What happens to life insurance when the insured individual passes away?

When the insured individual passes away, the life insurance policy is designed to provide financial protection to the policyholder's beneficiaries. This is accomplished through the payment of a death benefit, which is a predetermined sum of money that the insurance company pays out to the beneficiaries named in the policy. This death benefit can help cover funeral expenses, replace lost income, pay off debts, or provide financial support for the family, ensuring their financial stability after the loss.

The other choices are less accurate in the context of what happens upon the death of the insured. The policy does not merely expire without effect; it fulfills its purpose by delivering the death benefit. While the insurance company does collect premiums, whether it profits or not is a separate consideration that involves the overall management of claims and customer policies. Finally, the policyholder does not receive a refund upon death, as the life insurance policy functions specifically to provide a benefit to the beneficiaries rather than the insured directly at the time of their demise.