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Life Insurance Policy Clauses & Provisions

Instructor: Elisha Madison

Elisha is a writer, editor, and aspiring novelist. She has a Master's degree in Ancient Celtic History & Mythology and another Masters in Museum Studies.

There are many provisions and clauses in a life insurance policy that explain what is and is not covered under that policy. This lesson describes these provisions and clauses and explains why they exist.

Introduction

All contracts have clauses and guidelines that establish what is paid for, how and why certain rules are put in place, and if there are exclusions. With life insurance contracts there are many guidelines as well, and these can be revised repeatedly through riders. A rider is an additional revision of a clause or provision that changes the original intention or coverage of a policy. A good example would be the suicide clause, which states that life insurance will not pay out if the person dies due to self-inflicted wounds. However, a rider can be added stating that suicide will be covered after the first year of premiums are paid.

Provisions and Clauses

The following are some of the standard provisions and clauses found in life insurance policies:

Grace Period- This is usually a 31 day timeframe allowing an insured (i.e. a person having insurance) to make the monthly payment for their life insurance policy. The payment will need to be paid in full, not partially. Another common timeframe for a grace period is 15 days.

Free Look - This is a unique provision that allows an insured to have a policy for a certain period of time, but then terminate the policy and get back the money they have invested if they decide they no longer want the policy. For life insurance, this time period is usually only 10 days, though some companies will allow up to 90 days.

Policy Loan - This provision allows the insured to take out a loan on the money value of their life insurance policy. This is very similar to a 401K, where you can take a loan out of the money in your account and then pay it back over time. This is non-negotiable because it is required by law. However, a policy loan will usually will lessen the value of the life insurance payout until the loan is paid back in full.

Accelerated Benefits - This provision is purely at the insurer's behest. They can offer the option of providing the payout to an insured if the insured has been informed by a medical professional that they will be dying soon. However, the provision usually states that the insured will only be given a percentage of the benefits for taking them early.

Entire Contract Clause - This simple clause means that the contract is the contract. The insurer cannot have additional paperwork not included in the original contract that would change the insurance or provisions for the insured. This clause keeps all parties honest.

Incontestable Clause - This clause is intended to help the insured and keep the insurer honest. It prevents the insurer from canceling coverage due to a misstatement by the insured after a set amount of time has passed. However, after the time period specified in the contract, even if there was a misrepresentation by the insured, the insurer cannot contest the contract and will have to pay out the death benefits.

Suicide Clause - This can also be considered an exclusion in some instances. Essentially, this clause states that benefits will not pay out if the insured commits suicide within 1-2 years of the start of the policy.

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