New Jersey Life Producer Practice Exam

In the case of the death of an insured during the grace period, what is the insurance company's liability?

1. Only interest accrued

2. The annual premium only

3. The face amount minus any unpaid premiums

4. Nothing is paid

The correct answer is: The face amount minus any unpaid premiums

When an insured dies during the grace period of a life insurance policy, the insurance company is still obligated to pay the death benefit, but this amount is adjusted based on any unpaid premiums. The face amount of the policy represents the total benefit payable upon the insured's death, but since the premiums have not been fully paid, the company deducts any outstanding amounts from this amount. This ensures that the insurer is not responsible for a full payout on a policy that is technically not fully in force due to non-payment. Therefore, when considering the circumstances of a death occurring during the grace period – the insurer will pay the face value of the policy minus any unpaid premiums. This reflects the policy's terms, which allow coverage to remain in effect for a period after a missed payment, thus balancing the insurer's risk with the insured's rights.