Life Insurance Concepts and Products: Valued Contracts, Riders and Policy Provisions
Life questions blend product knowledge with the Code's protective provisions. The exam tests whether you know that life insurance is a valued contract, when insurable interest is required, and which mandatory provisions override strict contract terms.
Nature of the contract
Life insurance pays the sum insured; it is not a contract of indemnity, so the benefit is not measured by financial loss. Insurable interest must exist when the policy takes effect, not at death. Products: term, whole life, endowment, universal life, variable unit-linked (separate account, investment risk borne by the policyholder, IC-approved), annuities (immediate or deferred, fixed or variable), group life under a master policy with certificates, credit life, and microinsurance. Distinguish participating from non-participating policies.
Mandatory and standard provisions
A 30-day grace period for premium; incontestability after the policy has been in force during the insured's lifetime for two years (Sec. 48); reinstatement on evidence of insurability plus payment of arrears; non-forfeiture options - cash surrender, reduced paid-up, extended term, automatic premium loan; misstatement of age adjusted to the correct benefit; suicide exclusion for the early policy years; beneficiary designation, revocable or irrevocable, and facility of payment.
Worked example
A policy is issued in 2019 and the insured dies in 2022 with premiums current. The insurer discovers the application concealed a 2018 cancer diagnosis. Because the policy was in force for more than two years during the insured's lifetime, Sec. 48 incontestability bars rescission for concealment and the death benefit is payable. Had death occurred in month 18, rescission and return of premiums would likely succeed.
Traps
- Importing indemnity principles into life claims.
- Believing incontestability defeats a non-payment defence; lapse rules still apply.
- Assuming the beneficiary needs insurable interest - only the person procuring the policy does.