Life Insurance Policy Provisions, Options, and Riders
The contract skeleton
Every policy contains: entire contract (policy plus attached application), free look (typically 10 days), grace period (often 30–31 days for life), incontestability (the insurer cannot contest for material misrepresentation after two years from issue), misstatement of age or sex (benefit adjusted, not voided), suicide clause (usually two years), reinstatement (typically within three years of lapse, requiring evidence of insurability and back premiums with interest), and policy loans.
Nonforfeiture and dividends
If permanent coverage lapses with value, the owner may take cash surrender value, reduced paid-up insurance (smaller face, same duration), or extended term (same face, shorter duration). Dividend options: cash, reduce premium, accumulate at interest, paid-up additions, or one-year term.
Settlement options
Lump sum; interest only; fixed period; fixed amount; life income (straight life, life with period certain, installment refund, joint and survivor).
Riders
Waiver of premium (total disability, commonly after a 6-month waiting period), disability income, accidental death and dismemberment, guaranteed insurability (option dates to buy more coverage without evidence), term rider, child rider, chronic illness/long-term care, and return of premium.
Traps
Incontestability does not excuse nonpayment of premium. Extended term keeps the face amount; reduced paid-up keeps the duration. A waiver of premium rider does not pay cash benefits - the disability income rider does.
Rule of thumb
Match settlement option to objective: maximum income with no guarantees → straight life; guarantee something to a beneficiary → life with period certain or refund.
Worked example
An owner with $20,000 of cash value who wants the largest permanent death benefit chooses reduced paid-up; one who needs the largest death benefit for a short period chooses extended term.