In life insurance terms, what typically happens when the policyholder dies?

When a policyholder passes away, the standard procedure in life insurance is that the death benefit is paid out to the beneficiaries designated by the policyholder. This death benefit is a predetermined sum outlined in the life insurance policy, ensuring that loved ones or dependents receive financial support in the absence of the policyholder. This benefit is designed to assist in covering various expenses, such as funeral costs, debts, or ongoing living expenses for the beneficiaries, thus providing them with financial security after the loss.

The other options involve scenarios that do not align with how life insurance policies function. A premium refund typically occurs in specific circumstances like policy cancellation within a free look period, not upon death. The cancellation of the policy does not automatically happen upon the policyholder's death; instead, the terms of the policy dictate that the death benefit is processed. Lastly, life insurance policies generally do not cover the insured's medical expenses after death; they are focused on providing financial support to beneficiaries rather than settling previous medical bills.