Life Insurance Policy Provisions, Options and Riders
Mandatory provisions
The insuring clause states the insurer's promise; the entire contract clause limits the agreement to the policy plus the application; consideration is the premium and the application statements; the free look (commonly 10 days in DC) allows surrender for a full refund; ownership rights belong to the owner.
Core protections
- Incontestability: after two years the insurer cannot contest the policy for misrepresentation (except nonpayment of premium).
- Grace period: typically 30–31 days after a due date; the policy stays in force, and a claim is paid minus the overdue premium.
- Reinstatement: normally within three years, requiring proof of insurability and payment of overdue premiums with interest. A reinstated policy restarts the contestable and suicide periods.
- Misstatement of age or sex: the benefit is adjusted to what the premium would have purchased - the policy is not voided.
- Policy loans: the insurer charges interest; unpaid loans plus interest reduce the death benefit.
- Suicide clause: typically two years, limited to premium refund.
Settlement and dividend options
Settlement: lump sum, life income, life with period certain, fixed period, fixed amount, interest only. Beneficiary rules: primary, contingent, per stirpes vs per capita, common disaster, spendthrift.
Riders
Waiver of premium, disability income, guaranteed insurability, payor (juvenile), child term, accidental death (double indemnity), accelerated death benefit, long-term care, return of premium. Riders may add cost and may be limited by age or amount.
Traps
- Misstatement of age adjusts the benefit; material misrepresentation within the contestable period may rescind.
- A policy loan is not taxable income, but lapse with outstanding loan creates taxable gain.
- Waiver of premium usually has a waiting period (e.g., six months) and pays premiums, not cash to the insured.