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of the policy identifies the insurance company and the policyowner
which is the basic agreement between the policyowner and the company, is found on the schedule of benefits page (typically the first full page of the policy).
entire contract provision
states that the insurance policy and the completed (signed) application make up the entire contract. (The application is normally attached and made a part of the policy.) It also states that any other agreement or promise not contained in the contract is invalid. It confirms that all statements the policyowner makes in the application are representations, not warranties.
- transfer policy ownership to another entity (without regard for insurable interest);
- assign (pledge) the policy's values as loan collateral;
- select and change modes of premium payment;
- select and change beneficiaries (as long as the existing designation is not irrevocable);
- terminate the policy and elect settlement and nonforfeiture options;
- receive cash values and/or dividends;
- and borrow against cash value.
to pledge or transfer ownership is known as an assignment. A policy may be assigned only if the beneficiary designation is revocable. Irrevocable beneficiary designations can never be changed (or assigned) without the beneficiary’s permission. Assignees also assume full responsibility for the policy, including premium payments.
is a temporary assignment that uses the policy as collateral for a loan or for some other transaction between the policyowner and the collateral assignee. With a collateral assignment, the policyowner does not transfer all rights in the policy. Instead, the policyowner makes an assignment of the policy's values only to the extent necessary to secure the loan. The policyowner retains most rights in the contract. However, the policyowner cannot surrender the policy. Further, he or she cannot take any other action that jeopardizes the rights of the collateral assignee.
The applicant makes an offer when signing an application. The insurer accepts the offer when issuing a policy. The consideration the policyowner gives is the signed application (and the representations it contains) and the first premium. The insurance company's consideration is its promise to pay the policy's benefit when a stated future event occurs, such as the insured's death. The typical consideration provision in a life insurance policy reads as follows:
- beneficiary changes, if beneficiaries have not been named irrevocably;
- additional coverage;
- changes to the face amount (if the policy provides for this);
- changes in the manner in which the policy's death benefit is paid out;
- and changes in the mode of premium payment (from monthly to quarterly or annually, for example).
Right to Examine (Free Look)
which gives new policyowners a period of time (usually ten days) in which to review the policy and to decide whether to keep it. The free-look period begins when the policy is delivered to the owner
Free-Look Period and Replacement
- While ten days is the shortest free-look period permitted in any state, some states require a longer free-look period when the new life policy is replacing an existing policy. Depending on the state, if canceling a replacement policy,
- the policyowner may be entitled to receive a refund of the full premium paid;
- and/oran amount equal to the cash surrender value transferred into the new policy;
- plusall fees and other charges deducted from gross considerations or imposed under the policy or contract.
payment of premiums
- available modes of payment (the payment schedule),
- grace period,
- automatic premium loan,
- and whether the premium is level or flexible.
premiums are not paid by the end of the grace period
that lets the policyowner place a lapsed policy back in force if done within a specified period of time. This period is typically three years but may be longer depending on the case and the laws of the state that control the policy.
To reinstate a lapsed policy
- written request or application for reinstatement;
- proof of insurability;
- and payment of all back premiums plus interest.
states that after a policy has been in force for a set period (usually two years) the insurer cannot contest a claim for any reason except for nonpayment of premiums. In other words, the policy becomes incontestable after it has been in effect for two years.
Misstatement of Age or Sex
of the insured on a life insurance application is not considered a material misrepresentation. It is not grounds for voiding the policy, even if the misstatement is discovered during the contestable period. On the other hand, if such a misstatement occurs, the insurer has the right to adjust the policy's benefits. This adjustment reflects the death benefits the insured would have bought with the premiums he or she paid, based on the insured's correct age and/or gende
Payment of Claims
a provision that defines how and when death benefit proceeds are to be paid out. This provision also defines the requirements to initiate a death benefit claim.
Provisions in a life insurance policy or annuity that provide the payee with various ways to receive periodic payments of benefits
Backdating of Policies
is the agreement to make a policy effective earlier than the application date. The premium amount agreed to in a policy is based on the insured's age at the time the policy is written. If the insurer backdates the policy to a date before the insured's last birthday, the premium charged would be less.
Term life insurance may include a conversion option giving the policyowner the right to convert or exchange it for a whole life or permanent policy without having to prove insurability.
An insurer may impose a surrender charge on a policyowner who cancels a life insurance policy or withdraws funds from its cash value early in the term
Standard Policy Exclusions
- hazardous occupations and hobbies
- commission of a felony
is included in virtually all life insurance policies. It serves to deny paying the death benefit if, during the first two years following policy issue, the insured commits suicide. After the two-year period passes, death by suicide is covered. The purpose of this provision is to deter those who take out a policy solely to gain a benefit by committing suicide.
Prohibited Policy Provisions
- limits the period for filing a lawsuit against the insurance company to less than one year after a triggering event is noted;
- makes the settlement of the cash value at maturity less than the sum of the face amount plus dividend additions less any loan amount;
- makes the acts or representations of the producer binding on the insured;
- makes the producer also the insured;
- and allows the policy to be forfeited if the total owed on a policy loan is less than the loan value of the policy.
A life insurance owner can also designate a "class," or group, of beneficiaries, as opposed to naming each individually. For example, "my children" or "my grandchildren" are class designations. Older policyowners commonly use this approach when they want a portion of the policy's proceeds to be paid to grandchildren not yet born.
Managing Multiple Beneficiaries
either to share the death benefit or to make sure there is a “back-up” in case the primary beneficiary is not alive when the insured dies
is the first person (or class of persons) in line to receive the death benefits
contingent, or secondary beneficiary
is the next person (or class of persons) in line to receive the policy proceeds.
Death benefit proceeds are shared equally by a class or group of individuals (e.g., the insured’s adult children, or the insured’s brother and sister, or the insured’s friends Tom, Dick, and Harry), and if one of them predeceases the insured, then his or her share passes down to his or her children (if any).
Death benefit proceeds are shared equally by a class or group of individuals (e.g., the insured’s adult children, or the insured’s brother and sister, or the insured’s friends Tom, Dick, and Harry), and if one of them predeceases the insured, then his or her share is divided equally among the surviving beneficiaries. No share of the proceeds is passed down to the deceased beneficiary’s children.
Revocable and Irrevocable Beneficiaries
In addition to being designated as primary or contingent, beneficiaries can also be named as either revocable (changeable) or irrevocable. A revocable beneficiary (the most common) has no rights in or to the policy during the insured's lifetime. A revocable beneficiary has only an expectancy that he or she may receive the death benefit.
facility of payment clause
that allows the insurer to pay the death benefit to a person or entity of its choosing. This clause is most common with group life or industrial policies but may also be found in ordinary life policies.
common disaster provision.
This provision identifies how the policy's proceeds will be paid if the insured and the primary beneficiary die at the same time (e.g., in an automobile accident).
is another common life insurance policy provision. It states that creditors cannot claim any of the death proceeds before they are paid out to the beneficiary, thus preventing the beneficiary's creditors from forcing the insurer to pay the death proceeds directly to them (the creditor)