Life Insurance Policy Provisions, Options and Riders
The contract provisions
Entire contract - the policy plus attached application is the whole agreement; no side promises count. Incontestability - after two years the insurer cannot contest for misrepresentation (fraud in some states excepted). Grace period - typically 30 or 31 days; coverage continues during it. Reinstatement - after lapse, with evidence of insurability, back premiums with interest; a new contestable and suicide period usually begins. Misstatement of age or sex - benefit is adjusted, not the contract voided. Suicide clause - typically two years, then payable (often as a refund of premium during the period). Policy loans - reduce the death benefit and cash value if unpaid; interest accrues. Assignment - absolute or collateral.
Nonforfeiture options
On surrender or lapse of a cash-value policy: cash surrender, reduced paid-up (smaller face, no more premiums), or extended term (same face for a limited time). Trap: extended term keeps the face amount; reduced paid-up keeps the policy in force for life.
Dividend options
Cash, reduce premium, accumulate at interest, paid-up additions, one-year term, or loan repayment.
Settlement options
Interest only, fixed period, fixed amount, life income (straight life pays the most), life with period certain, refund life, and joint and survivor.
Riders
Waiver of premium (disability), disability income, accidental death (double indemnity), guaranteed insurability (buy more coverage at set dates without proof), term riders, child term, accelerated death benefit (terminal illness), long-term care, and return of premium.
Rule of thumb: a rider or option never creates coverage the base policy does not already allow - it modifies it, and questions love to test which option preserves the death benefit versus which preserves cash.