Life Insurance Policy Provisions, Options, and Riders
Core policy provisions
Entire contract; free look (10 days in Washington for life policies); grace period (30 or 31 days, with coverage continuing); incontestability (the insurer cannot contest the policy after it has been in force two years from issue, except for nonpayment of premium); suicide clause (two years, after which only premiums are refunded); misstatement of age or sex (benefit adjusted to what the premium would have purchased); reinstatement (within three years with evidence of insurability and payment of overdue premiums with interest).
Ownership rights
Policy loans (interest charged, reduces proceeds), automatic premium loan, surrender, assignment (absolute or collateral), dividend options, and nonforfeiture options.
Nonforfeiture and dividends
Nonforfeiture options are cash surrender, reduced paid-up, and extended term. Dividend options are cash, reduce premium, accumulate at interest, paid-up additions, and one-year term.
Settlement options
Lump sum, interest only, fixed period, fixed amount, life income, life with period certain, and joint and survivor.
Riders
Waiver of premium (often after a six-month waiting period), disability income, accidental death and dismemberment, guaranteed insurability, cost-of-living, return of premium, child term, spouse or other insured, payor benefit, accelerated death benefit, and long-term care or chronic illness riders.
Traps
Incontestability does not protect nonpayment of premium. Contestable and suicide periods run from issue. A loan that exceeds cash value will lapse the policy.
Rule of thumb: two years to contest, three years to reinstate, 10 days to look it over.