Life Insurance Policy Provisions, Options, and Riders
Core contract provisions
The entire contract clause means the policy plus the attached application are the whole agreement, and an agent cannot change it orally. Incontestability bars the insurer from contesting the policy after two years for misstatements, though nonpayment of premium is always contestable. Misstatement of age or sex adjusts the benefit to what the premium would have bought. The grace period, commonly 30 or 31 days, keeps coverage in force while a late premium is paid. Reinstatement normally requires evidence of insurability and back premiums with interest, usually within three years.
Nonforfeiture and dividend options
At lapse or surrender, cash value options are cash surrender, reduced paid-up (smaller face, same policy type, no further premiums), and extended term (same face for a limited period). Dividend options include cash, reduce premium, accumulate at interest, paid-up additions, and one-year term.
Settlement options
Lump sum, interest only, fixed period, fixed amount, and life income. Straight life pays the most; cash refund and installment refund guarantee the unpaid balance to a beneficiary and pay less. Joint and survivor continues for two lives.
Riders
Waiver of premium (the insurer pays the premiums, not cash to the insured), disability income, accidental death and dismemberment (typically double the face if death occurs within a short window such as 90 days), guaranteed insurability, term riders, child and spouse riders, accelerated death benefit, and long-term care.
Traps
The reduced paid-up versus extended term pair is the most tested. Settlement option rankings come second.
Rule of thumb
Same face amount for a limited time equals extended term. Smaller face with no more premiums equals reduced paid-up.