What Does a Life Insurance Policy Cover?
There are two basic types of life insurance plans: Term and Permanent.
All life insurance policies including term life and
permanent life plans contain four basic policy features:
- Free Look – You
can cancel your life insurance policy within 10 days of purchasing your
coverage and any paid premium will be refunded to you.
- Grace Period –
After the premium payment due date there is usually a 30 day grace period. The
life insurance policy stays in effect and will pay out a death benefit
(deducting any owed premiums) during this grace period.
- Incontestable Period
– The life insurance company can take up to two years to contest your life
insurance policy. This period of time is usually used to check on the
information you provided on your application for coverage. After the first 2
years you are insured, your life insurance coverage is incontestable.
- Suicide Clause –
If the insured person commits suicide within two years of becoming insured, the
life insurance policy is declared null and void. This exclusion is only one
year in some states.
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You may choose to limit or expand your life insurance
coverage for term insurance or permanent insurance policies through the use of policy
riders, which are optional provisions that can be added to your original life
insurance policy for an additional premium.
riders are purchased to add additional
benefits that are not included in a standard life insurance policy.
Examples of life
insurance riders may include:
- Accidental Death
Benefit – An additional death benefit would be paid out on the life
insurance policy if the insured dies from a defined accident covered by the
- Disability Income
Rider – If the insured becomes disabled, the insurance company will pay a
monthly income to the insured person.
- Long Term Care Rider
– If the insured meets certain criteria defined in the life insurance policy,
such as, confinement to a long term care facility the life insurance company pays
benefits to the insured.
Insurability – Additional life insurance can be purchased in the future
without the insured having to show proof of insurability.
- Waiver of Premium
– Under certain circumstances (usually disability after age 65) a policy owner
will not have to pay premiums for the life insurance coverage. However, if the
insured were subsequently released from disability, the life insurance premiums
would have to be paid to the insurance company.
- Double Indemnity
– If the insured dies from an accident, double the amount of the death benefit
is paid out to the beneficiary of the life insurance policy.
- Return of Premium
– When the insured dies, in addition to the death benefit, an amount equal to
the premiums paid in for the life insurance policy will also be paid out to the
- Cost of Living Adjustment – Life insurance coverage is increased in relation to increases in the Consumer Price Index (CPI) without having to provide evidence of insurability.
- Other Insured’s Rider – Other family members can be insured on the same life insurance policy (as opposed to issuing separate policies for each family member). Examples of other insured’s riders include spouse riders and child riders.
If you are thinking about purchasing a term life insurance
policy, you have two additional features to consider adding to your insurance policy.
These term life
policy features include either a:
- Conversion Privilege
– Permits you to convert your policy from term life insurance to permanent life
insurance during a specified period of time without having to prove
insurability, for example, good health; or
- Guaranteed Renewal
Privilege – Permits renewal of the life insurance policy for another term without
having to prove insurability.
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