State RegulationsNY specificDifficulty 2/5
An insured dies while his ordinary life policy is in its grace period, with one premium overdue. Under New York law, the insurer will:
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under N.Y. Ins. Law §3203(a)(1), a life policy remains in force during the grace period, and if the insured dies during grace, the overdue premium may be deducted from the proceeds. The insurer therefore cannot treat the missed premium as a lapse or deny the claim; it pays the death benefit and offsets the amount past due. In practice, the beneficiary receives the face amount less the overdue premium.
Why the other options are wrong
- A) The policy remains in force during grace under §3203(a)(1), so the insurer cannot deny the claim for the missed premium.
- C) Refunding premiums and voiding the policy is the remedy for certain exclusions, such as suicide within two years under §3203(b)(1)(B), not for death during grace.
- D) There is no requirement that the beneficiary apply to reopen the policy; the statutory protection operates automatically during grace.
Memory hook
Grace keeps coverage alive - the overdue premium just comes off the top of the proceeds.