How is the amount payable to a beneficiary during the grace period calculated?

The correct choice, which indicates that the amount payable to a beneficiary during the grace period is calculated as the total premiums paid plus interest, is based on the principle that the insurer aims to provide assurance and maintain good faith with the policyholder. During the grace period, which is a time granted after a premium payment is missed, the policy remains in force even though the premium is overdue.

When a death occurs during this grace period, the insurer not only considers the total premiums that have been paid but also adds interest to reflect the time value of money. This means that the beneficiary receives a fairer amount that compensates for the time the premium was outstanding and recognizes the accumulation of interest that would have been earned had the premium been paid on time.

The inclusion of interest is crucial, as it aligns with consumers’ expectations that outstanding financial obligations do not unfairly disadvantage the insured or their beneficiaries. This calculation rewards the policyholder for maintaining their premium payments up to the point where they faced an interruption, thereby reinforcing the value of the policy during that grace period.