Life Policy Provisions, Options, and Riders
Core provisions
The entire contract clause limits the contract to the policy, application, and attached riders. Incontestability bars the insurer from contesting for misrepresentation after two years, but nonpayment of premium is always contestable. The grace period keeps coverage in force past the due date (commonly 30 or 31 days). Reinstatement within three years requires evidence of insurability and back premiums with interest. Misstatement of age or sex adjusts the benefit to what the premium would have purchased. The suicide clause typically runs two years and refunds premiums. New York free look is generally 10 days for life policies. Policy loans accrue interest against cash value.
Nonforfeiture and dividends
If permanent coverage lapses, the owner may take cash surrender value, reduced paid-up insurance, or extended term insurance. Dividend options are cash, reduce premium, accumulate at interest, paid-up additions, and one-year term. Dividends are a return of premium and are never guaranteed.
Settlement options
Cash, interest only, fixed period, fixed amount, and life income (with period certain, refund, or joint and survivor features).
Riders
Waiver of premium, disability income, accidental death and dismemberment, guaranteed insurability, term riders, child or other insured riders, accelerated death benefit for terminal illness, long-term care and chronic illness riders, and return of premium.
Worked example
An insured dies by suicide in year three of a two-year suicide clause. The clause has expired, so the full face amount is paid; in year one only premiums would be refunded.
Traps
Incontestability does not protect a policy that lapsed for nonpayment. Misstatement of age changes the benefit and never voids the policy. A policy loan is not taxable while the policy stays in force but becomes taxable if the policy lapses or is surrendered with debt exceeding basis.