Life Insurance Policies and Policy Provisions
Life Insurance Policies and Policy Provisions
This domain tests the anatomy of a life policy: ownership rights, beneficiary designations, standard provisions, riders, and settlement options. The exam expects you to apply policy language to events such as death, lapse, reinstatement, and misstatement.
Core rules
- The policyowner controls the contract: beneficiary changes, loans, assignments, surrenders, and exercise of options, subject to irrevocable beneficiary rights.
- The incontestability clause generally bars the insurer from contesting the policy after two years for misstatements, except for nonpayment of premium. The suicide clause typically lasts two years.
- Grace period, reinstatement, automatic premium loan, and nonforfeiture options protect or terminate coverage in defined ways. Reinstatement usually requires evidence of insurability and payment of overdue premiums.
- Misstatement of age or sex adjusts the benefit to what the premium would have purchased at the correct age or sex.
- Riders add benefits such as waiver of premium, accidental death, disability income, or term insurance. Settlement options determine how proceeds are paid.
Worked example
A policyowner dies 18 months after issue. The insurer discovers the application understated the insured’s age by five years. The policy is still within the contestable period, but the misstatement of age provision typically applies: the insurer pays the death benefit the premium would have bought at the correct age, rather than rescinding solely for age. If the application had concealed a material health condition, the insurer might contest within the two-year period and rescind.
Traps
Do not apply incontestability to nonpayment of premium. Do not assume a beneficiary change is effective if an irrevocable beneficiary has not consented. Do not confuse reinstatement with continuation of the original contestable period; reinstatement terms and state rules matter.