State RegulationsAZ specificDifficulty 2/5
An insured in Mesa dies by accident on the twentieth day of the grace period of an individual life policy whose premium was overdue at the time of death. Under A.R.S. 20-1203, how should the insurer handle the claim?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
A.R.S. 20-1203 keeps an individual life policy in force during the 30-day grace period, so a death occurring in grace is a covered loss rather than a lapse. The same statute allows the insurer to deduct the overdue premium from the claim payment arising during the grace period. The beneficiary therefore receives the death benefit minus the unpaid premium that was due at death.
Why the other options are wrong
- A) Coverage continues during the grace period under A.R.S. 20-1203, so death in grace is not a basis to deny the claim.
- B) The statute expressly permits deducting the overdue premium from a claim arising in grace, so a full payment with no offset overstates the obligation.
- C) The measure is the death benefit less the overdue premium, not a conversion to cash surrender value.
Memory hook
Death in grace still pays — the insurer just clips the overdue premium off the top.