Life Insurance Policy Provisions, Options and Riders
Contract provisions
Entire contract (policy plus application plus attached riders), free look (commonly 10 days), incontestability (after two years the insurer cannot contest for misstatement, though nonpayment of premium still voids coverage), grace period (typically 30 or 31 days), reinstatement (within three years with evidence of insurability and back premiums plus interest), misstatement of age or sex (benefit is adjusted, not the contract rescinded), policy loans (interest accrues and unpaid loans reduce the death benefit), automatic premium loan, assignment (absolute or collateral), and a suicide clause (usually two years; afterward the face amount is paid).
Nonforfeiture and dividend options
On lapse, the owner may take cash surrender value, reduced paid-up insurance, or extended term insurance. Dividends may be taken in cash, used to reduce premium, accumulated at interest, used to buy paid-up additions, or used to buy one-year term.
Settlement options
Lump sum, interest only, fixed period, fixed amount, life income, life income with period certain, and joint and survivor. Fixed period and fixed amount guarantee a definite payout; life-only pays the most per dollar but stops at death.
Riders
Waiver of premium, disability income, guaranteed insurability, accidental death (double indemnity), child term, spouse/other insured, cost-of-living, return of premium, payor benefit, accelerated death benefit, and long-term care or chronic illness riders.
Traps: incontestability does not excuse unpaid premiums; after the contestable period a material misstatement still allows the insurer to adjust the benefit; and a beneficiary designation on file controls over the will.