Terms and Exclusions

Understanding The Terms and Exclusions
of Your Life Insurance Policy


As with any other kind of insurance, there are limits to what you can and cannot do with your life insurance policy. These limits are called provisions and exclusions, and control how you can use your insurance policy.

There are several common provisions in life insurance policies, including an ownership clause, an incontestability clause, a grace period provision, a reinstatement clause, and a change of plan provision.


Life Insurance Policy Provisions


Ownership Clause

The ownership clause states that the life insurance policyholder owns all contractual rights in the policy as long as they are alive. These privileges can include the right to designate beneficiaries to receive the benefits of the policy.

Incontestability Clause

The incontestability clause protects the life insurance policyholder from having any of their benefits contested by the insurance company due to misrepresentation, misstatement on the application, or false information. For example, if you have had a stroke or heart attack but did not disclose it to the company and they discover it, once a certain amount of time has passed, usually two years, they cannot change your benefits or premiums. This is why they are usually very stringent about health exams and medical history.

Grace Period Provision

The grace period provision states that the policyholder will have a grace period to provide payment of the premium beyond the due date, usually 30 or 31 days. The policy is still “In Force” during the grace period, and will pay benefits if the policyholder dies, removing the cost of the late premium from the benefits. If the policyholder is unable to pay the premium during the grace period, the reinstatement clause comes in. The reinstatement clause allows the policyholder to reinstate their policy under certain conditions. These conditions include providing proof of eligibility (unless the lapse period is less than two months), the payment of all overdue premiums and repayment of any policy loans (on whole life policies and their various forms), and a lapse period of less than five years.

Change of Plan Provision

The change of plan provision allows the policyholder to exchange their current life insurance policy for a different one, of higher or lower coverage. This is especially useful as insurance needs often change over time, and the amount of life insurance you need one year can vary greatly to the next.


Life Insurance Policy Exclusions


In addition to the above provisions, there are also several common exclusions standard to most life insurance policies. These exclusions include a suicide clause, aviation exclusion, high-risk activity exclusion, and a war exclusion.

Suicide Clause

The suicide clause states that the company will not pay the face amount of the policy if the policyholder commits suicide within two years ( 1 year in some states) of purchase. The only payment is a refund of premiums paid. This is to prevent someone from purchasing a life insurance policy and committing suicide with the intent of leaving their beneficiary with a financial sum.

Aviation Exclusion

The aviation exclusion usually states that the policy will not pay if the policyholder dies in a private plane crash and not as a passenger on a commercial flight. Likewise, the war exclusion states that the life insurance policy won’t pay if policyholder’s death occurs as the result of a war.

Dangerous Activity Exclusion

The dangerous activity exclusion states that there will be no payment to the beneficiary if the policyholder dies while participating in a certain activity, such as hang-gliding, rock-climbing, or auto racing. These exclusions are a little more rare, however, as most companies will cover you at a higher rate if you regularly participate in these types of high-risk activities.

Summary

It is always best to look over every aspect of your insurance policy before you sign your life insurance application and pay your first premium. Make sure you understand these policy provisions, and how they apply to your personal situation.


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Life Insurance Terms and Exclusions


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