Life Insurance: Contracts, Products, and Policy Provisions
Contract fundamentals
Life insurance is a unilateral, aleatory contract of adhesion: only the insurer makes an enforceable promise, performance depends on chance, and the insurer drafts the wording. The required elements are offer and acceptance, consideration (the application plus the first premium), legal purpose, and competent parties. Insurable interest must exist at application - not at death. A favorite trap asks when insurable interest is required; the answer is policy inception, even if the beneficiary relationship later changes.
Products and premium
Term (level, decreasing, increasing, renewable, convertible) is pure protection with no cash value. Whole life is permanent with guaranteed cash value, level premiums, and a fixed death benefit; limited-pay and single-premium versions shorten the pay period. Universal life separates mortality, expense, and interest, with flexible premiums and no guaranteed cash value. Variable products shift investment risk to the owner and require a securities license. Premiums reflect mortality, interest, and expense; frequency loadings make annual payment cheapest.
Provisions to memorize
Entire contract; incontestability (usually two years); misstatement of age or sex (adjusts the benefit, never voids the policy); suicide clause (two years, premium refunded); grace period (typically 30–31 days); reinstatement (typically three to five years with evidence of insurability and back premiums with interest); automatic premium loan; free look of 10 days in Kansas. Lapse triggers nonforfeiture options: cash surrender, reduced paid-up, extended term. Beneficiary designations may be primary or contingent, revocable or irrevocable, and distributed per stirpes or per capita.
Rule of thumb: if the insured dies during the grace period, the insurer pays the face amount minus any unpaid premium - the policy had not yet lapsed.