Life Insurance Policy Provisions

Reinstatement

· premium will stay the same. Policy lapsed for nonpayment of premiums. Up to three years to reinstate. Policy was not surrendered for cash. Must pay missed premiums+interest. Prove insurability. Saves original policy+issue age.

Beneficiary

· the person who will get the death benefit o Any person or other legal entity can be the beneficiary of a life insurance policy. o Individual or class of persons

Consideration

· think MONEY. Insured's consideration - premiums and truthful statements made on the application. Insurer's consideration - pay benefits at time of claim

Policy assignment

· transfer of owners rights. Two types: collateral - pledge for a loan, absolute - permanent change

Incontestability

· usually after two years. Policy can't be taken away even if material misrepresentation or fraud (concealment)

Provisions

-terms of a life insurance policy. Describe how certain common situations will be handled, as well as the rights and the obligations of the policyowner and the insurer.

Revocable

can be changed by the owner at any time

Facility of payment provision

insurer can pay someone other than beneficiary

Classes

my children, my siblings

Other beneficiaries

o Estate o Charities o University/college

· Levels of beneficiaries

o Primary-first o Contingent or secondary - second (if no primary alive) o Tertiary-third (if no primary or contingent alive) o Estate of insured - if no beneficiary named or alive

· Exclusions

o Suicide exclusion - death by suicide is not covered for a certain period of time after the policy goes into effect o Aviation exclusion - eliminates coverage only for certain types of aviation activities o War or military service exclusion § Status type - this version eliminates coverage for the entire period during which the insured is in the military, regardless of how the insured dies § Results type - under this version, coverage is eliminated only if the cause of death was related to the military o Hazardous occupation or hobby exclusion - may be included if the insured engages in activities such as auto racing, sky diving, or scuba diving, either for pay or recreation.

Minor

o cannot take ownership of life insurance proceeds. Will pay the proceeds to a trustee or guardian who is legally entitled to receive the funds on behalf the minor. May be instructed to provide funds upon legal age.

Trust

o legal entity which can hold title to property while it is managed for the benefit of others. There are three parties to a trust § The grantor is the individual who sets up the trust, transfers property into it, and writes the instructions as to how the trust will operate § The trustee is the party that manages the property according to the grantor's instructions. The trustee may be an individual or another legal entity such as a bank. § The beneficiary is the person who receives the benefits of the trust

Entire contract

policy plus, copy of the application plus, any riders or amendments (if any)

Changes

policyowner can change the beneficiary. Must notify insurer with written request.

Payment of premium

· - due in advance of the coverage period

Uniform simultaneous death

· - insured and primary beneficiary are in the same accident and both die. Assumes primary beneficiary dies first. Proceeds paid to contingent beneficiary.

Endorsements (modifications)

· any change to a policy. Can only be made by the company. Owner can request a change

Irrevocable

· cannot be changed without beneficiary consent o Loan or withdrawal from cash values requires permission of beneficiary o Usually becomes revocable upon death of irrevocable beneficiary

Spendthrift provision

· death benefit cannot be paid in a lump sum. Death benefits cannot be claimed by creditors before payment to beneficiary. Death benefits cannot be pledged by the beneficiary to a creditor. Death benefits cannot be used by the beneficiary as collateral for a loan.

Free loos

· gives the policyowner a period of time to return a policy for any reason within ten days of delivery and receive all premiums paid

Suicide clause

· if insured commits suicide prior to having a policy for two years, only the premium will be paid back. After two years the full face amount will be paid.

Payment of claims

· immediately, no longer than 60 days

Common disaster provision

· insured and primary beneficiary are in common accident. Both die within 30-90 days after accident. Proceeds paid as if the primary beneficiary died first, to contingent beneficiary.

Misstatement of age (gender)

· insured older then application states, death benefit will be reduced to correct premium amount. Insured younger than application states, death benefit increased to correct premium amount. Incontestability provision does not apply.

Insuring clause

· insuring agreement sets forth the insurers promise to pay benefits upon the insured's death. Found on the first page. Usually signed by an officer of the company.

Ownership rights

· name or change the beneficiary, select settlement options, borrow or withdraw policy cash value, receive policy dividends (participating policies), surrender or cancel the policy, assign or transfer ownership, select/change the premium payment mode, select a non-forfeiture option

Multiple beneficiaries in the same class

· per capita - by the head (not inheritable). Per stirpes - by branch (inheritable)

Grace period

· premium not paid by due date. Usually 31 days following due date. Insurance still in force. Death benefit paid minus premiums due.