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No single "standard" life insurance policy form exists, but the model provisions developed by the NAIC are widely adopted by insurers and required by state law, which is why life policies from different companies look remarkably similar in structure.
The entire contract provision establishes that the policy itself, together with a copy of the application and any attached riders or amendments, makes up the whole agreement between the insurer and the insured. Nothing said or promised before the policy was issued can be used to change its terms, and once the policy is in force, neither party can unilaterally alter it — any change must be agreed to by both parties and attached to the contract.
Entire contract = the policy + a copy of the application + any riders or amendments.
The insuring clause (sometimes called the insuring agreement) is the insurer's basic promise to pay the death benefit when the insured dies. Usually found on the face page of the policy, it identifies the parties to the contract, states how long coverage remains in force, and describes the type of loss that is covered.
A valid contract requires that each party give something of value. On the insured's side, consideration consists of the premium payments and the truthful statements made in the application; on the insurer's side, consideration is the promise to pay according to the policy's terms. The consideration clause is frequently folded into the entire contract provision rather than appearing separately, though most policies also contain a distinct provision addressing how and when premiums are to be paid.
Four parties can be involved in a life insurance contract: the insurer, the policyowner, the insured, and the beneficiary. The policyowner and the insured are often the same person but do not have to be — when they are different people, the arrangement is called third-party ownership. Regardless of who is insured, only the policyowner holds the rights of ownership: naming and changing beneficiaries, receiving any living benefits, choosing how proceeds will be paid out, and assigning the policy to someone else. The policyowner is also the party responsible for paying premiums and must have an insurable interest in the insured at the time the policy is applied for.
A policyowner may transfer some or all of their ownership rights to someone else without needing the insurer's permission — but the transfer must be reported to the insurer in writing. Until the insurer receives that notice, it is not bound to recognize the new owner, largely because of the risk of paying the same claim twice. Importantly, assigning a policy never changes who is insured or how much coverage is in force; it only changes who controls the ownership rights.
Absolute assignment permanently transfers all ownership rights; collateral assignment temporarily transfers partial rights, usually to secure a loan.
A policyowner can change how often premiums are paid on any policy anniversary, as long as the payment is not below whatever minimum the insurer sets for that mode. Insurers typically offer annual, semiannual, quarterly, and monthly payment options; because more frequent billing costs the insurer more to administer and forfeits some of the investment income it would have earned on a full annual premium, modes other than annual usually carry a small surcharge. If a policyowner who has been paying annually asks to switch to a more frequent mode, the insurer may require proof that the insured is still insurable.
Ordinarily, the policyowner is free to change beneficiaries whenever they choose simply by naming a revocable beneficiary. If instead an irrevocable beneficiary is named, that beneficiary's written consent is required before the designation can be changed. Naming an irrevocable beneficiary also limits the policyowner's other rights — for example, a policy loan cannot be taken out without that beneficiary's consent.
Beneficiaries do not have to take the death benefit as a single check — settlement options let the insured or beneficiary choose to receive proceeds as a lump sum or spread out over time. The policyowner may select (and later change) the settlement option while the insured is alive; insurers must pay the chosen benefit within 30 days of the insured's death, and if payment is late, the beneficiary is entitled to interest on the unpaid amount.
A conversion privilege gives the policyowner the right to exchange an existing policy for a new one before the original expires — most often used to convert a term policy into permanent, cash-value coverage. The privilege also extends to dependents: when a dependent covered under an individual policy reaches the age limit for coverage, the insurer must let that dependent convert to their own individual policy without having to prove insurability. Most states require the insurer to notify the dependent in writing of this right before they age out of coverage.
A policyowner may surrender a cash-value policy at any point coverage is no longer wanted or affordable, in exchange for the policy's current cash value; once that happens, the insured is no longer covered. A company's surplus earnings are returned to policyowners as dividends. Because most participating policies are issued by mutual insurers whose policyowners are also the company's owners, those insureds share in any surplus the company earns in a given year. California law requires that dividends on participating policies be credited on the policy's anniversary date as long as premiums are current — a requirement that does not extend to policies operating under extended-term or reduced paid-up nonforfeiture status. In practice, dividends usually are not paid on a policy that has been in force less than 5 years, since the insurer is still recovering the policy's early acquisition costs during that period.
The free-look provision gives the policyowner 10 days from the time they receive the policy to review it and, if dissatisfied for any reason, return it for a full refund of every premium paid. Note that the clock starts running at policy delivery, not when the insurer issues the policy. Certain transactions, such as a policy replacement, may carry a longer required free-look period.
This provision spells out when premiums are due, how frequently they must be paid (monthly, quarterly, semiannually, or annually), and to whom payment should be made; it also establishes that premiums are payable in advance of the coverage period, not after. If the insured dies during a period for which premium has already been paid, the insurer must refund any unearned portion of that premium along with the death benefit.
Most life policies carry a level premium, meaning the amount charged never changes for the life of the contract. Flexible-premium policies are the exception, allowing the policyowner to raise or lower the premium during the policy period.
The grace period is the window of time after a premium's due date during which the policyowner may still pay without the policy lapsing — its purpose is to protect against an accidental lapse from a late payment. If the insured dies during the grace period, the death benefit is still payable, though the insurer will subtract whatever premium remains unpaid from that benefit.
California requires every individual and group life policy to include a grace period of at least 60 days from the premium due date, and that 60-day period cannot run concurrently with any period of paid-up coverage. Flexible-premium variable life policies are the one exception, carrying a required grace period of 61 days.
Reinstatement allows a lapsed policy to be brought back into force, typically within 3 years of the lapse. To reinstate, the policyowner must provide evidence that the insured is still insurable, pay all of the missed premiums plus interest, and repay any outstanding loan balance and its accrued interest. The advantage of reinstating over buying a brand-new policy is that the reinstated policy keeps its original values and is priced at the insured's original issue age. A policy that has been surrendered for its cash value, however, can never be reinstated.
The incontestability clause bars an insurer from denying a claim based on statements made in the application once the policy has been in force for 2 years — even if those statements turn out to have contained a material misstatement or concealed a material fact. During that initial 2-year window, however, the insurer may still contest a claim if it believes the application contained inaccurate or misleading information. The incontestability period never protects against nonpayment of premium, and it typically does not apply to statements about the insured's age, sex, or identity.
Because an applicant's age and gender directly affect what premium should have been charged, every policy includes a provision letting the insurer correct the numbers if a claim reveals the applicant's age or gender was misstated on the application. Rather than voiding the policy, the insurer instead adjusts the benefit to whatever amount the premium actually paid would have purchased at the insured's correct age or gender, using the insurer's rates in effect on the date the policy was issued.
A misstatement of age or sex on the application results in an adjustment of the benefit or premium — it does not void the policy.
Exclusions identify the causes of loss a policy will not cover. Some exclusions are built into every policy as standard language; others are added later by endorsement to address a particular insured's risk profile. The exclusions most commonly seen in life insurance are aviation, hazardous occupations, and war or military service.
Most life policies will cover an insured who is flying as a fare-paying passenger, or even as the pilot of a regularly scheduled commercial flight. Noncommercial pilots, however, are typically excluded from coverage, or may be covered only for an additional premium.
If the insured works in a hazardous occupation or engages in a hazardous hobby — skydiving and auto racing are common examples — death resulting from that occupation or hobby may be excluded from coverage. When a death is excluded on this basis, the insurer refunds the premiums that were paid; alternatively, the underwriter may choose to charge a higher premium up front to cover the added risk instead of excluding it.
Most policies issued today do not exclude military service outright, but two distinct clauses exist that insurers can use to limit the death benefit connected to war or military duty. A status clause excludes any cause of death that occurs while the insured is on active military duty, regardless of the cause. A results clause is narrower — it excludes the death benefit only when the insured's death actually results from an act of war, whether declared or undeclared.
A policy will typically deny liability if the insured is injured or killed while committing an illegal act or while engaged in an illegal occupation.
The suicide provision protects insurers from applicants who purchase a policy with the intent of taking their own life. Policies specify a period — usually 2 years from the policy's effective date — during which the death benefit will not be paid if the insured dies by suicide; in that case, the insurer's liability is limited to refunding the premiums paid. Once that 2-year period has passed, a death by suicide is paid exactly as any other death would be.