Life Insurance Policy Provisions You Must Know for the Exam

Provisions are a large part of every state exam's general section. Many carry a period set by state law, and questions often swap one provision's period into another's. Learn what each provision protects, then the number your state uses.

Protecting the policyowner

• Free look: a period after delivery during which the owner can return the policy for a refund of premium. The length is set by state law and can be longer for some buyers, such as seniors or replacements.
• Grace period: a period after a missed premium during which the policy stays in force. If the insured dies during it, the death benefit is paid less the overdue premium.
• Reinstatement: lets the owner restore a lapsed policy within a set period, usually with evidence of insurability and payment of back premiums with interest.
• Nonforfeiture options: cash surrender, reduced paid-up insurance, or extended term — the cash value is not lost if premiums stop.

Protecting the insurer

• Incontestability: after the policy has been in force for the contestable period, the insurer cannot void it for misstatements in the application (fraud rules vary by state).
• Misstatement of age or sex: benefits are adjusted to what the premium paid would have bought at the correct age or sex — the policy is not voided.
• Suicide clause: limits the insurer's liability to a refund of premiums if the insured dies by suicide within a set period after issue.

Paying the benefit

• Lump sum, interest only, fixed period, fixed amount, and life income options.
• Beneficiary designations: primary and contingent; revocable and irrevocable.
• Common disaster and spendthrift provisions protect the beneficiary's interest in specific situations.