|

|
|
Most life insurance policies are filled
with fine print, legalese, and technical insurance jargon.
However, if you can find the time and muster the patience,
it's probably a good idea to sit down and read through your
policy. If you do, you'll understand your policy better and
gain an understanding of your rights and obligations under
the contract.
Here are some common provisions to look
for when you read your policy:
Entire contract clause
When your life insurance policy takes effect, the
application for insurance that you filled out is
incorporated into the contract. The statements you made on
the application become contractual provisions and can be
used as evidence in a dispute over the contract's validity.
Typically, states require that a clause be inserted in your
policy stating that the policy and the application attached
to it together form the entire contract between you and the
insurer. This clause is beneficial to you because if your
insurer accuses you of misrepresentation and seeks to void
the contract, they're prevented from using other evidence
outside of the contract. They can only void the contract if
you made false statements on your application.
Ownership clause
A life insurance policy is a piece of property. The owner of
the policy may be the individual whose life is insured under
the contract, it may be the beneficiary, or it may be
someone else. In all likelihood, if you are the insured, you
are also the owner of the policy. As the owner, you have
certain privileges of ownership, including the right to
transfer or assign the policy, the right to change the
beneficiary, the right to receive the cash value and
dividends (if applicable), and the right to borrow against
the cash value (again, if applicable).
Beneficiary clause
The beneficiary clause allows you to name the person who
will receive the policy's death benefit proceeds upon your
death. The designation of your beneficiary is an important
decision, enabling you to control the disposition of the
insurance money. While you may designate yourself as
beneficiary under certain types of retirement income
policies, the beneficiary under a traditional policy will
generally be either your estate or an individual. It's
usually not advisable to name your estate, however, because
then the proceeds will have to pass through probate and
payment of them will be held up. If you name a specific
individual, the proceeds will be paid directly to him or her
upon your death without delay. A beneficiary designation may
be revocable (can be changed by you at any time) or
irrevocable (can't be changed). In addition, a beneficiary
may be primary or contingent. Basically, the primary
beneficiary is the person first entitled to the policy
proceeds at your death. If the primary beneficiary dies
before you (and thus before any proceeds are paid), the
contingent beneficiary takes his or her place.
Incontestable clause
This is an clause that is required in most life
insurance policies. Typically, it states that the validity
of the contract cannot be questioned or challenged for any
reason whatsoever after the policy has been in force for a
period of two years during your (the insured's) lifetime.
The reason for this clause lies in the long-term nature of
the life insurance contract. Its purpose is to give the
insurer ample time to review the contract while providing
you and your beneficiary with some assurance that you will
not be harassed by lawsuits long after the policy was
originally bought.
Misstatement of age clause
This is somewhat of an exception to the incontestable
clause. The incontestable clause does not apply when you,
the insured, misrepresent your age. The reason is simple.
Because age is a key factor in determining whether a company
offers you life insurance and in setting premiums, some
applicants are tempted to understate their age in order to
pay a lower premium. Understandably, insurers wish to avoid
this. The misstatement of age clause provides that if you
have misrepresented your age, the insurer will lower the
face amount of the policy to the amount of insurance that
the premium paid would have purchased at the correct age.
Grace period
Your policy specifies the due date for premiums (e.g.,
monthly, quarterly, semiannually). Whatever the due date,
you generally must pay your premiums on or before that date.
If you fail to do so, you will be in default and technically
the policy will lapse. This rule is subject to a disclaimer,
however, in the form of a grace period during which the
policy still remains in force if a premium hasn't been paid
on time. For example, if you have a premium due on
January 1 and don't pay it by that date, you might have
until February 1 to make the payment before the policy would
lapse. If you died on January 15, the death benefit proceeds
would still be paid, but minus the amount of the premium in
default.
Reinstatement clause
Many life insurance contracts contain a clause allowing
you to reinstate or reactivate a lapsed policy (i.e., one
for which you stopped paying the premiums). However,
reinstatement is not your unconditional right. If available,
it will be subject to a number of very specific requirements
on your part. First, if it's a cash value policy,
reinstatement will be possible only if at the time of the
policy's lapse you did not withdraw its cash surrender
value. Second, reinstatement must be accomplished within a
specified time period, normally five years after the lapse.
Third, you must resubmit proper evidence of your
insurability. Not only must your health still be
satisfactory to the insurer, but other factors such as your
income and personal habits must not have changed greatly
either. Finally, an insurer will generally only permit
reinstatement if you pay all the overdue premiums (plus
interest) and if you pay (again, with interest) or reinstate
any indebtedness from loans that may have existed at the
time of lapse.
Suicide clause
Almost all life insurance policies exclude suicide during a
specified period after the policy is issued. Under this
clause, the typical period during which coverage for suicide
will be denied is two years (although some policies limit it
to one year). Assuming you are the insured, this means that
if you commit suicide (whether by insanity or not) within
two years after purchasing your policy, the insurer will not
pay any death benefits to your beneficiary. The insurer
would be responsible for refunding the premiums paid by you,
but that would be the extent of their financial obligation
under these circumstances.
Aviation exclusion
At one time, almost all life insurance policies excluded
death resulting from aviation. Today, most policies will
provide coverage if you die in an airplane accident,
although you may have to pay an extra premium to cover the
heightened risk if you're a private or commercial pilot (or
a crewmember).
War clause
During war time or when a war seems likely to occur,
insurance companies may insert a war clause into their
policies. This clause usually states that if you (the
insured) die in a war, the insurer does not have to pay the
death benefit proceeds that would ordinarily be payable
under the policy. Instead, all they have to do is return the
premiums you paid plus interest.
Special provisions, riders and options
Note that the provisions described
here are only the ones that are more or less common to all
life insurance contracts. In most cases, you have the choice
of purchasing riders and optional coverages that allow you
to expand your coverage and tailor the policy to your needs.
In addition, certain types of policies may have special
provisions of their own. Cash value policies, for example,
generally include provisions relating to policy loans and
the surrender of all or part of the cash value.
Learn More...
Life
Insurance Overview | Understanding
The Basics | Term
& Cash Value
Coverage Amounts
| Reading Policies | Planning
Concerns | Life Calculator
| Life Glossary
Please Note: The
information contained in this Web site is provided solely as a source of
general information and resource. It is a not a statement of
contract and coverage may not apply in all areas or circumstances. For a complete
description of coverages, always read the insurance policy, including
all endorsements.
|