Standard Provisions – Individual Policies Only

Differences Between Key Life Insurance Contractual Provisions

• Entire Contract Clause: Defines the complete insurance contract, including the policy, endorsements, amendments, and application. It treats application statements as representations unless fraudulent, requires written component attachment, prohibits additions by reference, and mandates company approval for changes.

• Incontestability Clause: Allows insurers to contest claims due to material misstatements or fraud within the first two years. After this period, the policy typically cannot be disputed, except for nonpayment of premiums.

• Insuring Clause (Proof of Death): Located on the policy's first page, this clause details the parties involved and the conditions under which the insurer will pay the death benefit based on proof of death while the policy is active.

• Consideration Clause: Outlines the specific premium amounts and payment schedules exchanged for the insurer's commitment to provide the death benefit.

• Suicide Clause: States that if the insured commits suicide within two years of the policy's issuance, the insurer only returns the premiums paid. After this period, the insurer is required to pay the full death benefit, which is intended to deter purchasing policies for suicidal intent.

Comparison Chart: Key Life Insurance Contractual Provisions

Key Concepts: Ownership Rights and Assignment Provisions in Life Insurance

Owner’s Rights (Ownership Provision)

• Definition: Grants the policyowner exclusive control over the policy.

• Key Rights:

  • Name/Change Beneficiaries: Especially revocable beneficiaries.

  • Borrow Against Cash Values: Utilize the policy’s cash value for loans.

  • Access Living Values: Withdraw funds, if allowed, while the insured is alive.

  • Receive Dividends: Elect among available dividend options.

  • Assign the Policy: Transfer ownership either permanently or temporarily.

• Policyowner’s Responsibilities:

  • Responsible for making premium payments.

  • Note: The beneficiary has no rights to the policy unless it involves claim settlement after the insured’s death.

Assignment

• Definition: A contractual provision allowing the policyowner to transfer ownership or rights of the policy to another party.

• Types of Assignment:

  • Absolute Assignment:

    • Permanent transfer of all ownership rights to a new owner (assignee).

    • The original owner (assignor) relinquishes all control.

    • Common Use Case: A parent transfers ownership of a juvenile policy to the insured child upon turning 18.

  • Collateral Assignment:

    • Temporary transfer of limited rights, typically used as collateral for a loan.

    • Ownership rights remain with the assignor but are subject to the creditor’s interest.

    • Beneficiary Rights:

      • The creditor (assignee) is paid first from the policy proceeds, reducing the amount available to the named beneficiary.

      • The assignment ends once the debt is repaid, restoring full ownership rights to the assignor.

    • Common Use Case: An individual uses a life insurance policy as collateral for a loan.

Insurer’s Role in Assignment

• The insurer must receive written notice of the assignment at their home office.

• The insurer does not verify the validity of the assignment.

Examples of Assignments

• Absolute Assignment: A parent names their child as the policy’s new owner when the child turns 18.

• Collateral Assignment: A policyowner takes a loan and assigns the policy as collateral.

  • Upon the insured’s death: The creditor (assignee) is paid first from the policy proceeds, and remaining funds go to the named beneficiary. Once the loan is repaid, the assignment is nullified, and ownership rights revert entirely to the original policyowner.

Key Provisions: Misstatement of Age/Gender, Free Look, and Exclusions

Misstatement of Age or Gender

• Purpose: Ensures the policy remains valid despite inaccuracies in age or gender.

• Adjustments:

  • Overpayment: Insurer refunds excess premiums.

  • Underpayment: Death benefit adjusted proportionally (e.g., 50% lower premiums result in a 50% lower death benefit).

• Time Frame:

  • Discovery can occur at any time, with no statute of limitations.

  • The incontestability clause does not apply to age or gender misstatements.

• Materiality: Age and gender are not material misstatements and do not void the policy.

Free Look (Right to Examine Period)

• Definition: Allows the policyowner to review the policy post-receipt.

• Duration: Typically 10 days, varying by state law.

• Rights of the Policyowner:

  • If dissatisfied, policyowner can return the policy for a full refund of premiums.

  • Free look period starts on the delivery date, not the policy issue date.

• Producer Responsibility: Obtain delivery receipt to document delivery date for accurate tracking.

Exclusions

• Definition: Conditions under which the insurer does not provide coverage; fixed after policy issuance.

• Common Exclusions:

  • Aviation: Excludes student/inexperienced pilots; fare-paying passengers on commercial flights are covered.

  • Military Status: No coverage for active military personnel due to existing government coverage.

  • War Clause: No coverage if death results from war; only premiums refunded if deceased during war.

  • Hazardous Occupation: Excludes high-risk professions (e.g., stunt driving, auto racing).

  • Hazardous Hobbies: Excludes high-risk hobbies (e.g., skydiving, hot air ballooning).

  • Suicide: Excluded within the first 2 years; covered after that period under the suicide clause.

These provisions and exclusions clarify coverage boundaries for both the insurer and policyowner.

Accelerated Death Benefits (ADB)

Definition:

Accelerated Death Benefits provide early access to a portion of a life insurance policy’s face amount before the insured's death, designed to offer financial support during critical health situations.

Key Features:

• Eligibility:

  • Terminal Illness: A physician must certify that the insured is expected to die within 24 months.

  • Chronic Illness: A licensed health care professional must determine within the past 12 months that the insured is:

    • Unable to perform at least 2 activities of daily living (ADLs) (e.g., bathing, dressing, eating) for at least 90 days without substantial assistance.

• Tax Implications:

  • Payments are tax-free if the insured qualifies as terminally or chronically ill, under IRS guidelines.

• Payment Impact:

  • The remaining death benefit is reduced by the amount received under the accelerated benefit provision.

  • No repayment is required if the insured’s health improves after the benefit is paid.

Benefits for Policyowners:

• Financial Flexibility: Provides immediate funds to cover medical expenses, long-term care, or other financial needs.

• Retains Policy Value: While the death benefit is reduced, the policy remains in force for the remaining amount.This provision offers peace of mind and financial support during challenging times, ensuring policyowners can access resources when they need them most.