Some important provisions in most life insurance policies are as follows. These are regulated by state code and the insurance company, so can vary.
1) Grace period. This is a period that your policy will stay in effect if you neglect to pay your premium on time, usually one month for term insurance. With permanent insurance, the policy may stay in effect longer if cash values automatically go to pay the premium.
2) Suicide clause. This is a clause stating that the insurance policy will not pay out the death benefit for two years after the policy goes into effect.
3) Convertibility. Some Term policies can be converted to permanent life insurance without evidence of insurability, if the conversion is done within a certain time period before the term ends.
4) Incontestability clause. This protects the consumer by requiring that payment of the death benefit cannot be contested two years after the policy goes into effect.
5) Guarantees. Premiums, death benefits, interest rates, and cash values can all have guarantees in some types of policies. It is important to check the guarantees when purchasing a policy.
6) Settlement options. Upon death of the insured, this provision allows the death benefit to be paid in one lump sum, in monthly payments, or some other way.
7) Loans, reduced paid up, etc. There are many number of provisions associated with permanent policies that do not apply to term insurance.
8) Riders. Riders provide added features to policies that the policy owner desires. Usually, riders cost extra.
Syndicated Financial Columnist, Host of the weekly talk show Steve Savant's Money, the Name of the Game, Scottsdale Arizona
The most important provisions in life insurance are convertibility clauses in term life insurance and policy loan provisions in cash value permanent life insurance. Other provisions that are universal to both are the grace periods for payments and the free look at the beginning of the policy. Lastly, the financial credibility of the company issuing the contract. The contract provisions are only as good as the company behind the policy.
President, The Firm of Steven H. Kobrin, LUTCF, 6-05 Saddle River Rd #103, Fair Lawn, NJ 07410
I think the convertibility option in term insurance policies is a game changer.
In essence, it allows you to convert your term policy into a permanent product without going through underwriting.
Think about that for a second.
Let's say you bought a term policy when you were a young parent to protect your family. You thought you would have no need for coverage once your youngest child was out of the house, so you went with term.
Lo and behold, you had more kids than expected. Or maybe you took out a second mortgage and were in debt longer than you planned. Or maybe you opened a business and need to indemnify a business loan.
For any a number reasons, you need life insurance past the original time of purchase. But now, unfortunately, you are not insurable. You have a very serious illness. You are stuck. You have dependents, you have debt, but you have no way to cover them.
Wait a minute!
You can convert the term policy into a permanent product without answering any medical questions, taking a medical exam, or having your medical records reviewed. Whew! That rider is a godsend.
Of course, there are a few stipulations. You can convert up to a certain age. You have to pay the premium for a permanent product at the age you convert. And, you will be approved at the rate class at which the term insurance term policy was issued.
But with these factors all favorable, that convertibility option can come in very handy. I have seen it.
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1) Grace period. This is a period that your policy will stay in effect if you neglect to pay your premium on time, usually one month for term insurance. With permanent insurance, the policy may stay in effect longer if cash values automatically go to pay the premium.
2) Suicide clause. This is a clause stating that the insurance policy will not pay out the death benefit for two years after the policy goes into effect.
3) Convertibility. Some Term policies can be converted to permanent life insurance without evidence of insurability, if the conversion is done within a certain time period before the term ends.
4) Incontestability clause. This protects the consumer by requiring that payment of the death benefit cannot be contested two years after the policy goes into effect.
5) Guarantees. Premiums, death benefits, interest rates, and cash values can all have guarantees in some types of policies. It is important to check the guarantees when purchasing a policy.
6) Settlement options. Upon death of the insured, this provision allows the death benefit to be paid in one lump sum, in monthly payments, or some other way.
7) Loans, reduced paid up, etc. There are many number of provisions associated with permanent policies that do not apply to term insurance.
8) Riders. Riders provide added features to policies that the policy owner desires. Usually, riders cost extra.
In essence, it allows you to convert your term policy into a permanent product without going through underwriting.
Think about that for a second.
Let's say you bought a term policy when you were a young parent to protect your family. You thought you would have no need for coverage once your youngest child was out of the house, so you went with term.
Lo and behold, you had more kids than expected. Or maybe you took out a second mortgage and were in debt longer than you planned. Or maybe you opened a business and need to indemnify a business loan.
For any a number reasons, you need life insurance past the original time of purchase. But now, unfortunately, you are not insurable. You have a very serious illness. You are stuck. You have dependents, you have debt, but you have no way to cover them.
Wait a minute!
You can convert the term policy into a permanent product without answering any medical questions, taking a medical exam, or having your medical records reviewed. Whew! That rider is a godsend.
Of course, there are a few stipulations. You can convert up to a certain age. You have to pay the premium for a permanent product at the age you convert. And, you will be approved at the rate class at which the term insurance term policy was issued.
But with these factors all favorable, that convertibility option can come in very handy. I have seen it.