Insurable interest must exist at the inception of a life insurance contract. If a premium is past due but the policy remains within the grace period, the death benefit payable to the beneficiary is equal to the...

• A. full-face amount minus any past due premiums
• B. full-face amount
• C. cash surrender value
• D. policy loan amount

Answer: (A)

When a premium is late but the policy is still within the grace period, the policy remains in force and the insurer can still collect the overdue premium from the death benefit if death occurs during that time. The death benefit payable to the beneficiary is the face amount minus any past-due premiums. This reflects the insurer’s right to recoup the unpaid premium from the death benefit, while the policy coverage remains active during the grace period.

The full-face amount isn’t paid because overdue premiums are owed. Cash surrender value isn’t paid on a death claim, and a policy loan only affects the death benefit if there is an outstanding loan balance, which isn’t specified in this scenario.