Policy provisions, riders, and contract law
Domain 4 tests contract formation and the standard provisions and riders that control claims. Learn which clause applies to which fact pattern.
Core rules
- A valid insurance contract needs offer, acceptance, consideration, legal purpose, and competent parties.
- Insurance contracts are contracts of adhesion (insurer drafts), aleatory (unequal exchange), unilateral (only insurer makes a promise), and conditional (benefits depend on conditions).
- Utmost good faith requires disclosure; representations are statements believed true, warranties are stricter promises.
- Standard provisions: entire contract; incontestability (usually two years); grace period; reinstatement; free look; misstatement of age/sex; suicide exclusion; notice/proof of loss; legal action.
- Riders add benefits: waiver of premium, guaranteed insurability, accidental death, child term, accelerated death benefit, long-term care.
- A policy loan, assignment, and beneficiary designation change who receives proceeds or creates a lien.
Worked example
An applicant denies smoking; the insurer issues a standard policy. The insured dies 18 months later, and the insurer proves the statement was material. During the contestable period, the insurer may rescind and refund premium. If death occurs after the contestability period, the insurer generally cannot contest the policy for misrepresentation, though nonpayment of premium remains a defense. If the issue is age, the benefit is adjusted rather than the policy avoided.
Traps
Incontestability does not excuse unpaid premiums. The free-look period returns premium. The entire contract includes the policy and attached application, not an agent's oral promise. A rider is not a separate policy.