Life Insurance Basics and Policy Provisions
The policyowner controls the contract
The owner - not necessarily the insured - holds all rights: naming and changing beneficiaries (if revocable), surrendering, borrowing, and assigning. Primary beneficiaries are paid first; contingent beneficiaries only if no primary survives. Per stirpes splits a deceased beneficiary's share among that beneficiary's heirs; per capita divides only among living survivors. Traps: a minor cannot give a valid receipt, and an irrevocable designation cannot be changed without consent.
Premiums, dividends, nonforfeiture
Annual mode is cheapest overall; monthly and payroll deduction cost more in total. Dividends are a return of divisible surplus on participating policies - not guaranteed and generally not taxable until they exceed premiums paid. If a cash-value policy lapses, nonforfeiture options are cash surrender, reduced paid-up, or extended term. The automatic premium loan prevents lapse by borrowing from cash value.
Standard provisions
Entire contract; free look; grace period (typically 30 days on life); reinstatement usually within 3 years with evidence of insurability plus back premiums and interest; incontestability after 2 years, with misstatement of age or sex handled by adjusting the benefit rather than rescinding; suicide clause typically 2 years, returning premiums.
Types and riders
Term (level, decreasing, increasing, renewable, convertible), whole life (straight, limited-pay, single-premium), universal life (flexible premium; Option A level vs. Option B increasing death benefit), variable (separate account, securities-regulated), indexed. Riders: waiver of premium, guaranteed insurability, accidental death, payor, child/term, accelerated death benefit.
Worked example: a $200,000 whole life policy with $30,000 cash value lapses at 60. Reduced paid-up keeps a smaller face amount with no further premiums; extended term keeps the original $200,000 for a limited number of years; cash surrender ends coverage and pays $30,000 less any loan.