Standard Policy Provisions and Optional Riders
Incontestability
Generally, after a policy has been in force for two years, the insurance company cannot contest the validity of the policy for any reason other than failure to pay the premiums.
Misstatement Of Age Or Gender
If the applicant lists the wrong age or gender on the policy, this provision allows the insurance company to recalculate benefits and/or premiums based on the applicant’s true age or gender.
Suicide
This policy provision generally states that if a insured commits suicide within the first two years of the insurance contract, the death benefit is limited to the total premiums paid.
Grace Period
After the first premium payment, life insurance policies provide a minimum grace period of 31 days after the due date to make the next premium payment. If the premium is not paid before the grace period expires, the policy will lapse. During the grace period the policy remains in force. If the insured dies during the grace period, the insurance company may deduct any premium due from the death benefit.
Reinstatement Provision
This provision allows a policy to be reinstated if for some reason the policy has lapsed. The reinstatement is subject to the limitations and requirements spelled out in the policy. Generally, the insured must make written application for reinstatement, meet the company’s underwriting guidelines, and pay all overdue premiums (plus interest) and reinstatement fees.
Nonforfeiture Benefits
The following nonforfeiture benefits may be available if a policy lapses due to non-payment of premiums:
- Reduced Paid-up Insurance — This option allows the insured to receive reduced paid-up life insurance coverage.
- Extended Term — This option allows the policyowner to keep the policy in force, as term life coverage, to a specified future date. The length of the extended term benefit will depend on the amount of cash value in the policy and the age of the insured.
- Cash Surrender — The owner may elect to take the available cash value in a lump sum.
Automatic Premium Loan
This provision requires the company to collect past due premiums by means of a policy loan. This prevents the policy from lapsing provided the available loan value is sufficient to pay the premium. In most cases the policyowner must choose to enact this provision.