Life Insurance Underwriting and Policy Issue Practice Test 2025 - Free Life Insurance Practice Questions and Study Guide

Question: 1 / 400

What typically happens when a policyowner pays the first annual premium for a life insurance policy and dies shortly after?

The insurer loses the premium

Beneficiary receives the premium amount only

Beneficiary receives $50,000 income tax-free

When the policyowner pays the first annual premium for a life insurance policy and subsequently dies shortly after, the beneficiary is entitled to receive the death benefit from the policy. This death benefit, which is typically a specified amount such as $50,000, is paid out in a tax-free manner to the beneficiary, provided that the policy is in force and all requirements are met. The insurance company thus honors the contract entered into at the time of policy issuance, offering financial protection to the beneficiaries even if the policyholder has only recently made the premium payment.

This structured approach ensures that the objective of the life insurance—providing financial support to dependents or chosen beneficiaries upon the death of the insured—is fulfilled, underscoring the fundamental purpose of life insurance products. The timing of the premium payment does not alter this obligation, provided the premium has been paid.

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Policy lapses immediately

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