Life Insurance Policy Provisions
Life Insurance Contract Explained
Life insurance policy provisions. Most of us tend not to pay sufficient attention to the details of a life insurance
policy until someone dies or until we are in dire need of some cash.
The thinking goes something like this. My husband is dead, he did
mention that he had some life insurance, I wonder how much? I do need
some cash, how does the insurance company pay out the policy proceeds?
Was I named as beneficiary
or were our children named? These are just a few of the questions that
may come to mind. Let us find out what your policy does in this type of
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Life Insurance Policy Provisions
- The Policy Contract
One of the most important provisions of your life insurance
policy is the contract itself. This states that upon the death of the
insured a certain sum will be paid to a named beneficiary. In family
situations the proceeds are usually paid to the spouse or adult child.
In business situations
the death benefit will be payable to the business itself, a partner or
shareholders. This sum of money can be paid in one lump sum or in income
Another important contractual agreement is the incontestability clause
which simply states that if, for example, you give the life insurance
company any false information they have the right to withdraw the policy
or contest it upon death. There is a limited period in which this
policy can be contested, usually 2 years.
This incontestability clause also applies to suicide as well. If
an applicant buys a policy with the express intent of committing suicide
they can forget about it. If suicide is committed within the
contestable period the amount paid will be limited to premiums paid plus
interest. If suicide occurs after the contestable period, usually 2
years, the life insurance company will pay the full sum.
Another provision in your policy worth your consideration is the
misstatement of age clause. If you misstate your age on your application
form the amount paid upon death will be limited to the amount of
coverage your premium would have bought at the correct age.
- Ownership Of The Document
The owner of the life insurance
policy is usually the applicant even if the coverage is on another
persons life. A parent would own a policy on a child, a spouse may own a
policy on his or her partner, a business may own insurance on a
partner, shareholder or employee. Whenever the insured is of age, is not
a minor, this person must approve of the policy being purchased on his
or her life.
This insured must complete the medical part of the
application and sign it.
- Premium Payment And Reinstatement
The owner of the policy is required to pay the premiums
at the required time whether it be monthly, quarterly, semi-annually or
yearly. Failure to do so will put the policy in a state of lapse after
31 days. If premiums are paid annually, for example, and the insured
should die after one month the beneficiary will receive the balance of
the years premium together with the face amount of the policy.
If the policy goes into a state of lapse
it may be reinstated by paying the missed premiums or by re-dating the
policy. If the owner chooses to re-date s/he should be aware that this
action may put him or her into a higher premium rate as s/he will be
older. The company may also require a medical exam in order to put the
life insurance policy back in force.
There are 3 levels of beneficiaries
in your insurance policy. First there is the primary beneficiary. This
is the person to whom the proceeds of the policy will be paid. If the
primary beneficiary should die before the insured and if the insured has
not changed or named someone else as beneficiary before his or her
death the benefits will be paid to a named contingent beneficiary.
As a safety net you also can name what is commonly referred to as
further payees. In other words, if the primary beneficiary as well as
the contingent should die before the insured the proceeds would go to
further payees, as per the contract.
These general policy provisions may apply to all life insurance
policies. If, however, your policy is a permanent one there are
additional provisions that would apply.
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Life Insurance Policy Provisions - See What Your Insurance Policy Does For You