A comprehensive life insurance policy is crucial for the protection of your family in the event of your death. However, not all insurance policies are created equal, so it is up to you to understand the terms, conditions and exclusions of your life insurance policy so that you can be assured you have secured a premium life insurance product.
The provisions and exclusions of any life insurance policy, in short, detail how the policy will pay out in the event of your death. There are a set of common provisions in any life insurance product, which include:
- Ownership clause - The ownership clause of your life insurance policy states that you own the life insurance product as long as you are alive. The ownership clause allows you, as the owner of the policy, to designate beneficiaries, make all decisions regarding the policy and make all decisions regarding the cash value of the policy.
- Grace period provision - The grace period section of the insurance policy details the time frame during which you can make your premium during the policy’s grace period (the grace period for a monthly premium is typically 30 days). If you are unable to make a timely payment, your policy may be cancelled by the insurance company, which is where the policy’s reinstatement clause comes in.
- Reinstatement clause - The reinstatement clause in your life insurance product allows you to reinstate the policy and continue receiving benefits. There are certain conditions, however, that you may have to meet before reinstating your policy.
- Incontestability clause - The incontestability clause protect you, the policyholder, from a denial of benefits due to misrepresentation or false information. Most insurance companies are very particular about health exams because of this type of clause.
- Suicide clause - Most policies have a suicide clause that prohibits your family members from drawing on the policy if you commit suicide within two years of taking out the policy.
- Dangerous activity clause - Most policies prohibit your family members from drawing on your policy if you die during participation in a dangerous activity, such as sky diving or auto racing. It is because of this clause that it is important to point out your participation in any type of dangerous activity to your insurance agent upon applying for a life insurance product.
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