Life Insurance Provisions

Consideration

Both parties to a contract must provide some value, or consideration, in order for the contract to be valid. The consideration provision states that the consideration (value) offered by the insured is the premium and statements made in the application. The consideration given by the insurer is the promise to pay in accordance with the terms of the contract. The consideration clause is not always a separate provision, but is often included in the entire contract provision. A separate provision concerning the payment of policy premiums is usually also found in the policy.

Irrevocable Beneficiary

Have a vested interest in the policy so the policy owner may not be able to exercise certain rights without their consent.

The Common Disaster Clause

If the insured and the primary beneficiary die at approximately the same time from a common accident with no clear evidence as to who died first, a problem may arise in identifying which party is eligible for the death benefit. The Common Disaster Clause, which is provided under the Uniform Simultaneous Death Law, has been adopted by most states to address this problem, in order to protect the policyowner's original intent, as well as to protect the contingent beneficiary.

Entire Contract

The entire contract provision stipulates that the policy and a copy of the application, along with any riders or amendments, constitute the entire contract. No statements made before the contract was written can be used to alter the contract. Neither the insurer nor the insured may change policy provisions once the policy is in effect without both parties agreeing to it and the change being affixed to the contract.

Insuring Clause

The insuring clause (or insuring agreement) sets forth the basic agreement between the insurer and the insured. It states the insurer's promise to pay the death benefit upon the insured's death. The insuring clause usually is located on the policy face page, and also defines who the parties to the contract are, the premium to be paid, how long coverage is in force, and the amount of the death benefit.

Revocable Beneficiary

The policy owner may change a revocable designation at any time and without the consent of the beneficiary.

Policy Assignment

Transfers right of ownership from owner to another person

Policy Provisions

While there is no "standard" policy form in life insurance, the standard policy provisions adopted by the National Association of Insurance Commissioners (NAIC) create uniformity among life insurance policies.

Provisions

define the characteristics of an insurance contract and are fairly universal from one policy to the next.

Collateral Assignment

involves a transfer of partial rights to another person. It is usually done in order to secure a loan or some other transaction. A collateral assignment is a partial and temporary assignment of some of the policy rights. Once the debt or loan is repaid, the assigned rights are returned to the policyowner.

Owner's Rights

The policyowner has the responsibility of paying the policy premiums, and is also the person who must have an insurable interest in the insured at the time of application for the insurance. When the owner and the insured are not the same person, the insurance arrangement is referred to as the third-party ownership.

Assignments

The policyowner of a life insurance policy has the right to transfer partial or complete ownership of the policy to another person without the consent of the insurer. However, the owner must advise the insurer in writing of the assignment. Transfer of the life insurance policy does not change the insured or amount

Absolute Assignment

involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured.

Uniform Simultaneous Death Law

it will be assumed that the primary beneficiary died first in a common disaster. This provides that the proceeds will be paid to either the contingent beneficiary or to the insured's estate, if no contingent beneficiary is designated. The intent is to fulfill the wishes of the policyowner.

premium mode

the manner or frequency that the policyowner pays the policy premium. Most policies allow for annual, semi-annual, quarterly, or monthly payments. If the insured selects a premium mode other than annual, there will be an additional charge to offset the loss of earnings since the company does not have the entire premium at once, and there are additional administrative costs associated with more frequent billing.

Free Look

This provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The free-look period starts when the policyowner receives the policy, not when the insurer issues the policy. Certain types of policies may require a longer free-look period, or the period may be set by state statute.