Policy Provisions, Options, and Riders
The standard provisions
Candidates must know the entire contract clause, incontestability (typically two years), grace period (usually 31 days), reinstatement, misstatement of age/sex, suicide clause (usually two years), free look (often 10–30 days depending on state and product), assignment, and policy loans.
Nonforfeiture and dividend options
For permanent policies, nonforfeiture options on lapse or surrender include cash surrender value, reduced paid-up insurance, and extended term. Dividend options include cash, reduce premium, accumulate at interest, paid-up additions, and one-year term. A dividend is a return of divisible surplus - not taxable as income while it stays with the insurer.
Settlement options
Death benefit can be paid as lump sum, interest only, fixed period, fixed amount, or life income (with period-certain or joint-and-survivor variations). Know which option guarantees a stated number of payments versus a stated dollar amount.
Riders
Waiver of premium, disability income, accidental death (double indemnity), guaranteed insurability, term rider, child rider, cost-of-living, and long-term care riders each attach specific conditions.
Traps
Questions love to test that the grace period keeps coverage in force while a premium is late, and that incontestability does not protect against nonpayment of premium. Also, misstatement of age adjusts the benefit, not the premium.
Rule of thumb
When a stem describes a lapse, run through nonforfeiture options in order: cash, reduced paid-up, extended term.