Life Insurance
Policy types and features
Term provides pure protection for a stated period, with no cash value (level, decreasing, increasing, renewable, convertible). Whole life is permanent, level-premium, with guaranteed cash value and dividends if participating. Universal life is flexible-premium/permanent with a cash account credited interest; variable life and variable universal life place cash value in separate accounts (securities - dual licensing required); indexed UL credits interest tied to an index with a floor and cap. Know nonforfeiture options (cash surrender, reduced paid-up, extended term), dividend options (cash, reduce premium, accumulate at interest, paid-up additions, one-year term), and settlement options (lump sum, interest only, fixed period, fixed amount, life income).
Provisions and beneficiaries
Standard provisions: free look (typically 10 days), grace period, reinstatement (with evidence of insurability and back premiums), incontestability (generally two years), suicide clause (typically two years, return of premium), misstatement of age or sex (benefit adjusted), automatic premium loan, and policy loan (interest accrues; unpaid loan plus interest reduces the death benefit). Beneficiary designations control over a will. Primary is paid first; contingent only if the primary is dead; per stirpes divides a deceased heir's share among that heir's descendants, per capita divides equally among survivors.
Traps
Incontestability does not excuse nonpayment of premium. An irrevocable beneficiary cannot be changed without consent. A revocable beneficiary has no vested right. Death benefits are generally income-tax-free; cash value grows tax-deferred; loans are not taxable unless the policy lapses; MEC status changes distributions. 1035 exchanges move life-to-life, life-to-annuity, and annuity-to-annuity tax-free.
Rule of thumb
Two years = contestability and suicide window.
Worked example: Insured dies in month 25; insurer discovers a material misstatement on the application. Because the contestable period expired, the full death benefit is payable.