Entire Contract Clause
Provides that the policy itself, the application and any attached riders constitute the entire contract between the policyowner and the insurer.
The policyowner typically has the following ownership rights:
The right to designate and change the beneficiary of the policy death proceeds.
The beneficiary is the person or entity that the policyowner has selected to receive any death benefit payable upon the insured's death.
The right to select a settlement option, which is how the death proceeds will be paid to the named beneficiary.
Settlement Options: Beneficiaries can receive life insurance proceeds in a number of different ways aside from the common method of a lump sum distribution. Usual options are: interest only, fixed period of years installments, fixed amount and life income.
Interest Only: All or a portion of the policy proceeds are left on deposit with the Company for a defined period of time and only the interest is paid to the beneficiary. The proceeds are credited with interest at a rate declared by the Company yearly, but the rate of interest will not be less than the guaranteed minimum rate, typically 3.5%.
Fixed Period of Years Installments: Provides for the payment of the policy proceeds in installments over a definite period of time, typically not longer than 30 years. The amount of each installment is determined by the amount of the proceeds, the period of time, interest rates and the frequency of payments.
Fixed Amount: The proceeds are paid in regular installments of a fixed amount. Payments continue until the principal amount and interest earnings are exhausted.
Life Income: Proceeds are used to buy an annuity with payments made to a payee for life. Typically the policy provides for a guaranteed payment period of 10 or 20 years. If the payee dies within the guaranteed payment period, a beneficiary can be named to receive the remainder of the specified benefits.
The right to select a Nonforfeiture Option.
Nonforfeiture Values: Policy values such as loans, cash, reduced paid-up insurance and extended term insurance which are not lost for nonpayment of premiums.
Cash Option: The policy is surrendered and the Company issues a check to the policyowner for the policy's cash value.
Reduced Paid-up Option: A nonforfeiture option found in most life insurance policies that allows the policyowner to have the cash surrender value of the policy used to purchase a paid-up policy for a reduced amount of insurance.
Extended Term Insurance Option: A nonforfeiture option that provides for the cash value to be used as a net single premium to purchase term insurance for the face amount of the policy at the insured's then attained age. The term insurance will continue for as long as possible, but not beyond the term of the original policy.
The right to take out a policy loan, provided that a loan value exists.
The policyowner can borrow money (subject to some limitations) from the insurer at a stated rate of interest by using the policy's cash value as collateral. Any loan balance outstanding at the insured's death would be deducted from any life insurance death proceeds payable.
Automatic premium loan: If elected by the policyowner, the loan value of the policy is used to pay a premium that has not been paid before the end of the grace period.
If the policy is participating, the right to receive dividends and apply them under one of the available dividend options.
Dividend: In a mutual company, or company that issues a participating policy, it is a share of the surplus earned by the Company and reflects the difference between the premium charged and the actual expense of the policy. Dividends and/or values based on dividends should not be construed as guarantees or even as estimates of dividends to be paid in the future. Dividends will depend on the Company's investment earnings, claims experience and expenses in the future.
Dividend Options: The different ways in which the policyowner of a participating insurer may elect to receive dividends, for example: in cash, to reduce premium, to purchase additional paid-up life insurance, left on deposit with the insurer at interest, to purchase one-year term insurance and to increase cash value.
The right to assign ownership to someone else.
The policyowner may typically assign the ownership of the policy. An absolute policy assignment will make the assignee the owner. A collateral assignment will not cause an ownership change, however, the rights of any owner, beneficiary, or other payee will be subject to the terms of the collateral assignment. The Company is not responsible for the validity, effect or sufficiency of an assignment.
Free LookRight to Examine Policy
Generally, a life insurance policy may be canceled for any reason within 10 days after it is received by the policyowner by delivering or mailing it to the agent through whom it was purchased or the Home Office of the Company. Upon cancellation, the Company will refund any premium paid. The policy will be considered void from its inception.
A grace period of 31 days after the premium due date is generally granted for the payment of each premium due after the first. During this period, the policy remains in effect. If the insured dies during the grace period and the premium has not been paid, any death proceeds will be reduced by the premium amount due.
If any premium is not paid before the grace period ends, or with respect to universal life insurance and current assumption whole life insurance policies, if the policy's cash value is not sufficient to pay the monthly mortality and expense charges, the policy will lapse. Typically the policy may be reinstated within 5 years after lapse if:
- The policy has not been surrendered for cash.
- The insured is alive.
- Evidence of insurability satisfactory to the Company is given.
- All overdue premiums, or with respect to universal life, overdue monthly deductions, are paid with interest from the due date of each premium.
- Any policy indebtedness existing on the due date of the unpaid premium is paid or reinstated with interest from that date.
This provision provides that after a specified period of time, usually 2 years from the policy issue date, the Company may not generally contest the policy.
If the cause of death of the insured is by suicide within 1 or sometimes 2 years from the policy issue date, the policy proceeds generally will be limited to the premiums paid, reduced by the amount of any dividends paid in cash, dividends applied in reduction of premium and any outstanding loans with loan interest to date of death.
Misstatement of Age or Sex
If the insured's age or sex is incorrectly stated on the application, the amount payable will be the amount which the premiums paid would have purchased for the correct age and sex. Upon receipt of due proof, the Company will adjust the age and sex of the insured at any time.