Life Insurance Policy Provisions, Options, Riders and Beneficiaries
Standard provisions
Entire contract (policy, application and attached riders), free look, grace period (commonly 30 days on life), reinstatement (back premiums plus interest and evidence of insurability within a stated window), incontestability (the insurer cannot contest for misrepresentation after two years; nonpayment of premium remains contestable), suicide clause (typically two years - premium refunded), and misstatement of age or sex (benefit adjusted to what the premium would have purchased).
Nonforfeiture and dividends
Cash surrender, reduced paid-up, extended term (same face for a shorter period), and the automatic premium loan. Dividend options: cash, reduce premium, accumulate at interest, paid-up additions, one-year term. Dividends are a return of premium and are not taxable until they exceed total premiums paid.
Settlement options
Lump sum, interest only, fixed period, fixed amount, and life income (with period certain, refund, joint and survivor).
Riders
Waiver of premium, disability income, accidental death and dismemberment, guaranteed insurable option, other-insured/term riders, child rider, accelerated death benefit, long-term care or chronic illness rider, return of premium.
Beneficiaries
Primary, contingent, revocable versus irrevocable; per stirpes (by branch) versus per capita (by head); common disaster clause and the Uniform Simultaneous Death Act; spendthrift provision. Minors cannot give a valid receipt - a guardian or trust is needed.
Rule of thumb: extended term keeps the face and shortens the time; reduced paid-up keeps the time and shrinks the face.