Contact provisions are important in life insurance policies. They are provisions that insurance policies are required to follow and are state regulated. Some of the following are standard provisions, which are apparent in all life insurance policies.
1. Entire contract - The policy and attachments are the entire contract
2. Incontestable clause - After two years the insurer cannot contest the policy because of "false" information from the insured.
3. Suicide clause - Policy does not pay death benefit if insured commits suicide within two years of policy issue.
4. Grace period - Policy remains in force, however, insured has 31 days to pay overdue premium.
5. Reinstatement clause - Permits a policy owner to be reinstated in case of policy lapse.
6. Misstatement of sex or age - The amount of life insurance payable will be adjusted to the amount the premiums paid would have purchased at the correct sex or age.
7. Assignment clause - A life insurance contract is freely assignable to anyone.
8. Policy loan provisions -
- Policy owners can borrow cash value
- Policy owners can determine the amount and frequency of the loan repayments
9. Automatic premium loan provision - Authorizes insurance companies to automatically pay an outstanding premium at the end of grace period and charge the amount as a policy loan. Prevents policy owners from having their policy canceled because of missed premiums. This feature is not available on all policies
Mr. Tom Sanders bought a $1,000,000 whole life conditional policy on his own life on March 1st of last year. Tom paid monthly premiums of $1,000 on schedule on the 15th of every month. Ten days after his 14th premium payment, he committed suicide. How much will Tom's beneficiary receive assuming that all fourteen premium payments were paid on time?
C. $14,000 plus interest
The two-year suicide clause will prevent payment of the full $1,000,000 face of the policy. The insurance company will return all premiums paid to Tom's beneficiary usually without interest.14 payments @ $1,000 each = $14,000
Dividend and Non-Forfeiture Options
InsuranceUnderstanding these key parts of your policy will help you to ensure that your family will be covered.
Financial AdvisorLife insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death.
Financial AdvisorWhen buying permanent life insurance, what amount of premium should you pay for the coverage?
InsuranceThere are many benefits to owning a life insurance policy - if you get the right one for you.
Financial AdvisorIf you're looking for life-long security, choosing between these two is the key.
InsuranceBefore paying for coverage, find out what you need to do to ensure you get paid.
InsuranceHow to file for a life insurance payout – and how long it takes to receive it. Plus, new ways to plan for payments that provide an income stream.
Financial AdvisorThe life insurance industry marches forward by offering more ways that consumers can access the death benefits in their policies. Here's one of the newest.
InsuranceDon't let these simple errors leave you unprotected. Read on to learn more.