Arizona Life and Health Practice Exam

If an insured dies during the grace period with no premiums paid, what is the outcome for the policy?

1. The policy becomes void

2. Policy's face amount minus any premiums due

3. The full face amount is payable

4. No payment is due

The correct answer is: Policy's face amount minus any premiums due

If an insured dies during the grace period without having paid any premiums, the outcome generally is that the policy's face amount will be reduced by the unpaid premium amount. During the grace period, the policy remains in effect even if the premium hasn't been paid yet. This means that the insurance company will honor the death claim but will subtract any overdue premiums from the face amount of the policy. This arrangement protects the beneficiaries to some extent, ensuring that while the policy must be enforced according to its terms, the insurance company is also compensated for the unpaid premiums. The intention behind the grace period is to provide the insured with additional time to make payment and to prevent accidental lapses in coverage, which is why a partial payout occurs if death occurs during this time without a premium payment. Thus, the outcome reflects a balance, allowing for a payout while acknowledging the policy's unpaid status.