Life Insurance Policy Provisions – What Your Policy Does For You

Life insurance policy provisions. Most of us tend not to pay sufficient attention to the details of a life insurance policy until someone dies or until we are in dire need of some cash. The thinking goes something like this. My husband is dead, he did mention that he had some life insurance, I wonder how much? I do need some cash, how does the insurance company pay out the policy proceeds? Was I named as beneficiary or were our children named? These are just a few of the questions that may come to mind. Let us find out what your policy does in this type of situation.

The Policy Contract

One of the most important provisions of your life insurance policy is the contract itself. This states that upon the death of the insured a certain sum will be paid to a named beneficiary. In family situations the proceeds are usually paid to the spouse or adult child. In business situations the death benefit will be payable to the business itself, a partner or shareholders. This sum of money can be paid in one lump sum or in income form.

Another important contractual agreement is the incontestability clause which simply states that if, for example, you give the life insurance company any false information they have the right to withdraw the policy or contest it upon death. There is a limited period in which this policy can be contested, usually 2 years.

This incontestability clause also applies to suicide as well. If an applicant buys a policy with the express intent of committing suicide they can forget about it. If suicide is committed within the contestability period the amount paid will be limited to premiums paid plus interest. If suicide occurs after the contestability period, usually 2 years, the life insurance company will pay the full sum.

Another provision in your policy worth your consideration is the misstatement of age clause. If you misstate your age on your application form the amount paid upon death will be limited to the amount of coverage your premium would have bought at the correct age.

Ownership Of The Document

The owner of the life insurance policy is usually the applicant even if the coverage is on another persons life. A parent would own a policy on a child, a spouse may own a policy on his or her partner, a business may own insurance on a partner, shareholder or employee. Whenever the insured is of age, is not a minor, this person must approve of the policy being purchased on his or her life. This insured must complete the medical part of the application and sign it.

Premium Payment And Reinstatement

The owner of the policy is required to pay the premiums at the required time whether it be monthly, quarterly, semi-annually or yearly. Failure to do so will put the policy in a state of lapse after 31 days. If premiums are paid annually, for example, and the insured should die after one month the beneficiary will receive the balance of the years premium together with the face amount of the policy.

If the policy goes into a state of lapse it may be reinstated by paying the missed premiums or by redating the policy. If the owner chooses to redate s/he should be aware that this action may put him or her into a higher premium rate as s/he will be older. The company may also require a medical exam in order to put the life insurance policy back in force.

Beneficiaries

There are 3 levels of beneficiaries in your life insurance policy. First there is the primary beneficiary. This is the person to whom the proceeds of the policy will be paid. If the primary beneficiary should die before the insured and if the insured has not changed or named someone else as beneficiary before his or her death the benefits will be paid to a named contingent beneficiary.

As a safety net you also can name what is commonly referred to as further payees. In other words, if the primary beneficiary as well as the contingent should die before the insured the proceeds would go to further payees, as per the contract.

These general policy provisions may apply to all life insurance policies. If, however, your policy is a permanent one there are additional provisions that would apply.

The Basics of Insurance Policies

Most people are unaware most insurance policies are different. An auto policy is different from life insurance and that will be different from a long-term care or disability policy. While this can be confusing for someone interested in purchasing multiple insurance, the good news is that all of them share a few common items. Once you understand what they are you should be able to comprehend which one is which, no matter what type of insurance it is.

Always keep in mind to prevent a lost life insurance, keep it in a safe place where your loved ones and family members can locate it. Registering on a central database is something everyone with insurance should consider.

The first thing to understand is that an insurance policy is a written contract, an agreement, between the insured (you) and the insurance agency. Every policy has an insuring clause which is, basically, a generalized statement of what coverage the insurance company is responsible for. If you pay the premiums and make sure you keep to the conditions within the wording, the insurance company agrees to make payment to you (and/or beneficiaries) in the instance of a loss. Essentially it means any financial risk is deflected from you and transferred to the insurance company.

Every plan is also sectioned off, with each section defining the terms, types of coverage, the rights and responsibilities of both parties, any exclusions or limitations and any other types of optional coverage you have selected. The first page usually begins with a summary of the agreement between the insurance company and you (the insured). This Declarations Page gives the information about who is covered, what’s covered, the applicable dates for coverage and the amount of any premiums. It will also have the policy number listed, your name and address, and the name and address of the insurance agent. It can also have other important information such as coverage limits.

There should also be several provisions. These describe the policy features and types of benefits you would expect in the event of a loss. It will also explain any necessary requirements and the rights and responsibilities for each party. Other provisions in the contract may be required by law, either state or federal. These provisions are required and designed to protect you. There will also be a section, or sections, for any exclusions denying or precluding coverage depending on the circumstances.

If you had the option of choosing any other options when you applied for the insurance policy, there will also be a section for these, explaining what they are and any related information. This can be information about dividend options (if you have a cash value life insurance policy) or any optional auto coverage for an auto plan (such as additional bodily injury coverage).

If you are paying additional premium for any riders, there will be sections regarding the additional rider coverage – any coverage considered above and beyond the basic contract. If there are any endorsements or amendments added to the standard contract, the insurance company may add that information as well, be it at time of issue or thereafter.

Remember, your insurance policy is a legal contract. If you don’t understand any portion of the wording or provisions, it is best to get help from your insurance agent first. Make sure they explain everything to your satisfaction and understanding before signing.