Which of the following best describes what happens to a life insurance policy after an insured's death without a premium payment?

The correct interpretation of what happens to a life insurance policy when the insured passes away without a premium payment is that the insurer will pay out the face amount minus any past due premium. This reflects the standard practice in the life insurance industry where, if the insured dies while the premium is overdue, the insurer typically deducts the amount of the unpaid premium from the death benefit.

This ensures that the insurer is compensated for the risk they have continued to bear despite the nonpayment. In these situations, the policy is not necessarily considered lapsed at the time of death if the death occurs during the grace period, which is a time frame in which the policy remains active following missed premium payments.

The other options do not accurately reflect standard industry practices. For instance, while it's beneficial for the policyholder's estate to cover premiums, it is not the automatic process after death. There can be circumstances where benefits are paid in full regardless of premium status, but this is unusual and typically would not apply without specific policy provisions outlining that scenario. Lastly, if a policy is in good standing at the time of death, it is not automatically considered lapsed solely due to unpaid premiums, particularly if within the grace period.