Policy Provisions, Options, and Riders: Ownership Through Settlement
Ownership and assignment
The owner holds every right: naming beneficiaries, loans, surrender, and assignment. The insured need not be the owner. An absolute assignment transfers all ownership rights; a collateral assignment transfers only enough interest to secure a debt.
Core provisions
The entire contract clause makes the policy and attached application the whole agreement. The incontestability clause bars the insurer from contesting the policy after two years (typically excepting nonpayment of premium). Other standard provisions: a grace period of about 30–31 days; reinstatement within three years with evidence of insurability and payment of overdue premiums with interest; misstatement of age or sex (benefit adjusted, not voided); a two-year suicide exclusion; and the free-look period.
Nonforfeiture and dividends
If premiums stop on a policy with cash value, the owner may take cash surrender, reduced paid-up (smaller face, same endowment date), or extended term (same face for a limited period). Dividend options are cash, reduce premium, accumulate at interest, paid-up additions, and one-year term.
Settlement options
Lump sum, interest only, fixed period, fixed amount, and life income (life only, life with period certain, refund life, joint and survivor).
Riders
Waiver of premium (usually after a 6-month waiting period), disability income, accidental death (often expires at a stated age), guaranteed insurability, child term, return of premium, long-term care, and accelerated death benefit.
Worked example
A policyholder stops paying after 10 years on a $100,000 whole life policy and elects extended term. The face amount stays $100,000 but lasts only for the number of years the cash value will purchase. Choosing reduced paid-up instead would permanently reduce the face amount. Riders generally have no cash value.