Standard Policy Provisions on Life Policies

LIFE INSURANCE POLICY PROVISIONS, RIDERS, RIGHTS
Standard Policy Provisions on Life Policies

1) Ownership Clause - The policy owner has ALL contractual rights in the policy while the insured is still alive. The policy owner has the right to name the beneficiary or beneficiaries, borrow against cash value, or select dividend options.

2) Assignment Clause - The policy owner may designate a new owner by filling an appropriate form. The assignee then becomes the new owner of the policy. This is commonly done when a parent bought a life policy for a newborn, and wishes to transfer it to the now-adult child. This is also an option if you do not need a given policy anymore, and it is paid up. You may wish to assign it as a gift to your church or alma mater or other charity. I might add that using the policy as collateral on a loan is an example of temporary assignment.

3) Entire Contract - Just like with the health insurance policy, this states that the whole of the policy is contained in the application, the policy itself, and any riders.

4) Free Look - You have the right to examine the policy and decide whether you want to keep it; you can cancel it and owe nothing if within the stated period of time. Usually this is 10 to 20 days, depending on your state, or 30 days for senior products. The count begins from the date the policy is delivered to your hands.

5) Grace Period - The policy owner has 31 days in which he or she may pay the premium late without the policy lapsing. It lapses on the 32nd day after the due date. IF THE INSURED DIES during the grace period, the policy does not lapse! The face amount is paid, minus the premium.

6) Reinstatement Period - This is very different from the rules for a health policy, so look sharp. Your LIFE policy may be reinstated up to three years after the last premium due date. To reinstate, you need to fill out the reinstatement form, prove insurability (which usually involves a new physical exam), and pay all back premiums with interest. You will have to wait thru a new incontestability period (2 years) - but NOT a new suicide exclusion. However, if there was no cash value when the policy lapsed, then coverage ends and you cannot reinstate. Ex: A term policy may lapse permanently because it has no cash value. Also, you may have the option with a whole life policy to convert it to an extended term life policy. This is what happens if your policy has an automatic non-lapse option.

7) Incontestability Clause - The insurer can’t contest a claim after two full years on the basis of misrepresentation or concealment. The only cases of fraud that can be contested after two years are impersonation, no insurable interest, and intent to murder. Impersonation is pretending to be the insured when buying the policy or forging their signature on an application. Intent to murder should be pretty self-explanatory as I am sure all of us have watched enough crime shows understand how that works. Insurable interest is having a plausible interest in the life of the insured. We all have unlimited interest in our own life, or in the life of a spouse or other family member. We also have an insurable interest in a business partner or a company’s key employee.

8) Misstatement of age or gender - These are essential to arriving at a correct
premium for the policy you purchase. As with the health policies, if the misstatement in age results in a lower premium, you will be refunded the excess premium. If it results in a higher premium, you will receive a reduced death benefit; the amount is the one that your premium would have bought with accurate information. This provision is NOT subject to the incontestability provision.

9) Consideration Clause - The policy owner promises to pay all premiums due and swears all the statements on the application are true.
10) Insuring Clause - This states the policy benefits, the perils (risks) covered, and the beneficiary.

11) Payment of Claims Clause - The death benefit of the policy must be paid within two months (60 days) after the insurer receives proof of death. Unless, of course, they suspect any sort of major fraud in the purchase or irregularity in the death.