Life Insurance Policy Provisions, Options, and Riders
The core contract provisions
Entire contract limits the policy to the document and the attached application - no side agreements. The owner holds all rights (beneficiary change, assignment, loan, surrender). Assignment may be absolute (transfer all rights) or collateral (security for a loan).
Incontestability: after the policy is in force two years from issue, the insurer cannot contest for misrepresentation (except nonpayment of premium); fraud in the application is generally no defense after the contestable period. Misstatement of age or sex adjusts the benefit to what the premium would have purchased at the correct age/sex - the policy is not voided. The grace period (commonly 30 or 31 days) keeps coverage in force while a late premium is paid. Reinstatement usually requires evidence of insurability and payment of overdue premiums with interest, typically within 3 years. The policy loan charges interest and reduces the death benefit if unpaid; the automatic premium loan uses cash value to pay premiums in default, preventing lapse.
Options
Nonforfeiture: cash surrender, reduced paid-up (smaller face, no more premiums, permanent), and extended term (same face for a limited number of years). Dividend options (participating policies): cash, reduce premium, accumulate at interest, paid-up additions (buys more permanent coverage, no proof of insurability), and one-year term. Settlement options: lump sum, interest only, fixed period, fixed amount, and life income (including life with period certain and joint-and-survivor).
Riders
Waiver of premium (disability, typically after a waiting period, with retroactive refund), disability income, accidental death (pays extra only if death is accidental and usually within 90 days), guaranteed insurability (buy additional coverage at set option dates), cost-of-living, spouse/child, payor benefit (waives premiums on a juvenile policy if the adult payor dies or is disabled), and accelerated death benefit (typically when life expectancy is 12–24 months; the accelerated amount reduces the final death benefit).
Worked example: A 50-year-old lapses after 8 years with cash value. If she elects extended term, her beneficiary still receives the full face amount, but only for a limited term; if she elects reduced paid-up, she keeps permanent coverage at a lower face amount with no further premiums.