Life Insurance Policies: Provisions, Options and Riders
Core contract provisions
The entire contract clause limits the agreement to the policy and attached application. The free look gives 10–30 days to return the policy for a refund. The grace period (typically 30 or 31 days) keeps coverage in force after a missed premium. Reinstatement is generally allowed within 3–5 years with evidence of insurability and payment of overdue premiums plus interest; the insurer may impose a new contestable period on statements made in the reinstatement application. The incontestability clause limits challenges to the application to two years. Misstatement of age or sex adjusts benefits. Assignment may be absolute or collateral.
Policy loans and nonforfeiture
Loans are borrowed against cash value, accrue interest, and reduce the death benefit if unpaid; they are not taxable unless the policy lapses or is surrendered. The automatic premium loan provision uses cash value to pay an overdue premium. Nonforfeiture options on surrender: cash surrender, reduced paid-up (smaller face, no more premiums, permanent), and extended term (same face for a limited period). Dividend options include cash, premium reduction, accumulation at interest, paid-up additions, and one-year term.
Settlement options
Lump sum, interest only, fixed period, fixed amount, life income, and life income with period certain. Settlement option choices belong to the beneficiary unless the owner elects otherwise.
Riders
Waiver of premium (after a waiting period, usually six months), disability income, accidental death and dismemberment, guaranteed insurability, child term, return of premium, cost-of-living, long-term care or chronic illness, and accelerated death benefits.
Trap and rule of thumb
Extended term keeps the face amount for a limited time; reduced paid-up keeps permanent coverage at a smaller face. Rule of thumb: extended term = same face, shorter time; reduced paid-up = smaller face, lifetime.