What action will an insurer take if a policyholder dies shortly after missing an annual life insurance premium payment?

If a policyholder dies shortly after missing an annual life insurance premium payment, the insurer will generally choose to pay the face amount of the policy minus the past due premium. This is rooted in the principle of premium payment, where the insurance coverage is contingent upon maintaining the policy in force through timely premium payments.

In this scenario, if the policyholder has missed a payment, the policy may not remain in force unless there is a grace period provision that allows coverage to continue for a short duration after a missed payment. If the insured dies during this grace period (if it applies), the insurer may indeed provide a payout, but the amount disbursed would typically be reduced by the unpaid premium amount to reflect the fact that the policy was not fully in effect due to non-payment.

This means that the insurer will deduct the overdue premium from the policy's total benefit before paying out to the beneficiaries. Thus, the policyholder's momentary lapse in payment results in a reduction in the death benefit, reflecting the contractual obligations and conditions agreed upon when the policy was established.