Arizona Life and Health Practice Exam

What fraction of the face amount is payable if an insured dies due to an incident during the grace period?

1. Full face amount

2. Nothing at all

3. Half of the face amount

4. Face amount minus premiums due

The correct answer is: Face amount minus premiums due

The correct answer is that the fraction payable upon the death of an insured during the grace period is the face amount minus any premiums that are due. In life insurance policies, a grace period is a designated time after a premium payment is due during which the policyholder can still make the payment without losing coverage. If the insured dies during this grace period, the insurance company generally pays the full death benefit, but only after deducting outstanding premiums from the face amount. This ensures that the insurer is compensated for unpaid premiums, while still honoring the policyholder's coverage during the grace period. This process reflects an understanding of how grace periods work, as they are designed to protect insured individuals from losing their coverage immediately after a missed payment, but also establish that obligations must be met.