Whatever the type, if _______________is not paid when due, the policy is canceled and the return unearned premium is used to pay the defaulted balance.

Question

Options

• Aunrecognized assets
• Bdeferred payment
• Cirrecoverable credits
• DAll of the above

• A
  4% (1)
• B
  85% (23)
• C
  7% (2)
• D
  4% (1)

Explanation

Option B (deferred payment) is correct because insurance policies often allow premiums to be paid in installments or on a deferred basis. When a deferred payment is not made by its due date, the insurer is entitled to cancel the policy and apply the unearned premium - the unused portion of any premium already collected - toward the outstanding balance owed.

Why the distractors are wrong:

• A (unrecognized assets) is an accounting term referring to assets not recorded on a balance sheet; it has no application to insurance premium payment terms or policy cancellation mechanics.
• C (irrecoverable credits) is not a recognized insurance industry term; it fabricates a concept that doesn't exist in standard policy payment frameworks.
• D (All of the above) fails because A and C are nonsensical in this context, leaving B as the only valid answer.

Memory tip: Associate "deferred" with "delayed" - a deferred payment is one that's been pushed to a later date. If that delayed payment never arrives, the insurer cancels the policy and "defers" back to you whatever unearned premium you had on the books to settle the debt. Think: deferred in, deferred out.

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