Figuring Out Your Life Insurance Policy
Understanding your life insurance policy is extremely important. It will help you to understand the right and obligations that you have under the contract. However, reading and understanding your policy is not the easiest accomplishment. For that reason, we have created this list to help you as you read through your policy. We layout the main part of a life insurance policy to serve as a guide for deciphering yours.
Parts of a Life Insurance Policy
There are several different parts that make up your life insurance policy. These include:
The cover page of your policy will identify the insurance company, the type of plan you purchased. Additionally, it identifies your right to return the policy within 21 days if you are not satisfied.
Schedule of Benefits:
This section states the amount of your death benefit, your premium, and any other charges. As well as, who is insured, the issue date, the policy number, and the premium class.
Depending on the type of insurance you purchased, you may have a section with tables that will highlight future premium projections or guaranteed cash values.
Definition of Terms:
This section will define different terms found throughout your policy.
Rights of Owner:
Here you will find a list of your rights as the policy owner. These include the right to transfer and assign the policy, the right to change your beneficiary, the right to receive cash value and dividends (depending on policy type), and the right to borrow against your cash value (depending on policy type).
This section gives instructions on how to make a claim. As well as information about the choices your beneficiary has for receiving the death benefit.
If you have any riders or endorsements, you can find them under this section.
Throughout your life insurance policy, you will find several different policy provisions. These are common rules that are in almost every insurance policy. Below is a list of the most common policy provisions, along with a brief description of what they do.
This provision states that the policy and your attached application form the entire contract. This is helpful because it prevents the insured from using evidence outside of the contract if they ever accuse you of misrepresentations. It is only voidable if you make a misrepresentation on your application.
After your policy has been in force for two years, this provision states that your policy can no longer be contested. You can void this provision by not paying your premiums. Furthermore, if you pass away after the two-year period it prevents your beneficiary from having to prove that the statements in your application were true.
Misstatement of Age:
The misstatement of age provision states that the incontestability provision is voided if you misrepresented your age. This is a big deal to insurance companies because your age is one of the main factors that determines your premium. As a result, if you are found to have misrepresented your age the face value of your policy will be lowered to the amount that your premium would have purchased if you have given the correct age.
The grace period is the amount of time you have after your premiums’ due date to pay your premium before your policy lapses. Most companies include a grace period of 31 days. So, if your premium was due January 1st, you would have until February 1st to pay.
If you miss your grace period the reinstatement provision is there for you to fall back on. It allows you to reinstate a lapsed policy. However, this is not your unconditional right. To utilize this provision, you must meet certain requirements. These are:
- If your policy had cash value, you must not have withdrawn the cash surrender value at the time of the lapse.
- You must exercise the reinstatement provision within a certain amount of time after your policy lapse (usually 5 years).
- You must resubmit evidence of your insurability. Which means going through the application process again.
- You have to pay all overdue premiums, plus interest. If you had taken out a loan before the lapse, you must also pay that amount back, plus interest.
This provision states that if you commit suicide within two years of your policy’s issue date, the company will not pay out the death benefit. However, they will refund to your family the premiums that you paid.
Understanding your life insurance policy is not an easy task. We hope this information helps you as you try and decipher what is in your policy. Also, remember that if you have questions you can always contact your insurance agent or your insurance company.
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