Massachusetts Life Producer Practice Exam

If a policyholder does not pay the premium on time but dies within the grace period, what happens to the face value payout?

1. The full face amount is paid

2. Only partial benefits are paid

3. The face amount is reduced by the unpaid premium

4. No benefits are paid

The correct answer is: The face amount is reduced by the unpaid premium

In situations where a policyholder does not pay the premium on time but passes away within the grace period, the outcome is that the face amount of the policy is indeed reduced by the amount of the unpaid premium. The grace period serves as a period of leniency, allowing policyholders additional time to make their payments without losing coverage. When the insured dies during this grace period, the insurance company will deduct any outstanding premium from the total face amount of the policy before disbursing the benefits to the beneficiaries. This means that the beneficiaries will receive the total face value of the policy minus the unpaid premium amount. This policy provision ensures that the insurance company is protected from the financial risk of having to pay the full amount when the premium has not been fully paid, while still honoring the policyholder's insurance during the grace period.