Life Policy Provisions, Options, Riders, and Beneficiaries
Contract provisions and beneficiary designations
Candidates must know the standard life policy provisions: entire contract, free look, incontestability, grace period, reinstatement, policy loan, automatic premium loan, nonforfeiture, surrender, misstatement of age or sex, suicide, assignment, and payment of claims. The incontestability clause generally bars the insurer from contesting the policy after two years for misrepresentation, but it does not excuse nonpayment. Suicide clauses typically limit payment during an initial period, often two years. Reinstatement may require evidence of insurability and payment of overdue premiums. Beneficiary designations control proceeds: primary, contingent, revocable, irrevocable, per stirpes, per capita, and minor beneficiaries. An irrevocable beneficiary generally must consent to changes. Facility-of-payment provisions let the insurer pay a relative for funeral or medical expenses when no valid beneficiary exists. Riders add value: waiver of premium, disability income, accidental death, guaranteed insurability, child term, return of premium, and long-term care.
Traps: assuming a will overrides a beneficiary designation; naming a minor directly; forgetting that divorce may not automatically change a designation; and confusing policy loans with taxable withdrawals. Worked rule: proceeds pass by contract, not probate, when a valid beneficiary is named. Example: if the primary beneficiary dies first and no contingent is named, proceeds may go to the estate.