What are common life insurance provisions for a life insurance policy?
Life insurance policy provisions are regulated by state code, and the insurance company, so they may vary.
Important Provisions for Life Insurance Contracts
1. Grace Period. This is a period that your life insurance policy will stay in effect if you neglect to pay your insurance premium on time. The grace period is usually one month for term life insurance policies. With permanent life insurance, the policy may stay in effect longer if cash values automatically go from your policy to pay the premiums due which have not been paid on time.
2. Riders. Riders provide added features to policies that the policy owner desires. Usually, riders cost extra money for the additional coverage provided by the rider. For instance, some people add a rider for child life insurance coverage onto their life insurance policy, and pay a small additional premium for this added coverage.
3. Convertibility. Some term life insurance policies can be converted into permanent life insurance without evidence of insurability, if the conversion is done within a certain time period before the term of the term life policy expires.
4. Incontestability Clause. This protects the consumer by requiring that payment of the death benefit cannot be contested two years after the policy goes into effect. So, if the insured dies after being insured for two years, the insurance company cannot contest the payment of the death benefit for material misrepresentation on the application for coverage, or any other reason.
5. Guarantees. Premiums, death benefits, interest rates, and cash values can all have guarantees in some types of life insurance policies. It is important to check the guarantees when purchasing your life insurance.
6. Suicide Clause. This is a clause stating that the life insurance policy will not pay out the death benefit for death resulting from suicide for two years after the policy goes into effect. If the insured person dies from suicide that occurs after the 2-year timeframe, the death benefit will be paid out. The exclusion is one year for suicide in some states like Colorado.
7. Settlement Options. Upon death of the insured person, this provision allows the death benefit to be paid in one lump sum, in monthly payments, or some other way.
8. Loans and Reduced Paid Up Coverage. There are many provisions associated with permanent life insurance policies that do not apply to term life insurance.
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