Tennessee Insurance Practice Exam

If an insured dies during the Grace Period, what will the beneficiary receive?

1. Only the past due premiums

2. Full face amount with no deductions

3. Full face amount minus any past due premiums

4. Partial payment based on policy terms

The correct answer is: Full face amount minus any past due premiums

When an insured dies during the Grace Period, the beneficiary will receive the full face amount of the insurance policy, but this amount will be reduced by any past due premiums. The Grace Period is typically defined as a specific time frame following the due date of a premium during which the policy remains in force despite the premium not being paid. This ensures that the insured still has coverage and that the policy doesn't lapse even if the payment is delayed slightly. In the event of the insured's death during this period, the insurer honors the policy and pays out the death benefit; however, to compensate for the unpaid premium, the insurer deducts any past due amounts from the benefit. This approach ensures that the insurer is still collecting the premiums owed while still providing a financial benefit to the beneficiary, albeit at a slightly reduced amount. This arrangement reflects standard practices in life insurance policies wherein the terms are designed to safeguard both the insured and the insurer's interests.