Professional Documents
Culture Documents
Life Insurance
Contractual Provisions
Dr. Thuong Harvison
Frostburg State University
6/8/2022
Learning Objectives
• Describe the 12 contractual provisions that appear in life insurance
policies
• Identify the dividend options that typically appear in participating life
insurance policies
• Explain the cash-surrender options (nonforfeiture options) that appear
in cash-value policies
• Describe the various settlement options for the payment of life
insurance death benefits and explain how they might be used when
compared to a trust
• Describe the riders that can be added to a life insurance policy
Life Insurance Contractual Provisions (1/9)
Under the (1) ownership clause, the policyholder possesses all
contractual rights in the policy while the insured is living.
• Rights include naming beneficiaries and surrendering the policy for its cash
value.
• The policyholder can designate a new owner by filing an appropriate form.
The (2) entire-contract clause states that the life insurance policy and
attached application constitute the entire contract between the parties.
• Prevents the insurer from making amendments without the policyholder’s
knowledge.
Life Insurance Contractual Provisions (2/9)
The (3) incontestable clause states that the insurer cannot contest the
policy after it has been in force two years during the insured’s lifetime.
• Protects the beneficiary if the insurer tries to deny payment of the claim years
after the policy was first issued.
• The insurer has two years to detect fraud.
• The insurer can contest a claim after the incontestable period in limited
circumstances.
Life Insurance Contractual Provisions (3/9)
The (4) suicide clause states that if the insured commits suicide within
two years after the policy is issued, the face amount of insurance will
not be paid; there is only a refund of the premiums paid.
A life insurance policy contains a (5) grace period during which the
policyholder has a period of 31 days (or more) to pay an overdue
premium.
• The purpose of the grace period is to prevent the policy from lapsing.
Life Insurance Contractual Provisions (4/9)
• The (6) reinstatement provision permits the owner to reinstate a
lapsed policy.
• To reinstate a lapsed policy, the following requirements must be met:
• Evidence of insurability is required.
• All overdue premiums plus interest are paid.
• Any policy loans are repaid or reinstated.
• The policy was not surrendered for its cash value.
• The policy must be reinstated within a certain period.
• Although it may require a large outlay of cash, it may be cheaper to
reinstate a lapsed policy than to purchase a new policy
Life Insurance Contractual Provisions (5/9)
Under the (7) misstatement of age or sex clause, if the insured’s age or sex is
misstated, the amount payable is the amount that the premiums paid would
have purchased at the correct age and sex.