Life Insurance Policies and Provisions
Product families
Term provides pure death benefit for a set period: level, decreasing, increasing, annually renewable (ART), renewable (guaranteed renewability without proof of insurability) and convertible (to permanent without proof). It builds no cash value. Whole life is permanent, level-premium, with guaranteed cash value and guaranteed death benefit; limited-pay and single-premium versions compress the premium years. Universal life separates the account from the cost of insurance: Option A pays a level death benefit, Option B pays face plus cash value. Variable products shift investment risk to the owner, are securities, require a prospectus and FINRA registration, and offer separate accounts. Indexed UL credits interest by formula tied to an index with a floor and cap.
Living with the policy
Nonforfeiture options (whole life): cash surrender, reduced paid-up, extended term. Dividend options: cash, reduce premium, accumulate at interest, paid-up additions, one-year term. Policy loans accrue interest and reduce proceeds if unpaid; the automatic premium loan prevents lapse by borrowing to pay overdue premium. Grace period (commonly 30–31 days) keeps coverage in force. Reinstatement requires evidence of insurability and back premiums with interest, and restarts a contestability period.
Standard clauses
Incontestability (2 years) blocks rescission for misrepresentation after the period; suicide clauses typically expire in 2 years; misstatement of age or sex adjusts the benefit. Riders include waiver of premium, disability income, guaranteed insurability, term, family income, and accelerated death benefit (living benefits).
Worked example: Insured understates age by five years; three years after issue the insured dies. The insurer does not rescind - it pays the face amount the premium actually purchased at the correct age.