Individual Life Contract Provision

Free Look Provision

Allows a policy owner a specified period
- usually 10 days following the delivery of a policy
* A policy owner may choose to cancel the policy within this period and receive the refund for all the
premiums paid
• Sometimes referred to as a free-examination provision or a cooling-off provision
It gives the policy owner defined time usually ten days after the policy is delivered in which he can
examine the policy. During this period policy owner may change his decision to purchase policy. He
may cancel the policy and needs to get all refund.

Entire Contract Provision

Defines the documents which constitute the contract between the insurer and the policy owner
States that only specified individual can change the contract and no change is effective unless made in
writing.
It defines the documents that constitute the contract between the insurer and the policy owner. It states
that only specified individuals can change the contract and no change is effective unless made in
writing. No change will be made unless the policy owner agrees to it in writing.

Closed Contract Provision

A contract for which only those terms and conditions that are printed in-or attached to-the contract are
considered to be part of the contract.
It defines the documents that constitute the contract for which only those terms and conditions that are
printed in or attached to the contract are considered to be part of the contract

Open Contract Provision

Defines the documents that constitute the contract between the parties, but the enumerated documents
are not all attached to the contract.
It defines the documents that constitute the contract between the parties, but these documents are not
attached to the contract

Incontestability provision
• A provision that limits the time within which an insurer has the right to avoid a life insurance policy
on the basis of material misrepresentation in the application.
• Typically lasts for two years from the date the policy was issued
It defines the time limit within which the insurer has the right to avoid the contract on the ground of
material misrepresentations in the application

Grace Period Provision

• A provision that specifies a length of time, typically 30 or 31 days, following a premium due date
within which the premium may be paid without loss of coverage.
• If renewal premium is not paid by the end of the grace period, the policy lapses
It defines length of time following each renewal premium due date within which the premium may be
paid without loss of coverage. If renewal premium is not paid by the end of the grace period, the
policy is said to lapse.

Nonforfeiture provision
o A cash value life insurance policy provision that sets forth the options available to the owner
of the policy to avoid the lapsation in case of non-payment of premium even after the grace
period is over
o There are various options available to choose from
It sets forth the options available to the owner of a cash value life insurance policy if the policy lapses
or if the policy owner decides to surrender or terminate policy

Reinstatement Provision
Describes the conditions a policyowner must meet for the insurer to reinstate such a policy.
- It is the process by which a life insurer puts back into force. A life insurance policy that either
has been terminated due to non-payment of renewal premiums or has been continued under
the extended term or reduced paid-up insurance Nonforfeiture option.
It is the process by which a life insurer puts back into force. A life insurance policy that either has
been terminated due to nonpayment of renewal premiums or has been continued under the extended
term or reduced paid-up insurance nonforfeiture option.

Misstatement of age or sex

Describes the action an insurer will take to adjust the amount of the policy benefit in the event that the
age or gender of the insured is incorrectly stated in the insurance application
A misrepresentation is considered material when, if the truth had been known, the insurer would have
not issued the policy or would have issued on different basis such as higher premium or lower face
amount.
It describes the action an insurer will take to adjust the amount of the policy benefit in the event that
the age or gender of the insured is incorrectly stated in the insurance application

Settlement options provision

Also known as pay-out options
Grant a policyowner or beneficiary the right to decide how the policy benefits will be paid

Loan:
It grants the policy owner the right to take out a loan for an amount that does not exceed the policy
cash value less one year interest on the loan
Withdrawal: It permits the owner of a universal life insurance policy to reduce the policy cash value
by withdrawing up to the amount of the policy cash value in cash.

Exclusions
The suicide exclusion provision governs the payment of policy proceeds if the insured dies by
committing suicide. This typically states that, if the insured dies as a result of suicide within a certain
period- usually one or two years from the date the policy was issued, the insurance company does
not have to pay the policy proceeds.

The Beneficiary
o The beneficiary of a life policy can be an individual, the executor of an estate, a trustee, a
corporation, a charitable organization, or a group of individuals.
o Primary or First Beneficiary: The individual/party designated to receive the policy proceeds
following the death of the insured
o It is also possible that multiple individuals/parties can be designated as Primary Beneficiary.
In this case, policy owner has to indicate how the benefits are divided among the
beneficiaries. If policy owner has not indicated this, then it is evenly distributed among all
primary beneficiaries.
Contingent Beneficiary or Secondary Beneficiary: the party designated to receive the policy
proceeds if the primary beneficiary dies before the insured
o Policy Owner can change the beneficiary at any time over the life of the policy. If no consent
is required from beneficiary, it is called as revocable beneficiary. If consent is required from
beneficiary, it is called as irrevocable beneficiary.
The Beneficiary
The beneficiary of a life policy can be an individual, the executor of an estate, a trustee, a corporation,
a charitable organization, or a group of individuals.

Primary/First Beneficiary
 The individual/party designated to receive the policy proceeds following the death of the
insured
 If more than one party is named then policy owner has to indicate how the benefits are
divided among the beneficiaries
 If policy owner has not indicated this, then it is evenly distributed among all primary
beneficiaries
 In order to receive the policy proceeds, the primary beneficiary must survive the insured
otherwise the beneficiary's estate has no claims on the policy proceeds

Secondary/Contingent Beneficiary
 The party designated to receive the policy proceeds if the primary beneficiary dies before the
insured
 Also referred to as successor beneficiary, can only receive the policy proceeds if all
designated primary beneficiary has predeceased the insured
 The policyowner can name any number of contingent beneficiaries and may decide how the
proceeds are to be divided among the contingent beneficiaries

Types of Beneficiary
Revocable Beneficiary
 Policyowner has the right to change the beneficiary without the consent of the beneficiary
 Generally, has neither a legal interest or to the proceeds nor any involvement with the policy
until the insured person dies insured
 During the insured's lifetime, has no right to any policy values and cannot prohibit
policyowner from exercising any policy ownership rights including the right to change the
beneficiary

Irrevocable Beneficiary
 Policyowner needs the beneficiary's consent before changing the beneficiary designates on
the policy.
 Has a vested interest in the proceeds of the life insurance policy even during the lifetime of
the insured
 Policyowner may voluntarily give up the right to the change the beneficiary. In some cases,
legislation limits the policyowner 's right to change designates

Changing the Beneficiary

o A policyowner may change the beneficiary as many times as he/she desires over the life of
the policy.
o Beneficiary change can be made only during the insured's lifetime.
o After death of insured, the named beneficiary has a vested interest in the policy proceeds.
o Any change in beneficiary needs the policy owner's written notification to the insurer.
o Beneficiary changes can be made through the recording method or the endorsement method.

Methods of changing the beneficiaries:

o Recording Method: In this method the beneficiary change requires only the policy owner to
notify the insurer in writing to effect the change
o Endorsement Method: In this method the beneficiary change requires the name of the new
beneficiary to be added to the policy to effect the change
Policy Endorsement/Riders
 An insurance endorsement is an amendment or addition to an existing insurance contract that
changes the terms or scope of the original policy.
 Also referred to as riders
 Endorsements can replace the current policy or be additional documents that are added to
your current policy.
 They're legally binding amendments to an insurance contract.
 They can be issued during your policy term, at the time of purchase, or at renewal
 They can be used to add, delete, exclude, or otherwise alter coverage
 They cover a range of situations, including taking insured off a policy, changing addresses, or
adding coverage for specific items.

Types of Endorsements
Premium Bearing:
 When an amendment results into change in premium
 Example: Increase/ reduction in coverage, change in age/sex etc

Non-Premium Bearing:
 When an amendment does not result into change in the premium
 Example: Change in address, telephone no, email etc

Policy Assignments
o Transferring the rights of policy ownership. An assignment is an agreement under which one
party transfers some or all of the ownership rights in a particular property to another party.
o The property owner who makes an assignment is knows as assignor and the party to whom
the property rights are transferred is known as assignee
o There are 2 types of assignment:
o Absolute assignment: An assignment under which a policy owner transfers all policy
ownership rights to the assignee and has no further rights under the contract is called as
Absolute Assignment. In this case the assignee becomes the policy owner.
o Collateral assignment: A temporary assignment of the monetary value of a life insurance
policy as collateral is called as Collateral assignment.
The another way by which the rights can be transferred is through endorsement. In this approach,
policy ownership is completely transferred without requiring the policy owner to enter into a separate
assignment agreement.

Billing and Collection

 Billing : A process to generate the invoice for the premium payments due on a specific date.
The frequency of billing is dependent on the mode of payment selected by the policy owner
 Mode of Payment: Frequency of premium payment chosen by the policy owner. It could be
any one of the following:
Monthly
Quarterlv
Semi Annual
Annual
 Method of Payment: A policy owner can also choose any of the options/channel to pay the
premium
o Cash/Cheque
o Net Banking (online Fund Transfer)
Credit Card
DDA (Direct debit from bank)
o Any other digital channel prevalent in the region
Policy servicing - Policyholder options
During a lifetime of the policy, there are various options which a policyowner can exercise for his/her
benefits.

Non-forfeiture options: An option to prevent the policy from lapsing. Only applicable to the policy
with cash value

Surrender
 Policy can be automatically surrendered
 Cash surrender value is calculated and paid to the policyowner
 All the coverage under the policy will automatically terminate, once the policy is surrendered
Reduced Paid-Up
 Policy's net cash value is used as a net single premium to purchase a paid-up life insurance
policy
 This policy has the same plan as the original policy
 Insured person's attained age is used for the calculation
Extended Term Insurance
 Policy's net cash value is used to purchase term insurance for the full coverage amount
provided under the original policy for as long a term as the net cash value can provide
 The length of the term depends upon the amount of the coverage, net cash value sex of the
insured and the attained age of the insurance, when this option is exercised
Automatic Premium Loan
o Overdue premium is paid by making a loan against the policy's cash value as long as the cash
value equals or exceeds the amount of the premium due

Policy Loans and Policy Withdrawals

A policyowner can exercise this option to borrow money from the insurer by using the cash value of
the policy as security for the loan
Policy Loans
o It grants the policy owner the right to take out a loan for an amount that does not exceed the
policy cash value less one year interest on the loan
o This is actually an advance payment of part of the cash value that the policyowner must
eventually pay under the policy, though he/she is legally not obliged to pay
o If the policy loan is not repaid when the insured dies, the insurer deducts the amount of the
unpaid loan from the policy benefit that is payable
Policy Withdrawals
o Also known as the partial surrender provision, It permits the owner of a universal life
insurance policy to reduce the policy cash value by withdrawing up to the amount of the
policy cash value in cash.
o Insurers do not charge interest on the policy withdrawals. The amount in the cash value is
simply reduced by the amount of the withdrawal
o Many policies impose a charge for each withdrawal and limit the number of withdrawals
allowed within each one-year period

Policy Dividends
o A life insurance policy can either be issued as participating (in profit) or non-participating (in
profit)
When a participating policy earns profit then it is distributed to the policyowner (as per their
share).
This share is known as policy dividend
o These dividends are not usually considered as taxable income to the
o Policyowner.
 o Insurer can periodically pay dividends on participating life policies that are expected to
remain in force over a long term
o Policy dividends are determined annually by the insurer's board of directors and are payable
on the anniversary of the policy.

Policy Dividend Options

At the time of policy (participating) issuance, policy owner can choose how he/she will like the
dividends to be paid
o Accumulation at interest (Dividends on Deposit)
o Cash Dividend
o Premium reduction/offset
o Paid-up Additional Insurance
o Additional Term Insurance