date. This occurs when the policyholder opts not to continue their coverage when the policy reaches its renewal period. Nonrenewal signifies that the policyholder is intentionally allowing their insurance to lapse rather than the insurer canceling the policy. This choice often follows careful consideration and can stem from various factors such as changes in coverage needs, cost considerations, or finding better options elsewhere. In general, nonrenewal is a significant concept as it affects both the insured's coverage and the insurer's risk management. Understanding the mechanisms of nonrenewal is important for policyholders, as it emphasizes the active role they play in their insurance coverage decisions.