LIFE INSURANCE POLICY CLAUSES
This proviso enables the insured to name individual(s) who will receive the proceeds after his or her death. A life insurance’s main goal is to transfer wealth to the owner’s heirs or provide liquidity to his or her family. Beneficiaries can be your spouse, children, or relatives, and can also be changed at any time during the coverage’s term. In the event no beneficiary is named, the proceeds will go to your estate and the probate fees necessary to resolve your estate can hugely deplete your family’s liquidity assets.
Free Lock Period/Free Examination Period
You can return the coverage within a specified time period if you are not contented with the terms and conditions of the policy, and the entire premium will be refunded. The time frame differs from insurer to insurer.
Grace Period Clause
In certain circumstances, you cannot pay the premiums because of financial difficulties. Grace period clause allows you to make monetary arrangements with your insurance company and give your payments. Your policy will continue to cover you during this period. But if you still fail to settle your payments, your coverage may be cancelled. Or, if you die while under this grace period, the insurer will award the insurance money after deducting the unpaid premium from that proceeds.
An insurance firm may contest the validity of a policy, normally two years, stipulating the holder withheld material information. If a holder is found guilty of concealment, the insurer has the right to void the coverage and return the premiums. But after the two-year period, the insurance company cannot revoke the policy and needs to pay the money to your beneficiaries without any opposition.
There are exceptions where an insurer won’t need to pay the claim even after the two-year period expires, such as deliberate fraud. This clause is the most important clause in a life insurance policy. So, make sure it is outlined in your coverage and you are aware with the stated time limit.
Misstatement of Age Clause
The older a person is, the greater the premium is charged. For instance, you lied about your true age to reduce your premiums, you may have to pay a huge amount of money for it. Either the insurer will adjust your policy amount, increase your premiums, or cancel your policy.
Preference Beneficiary Clause
If no beneficiary is specified, the insurance firm will disburse the money to people listed in your coverage. Let us assume the order of priority in a policy is spouse, children, and parents. Once the proceeds are distributed, they will go the first living individual, which will be your spouse in most cases.
One can reinstate his policy if it lapsed due to nonpayment of premium or other noncompliance with the insurer’s rules. But to have it reinstated, the insured needs to prove he continues to enjoy good health and all the other stipulations noted in the policy.
For example, the creditor of your beneficiary, let’s say your daughter, may collect the life insurance proceeds upon your death to settle her debts. With this provision, it authorizes the insurer to hold back the insurance proceeds to your beneficiaries and protect them from lenders. The insurer may also opt to pay the money in installments.
Based on this clause, the insurer won’t pay the proceeds if the policyholder attempts or commits suicide within a certain time period from the beginning of the coverage. The insurance firm will only repay previously paid premiums to the family if the policy owner died because of suicide.
Death benefit payment is only awarded once the insurance company confirms the beneficiary, say your wife, has survived the insured for a particular number of days. But if the beneficiary does not survive, it will be paid to the secondary beneficiary or the insured’s estate should the owner did not designate the former.
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