Ten Items Often Overlooked in Your Life Insurance Policy

Life insurance policies are incredibly detailed, and even a good policy might not cover everything you need to know. Here are ten important aspects every life insurance consumer should be aware of:

1. The Free Look Period

Every state requires life insurance policies to include a free look period, allowing the policyholder time to review the contract and ensure it meets their needs. During this period, the policy can be canceled for a full refund. The minimum free look period is 10 days, but it can extend up to 30 days for older clients.

2. Incontestability Clause

Life insurance policies include a two-year incontestability clause, which means the insurer can void the contract or deny a death claim within the first two years if fraud or misstatements were made on the application.

• Fraud results in the contract being voided, and all premiums paid are refunded.
• Misstatements or misrepresentations usually result in a reduced death benefit based on the correct premium that should have been charged.

3. Suicide Clause

Similar to the incontestability clause, the suicide clause applies for the first two years of the policy. If the insured dies by suicide within two years, the insurer will not pay the death claim. After two years, the death claim will be paid.

4. Premium Payment Modes

You can choose to pay your life insurance premium annually, semi-annually, quarterly, or monthly.

• Monthly payments usually require an electronic funds transfer (EFT).
• Paying semi-annually, quarterly, or monthly is more expensive than paying annually since insurers add service fees for non-annual payments.

5. Grace Period

Life insurance companies offer a grace period, usually 31 days, for late payments. During this time, the policy remains active, and the insurer will still accept payment. 

6. Reinstating a Lapsed Policy

If a policy lapses due to non-payment after the grace period, you can reinstate it by paying all past-due premiums.

• If reinstating within 21 to 30 days, most companies won't require proof of insurability.
• After that period, you must prove insurability to reinstate the policy. 

7. Life Insurance Riders

Riders are optional features added to a life insurance policy. Some come at no extra cost, while others require additional payment.

• Paid riders:
• Spouse and child riders provide coverage for family members.
• Waiver of premium riders cover premium payments if you become disabled.
• Free riders:
• Accelerated death benefit riders allow access to the death benefit in cases of chronic, critical, or terminal illness.
• Some chronic illness riders may have upfront or back-end costs. 

8. Policy Loans

Policies with cash value allow you to borrow against the accumulated funds, but:

• Loan interest is charged, sometimes exceeding the earnings on the loaned amount.
• Unpaid loans reduce the death benefit.

9. Death Benefit Payout Options

Beneficiaries can receive the death benefit in different ways: Lump sum payment (a one-time full payment). Interest-bearing accounts with check-writing privileges. Annuity payout options, where payments are received over a set period or for life. 

10. Conversion Privilege

Term life policies often include a conversion privilege, allowing the policyholder to convert some or all coverage to a permanent policy.

• Conversion happens at the insured’s current age.
• Some insurers limit which products can be converted.
• Conversion options may be reduced after seven years.