Understanding Life Insurance Clauses and Exclusions
Before you enter into a legal agreement with an insurance company, read over your policy, paying special attention to the clauses and exclusions. They contain information about your rights (and the insurance company's rights) that may be vital to you in the future.
Before you enter into a legal agreement with an insurance company, read over your policy, paying special attention to the clauses and exclusions. They contain information about your rights (and the insurance company's rights) that may be vital to you in the future.
Tackling the policy
Before purchasing a life insurance policy, its advisable to read it over carefully. Understanding your responsibilities as a policyholder is crucial. Your rights and the rights of your insurance company are outlined in your policy - its just a matter of knowing where to look.
The two sections to locate are:
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Clauses
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Exclusions
Clauses establish the rules you and your insurance company must follow.
Exclusions reduce the insurance company's responsibility. Since these two sections outline the protection you can expect to receive, it is important to pay special attention to what these provisions imply.
Before purchasing a life insurance policy, its advisable to read it over carefully. Understanding your responsibilities as a policyholder is crucial. Your rights and the rights of your insurance company are outlined in your policy - its just a matter of knowing where to look.
The two sections to locate are:
Clauses establish the rules you and your insurance company must follow.
Exclusions reduce the insurance company's responsibility. Since these two sections outline the protection you can expect to receive, it is important to pay special attention to what these provisions imply.
We want to guide you through each clause or exclusion, help you understand the exact insurance term definitions of each, and indicate the provisions considered to be standard.
To do this, we have compiled a list of common clauses and exclusions and divided them into groups:
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Those protecting you and your beneficiary
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Those protecting your insurance company
When you're committing yourself to a long-term financial obligation, it's a good idea to read all the fine print, and to understand what it means. Don't skip these (admittedly) boring pages.
Life Insurance Policy Clauses that Protect the Insurer
Policy clauses are one of the many types of fine print contained in your policy document.
Once you have your potential life insurance policy's terms and conditions in hand, read over it carefully. Use the term definitions listed below to guide you through any confusing terminology.
This page:
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Lists clauses protecting your insurance company.
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Gives insurance terminology definitions for these clauses
Standard Clauses
Your insurance company writes these clauses themselves, so make sure you really do understand the wording for each of them. Sometimes they define words in the policy differently than the commonly accepted meaning. If there is a glossary in your policy, make certain you read these definitions as well.
Be wary of policies that try to limit your rights or impose rules and regulations beyond these listed below.
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Entire Contract Clause
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Misstatement of Age Clause
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Reinstatement Clause
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Suicide Clause
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War Clause
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Aviation Clause
Insurance Terminology Definitions
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Entire Contract clause
This statement establishes the life insurance policy and your application as the entire contract. Therefore, the statements you have made on your application are part of the contract and, if these statements are false, can be used as basis to terminate the entire contract.
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Misstatement of Age Clause
The insurance company bases decisions about your insurability and the cost of your premiums on your health, habits, and age. Providing false information about any of these statistics is grounds for termination of your policy or decreasing the policy's worth or increasing the policy's premiums.
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Reinstatement Clause
In the event of your policy's termination because of nonpayment or other noncompliance with the insurance company's rules, you may still be able to reinstate your policy. However, to get it reinstated, you will have to fulfill the stipulations listed in the policy. The reinstatement clause lists the conditions that must be met in order for a delinquent policy holder to reactivate his/her policy. The insurance company is allowed to use their own discretion and, therefore, can deny a request to reactivate a policy canceled because of delinquent payments or noncompliance.
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Suicide Clause
Commonly insurance companies offer coverage for suicide only after you have owned the policy for a certain period of time, which is most often two years. The inclusion of this clause means that if you commit suicide within two years (or less, depending) of purchasing the policy, the insurance company is not required to pay the death benefit, but is obligated to reimburse your family for all the premium payments you previously made.
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War Clause
This clause is more common during times of conflict and instability. The insurance company includes this stipulation to limit their obligations in times of war. If you are a casualty of war, you insurance company is not responsible for paying the death benefit under this clause. Instead, the insurance company is only responsible for reimbursing your family the money you have paid in premiums.
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Aviation Clause
Some policies refuse to pay death benefit proceeds if your death was the result of an airplane accident. These days, a policy with an aviation exclusion is rare, but some do still require you to pay a higher premium to cover the risk, especially in the case of you being employed by an airline.
Life Insurance Policy Clauses Which Protect YOU
It's a good idea to know your rights before you sign on any dotted line. So, once you have your potential life insurance policy's terms and conditions in hand, read over it carefully.
Use insurance term definitions listed below to guide you through any confusing terminology.
This page:
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Lists standard life insurance clauses that protect you.
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Gives insurance terminology definitions for these clauses
Standard clauses
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Beneficiary Clause
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Incontestable Clause
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Grace period clause
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Spendthrift Clause
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Preference Beneficiary Clause
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Survivorship Clause
To do this, we have compiled a list of common clauses and exclusions and divided them into groups:
When you're committing yourself to a long-term financial obligation, it's a good idea to read all the fine print, and to understand what it means. Don't skip these (admittedly) boring pages.
Life Insurance Policy Clauses that Protect the Insurer
Policy clauses are one of the many types of fine print contained in your policy document.
Once you have your potential life insurance policy's terms and conditions in hand, read over it carefully. Use the term definitions listed below to guide you through any confusing terminology.
This page:
Standard Clauses
Your insurance company writes these clauses themselves, so make sure you really do understand the wording for each of them. Sometimes they define words in the policy differently than the commonly accepted meaning. If there is a glossary in your policy, make certain you read these definitions as well.
Be wary of policies that try to limit your rights or impose rules and regulations beyond these listed below.
Insurance Terminology Definitions
This statement establishes the life insurance policy and your application as the entire contract. Therefore, the statements you have made on your application are part of the contract and, if these statements are false, can be used as basis to terminate the entire contract.
The insurance company bases decisions about your insurability and the cost of your premiums on your health, habits, and age. Providing false information about any of these statistics is grounds for termination of your policy or decreasing the policy's worth or increasing the policy's premiums.
In the event of your policy's termination because of nonpayment or other noncompliance with the insurance company's rules, you may still be able to reinstate your policy. However, to get it reinstated, you will have to fulfill the stipulations listed in the policy. The reinstatement clause lists the conditions that must be met in order for a delinquent policy holder to reactivate his/her policy. The insurance company is allowed to use their own discretion and, therefore, can deny a request to reactivate a policy canceled because of delinquent payments or noncompliance.
Commonly insurance companies offer coverage for suicide only after you have owned the policy for a certain period of time, which is most often two years. The inclusion of this clause means that if you commit suicide within two years (or less, depending) of purchasing the policy, the insurance company is not required to pay the death benefit, but is obligated to reimburse your family for all the premium payments you previously made.
This clause is more common during times of conflict and instability. The insurance company includes this stipulation to limit their obligations in times of war. If you are a casualty of war, you insurance company is not responsible for paying the death benefit under this clause. Instead, the insurance company is only responsible for reimbursing your family the money you have paid in premiums.
Some policies refuse to pay death benefit proceeds if your death was the result of an airplane accident. These days, a policy with an aviation exclusion is rare, but some do still require you to pay a higher premium to cover the risk, especially in the case of you being employed by an airline.
Life Insurance Policy Clauses Which Protect YOU
It's a good idea to know your rights before you sign on any dotted line. So, once you have your potential life insurance policy's terms and conditions in hand, read over it carefully.
Use insurance term definitions listed below to guide you through any confusing terminology.
This page:
Standard clauses
Insurance terminology definitions
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Beneficiary Clause
This is customary to most policies and allows you to name the recipient of your death benefit. Generally the recipient is either an individual or your estate. It is a wise decision to make an individual the beneficiary to insure prompt payment of the death benefit.
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Incontestable Clause
Usually a required clause on all life insurance policies, this provision limits the time your insurer is allowed to dispute the validity of the statements you have made on your application. Typically the duration is about two years, but this is not guaranteed. You should read over any policy you are considering purchasing to make sure it is included. Otherwise you run the risk of you insurer canceling your policy on a formality. With the clause, your policy is incontestable after it has been active for more than the stated period of time. This ensures that the death benefit is paid promptly without the insurance company hassling your family.
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Grace period clause
Late premium payments can result in the termination of your policy. However, your policy may contain a grace period clause, which allows you 31 days to make the delinquent premium payment without canceling your policy. This clause is usually required by state law, but make sure it is included in any policy you purchase. With this clause, your policy does not lapse for a full thirty days even if you miss your payment. Therefore, in the event of your death, your family would still receive the death benefit even if your premium payment had not yet been paid for the month before. The unpaid premium will, however, be deducted from the death benefit proceeds.
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Spendthrift Clause
This option protects the proceeds received from your beneficiary from being confiscated by any creditors to whom s/he owes money.
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Preference Beneficiary Clause
If you fail to indicate your life insurance beneficiary, the proceeds will be awarded to the individuals listed on the policy.
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Survivorship Clause
This is customary to most policies and allows you to name the recipient of your death benefit. Generally the recipient is either an individual or your estate. It is a wise decision to make an individual the beneficiary to insure prompt payment of the death benefit.
Usually a required clause on all life insurance policies, this provision limits the time your insurer is allowed to dispute the validity of the statements you have made on your application. Typically the duration is about two years, but this is not guaranteed. You should read over any policy you are considering purchasing to make sure it is included. Otherwise you run the risk of you insurer canceling your policy on a formality. With the clause, your policy is incontestable after it has been active for more than the stated period of time. This ensures that the death benefit is paid promptly without the insurance company hassling your family.
Late premium payments can result in the termination of your policy. However, your policy may contain a grace period clause, which allows you 31 days to make the delinquent premium payment without canceling your policy. This clause is usually required by state law, but make sure it is included in any policy you purchase. With this clause, your policy does not lapse for a full thirty days even if you miss your payment. Therefore, in the event of your death, your family would still receive the death benefit even if your premium payment had not yet been paid for the month before. The unpaid premium will, however, be deducted from the death benefit proceeds.
This option protects the proceeds received from your beneficiary from being confiscated by any creditors to whom s/he owes money.
If you fail to indicate your life insurance beneficiary, the proceeds will be awarded to the individuals listed on the policy.
You can elect to include this clause in your policy as a method of postponing the payment of the death benefit. After your death, the policy's proceeds will not be awarded until it is confirmed that your primary beneficiary has survived you for a pre-determined number of days.
Life Insurance Policy Riders
Additional coverage can be added to your existing life insurance policy by attaching what is known as a rider. Understanding this important and useful tool is necessary for redesigning your life insurance coverage to suit your needs.
This page:
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Lists the most essential life insurance riders.
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Gives insurance terminology definitions for each rider.
Weighing the cost and the security
Instead of purchasing a life insurance policy that does not quite meet your requirements, we suggest you amend your policy by attaching an insurance rider. Typically riders supplement an existing life insurance policy with more coverage, but a rider can also be made to diminish the coverage outlined by a policy.
Keep in mind, though, that adding extra services to your life insurance policy may increase your premiums, sometimes substantially. Make sure the coverage is really worth the extra cost.
On the flip side, eliminating unneeded coverage is an effective way to reduce your cost. If you discover a life insurance policy you like, but it is too expensive for your budget, investigate the possibility of adding a rider to reduce the amount of coverage in an area you consider to be unnecessary.
Life Insurance Policy Riders
Additional coverage can be added to your existing life insurance policy by attaching what is known as a rider. Understanding this important and useful tool is necessary for redesigning your life insurance coverage to suit your needs.
This page:
Weighing the cost and the security
Instead of purchasing a life insurance policy that does not quite meet your requirements, we suggest you amend your policy by attaching an insurance rider. Typically riders supplement an existing life insurance policy with more coverage, but a rider can also be made to diminish the coverage outlined by a policy.
Keep in mind, though, that adding extra services to your life insurance policy may increase your premiums, sometimes substantially. Make sure the coverage is really worth the extra cost.
On the flip side, eliminating unneeded coverage is an effective way to reduce your cost. If you discover a life insurance policy you like, but it is too expensive for your budget, investigate the possibility of adding a rider to reduce the amount of coverage in an area you consider to be unnecessary.
Common life insurance riders
Some of the most important life insurance riders include the accidental death rider, the guaranteed insurability rider, the waiver of premium rider, and the family income benefit rider. We think you should purchase a life insurance policy that include these riders if you can afford it.
Otherwise, read over the detailed insurance term definitions of each insurance rider below and determine, based on your own situation, which coverage you can do without and which ones you can't.
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Renewal Provision
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Spouse and Children's Insurance Rider
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Withdrawal Provision
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Accidental Death or Double Indemnity Rider
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Waiver of Premium Rider
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Family Income Benefit Rider
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Renewal Provision
(a.k.a. Guaranteed Insurability Rider) When included in your life insurance policy, this provision guarantees the policy's renewability at the end of its term. If you decide to renew your policy, you will not be required to provide additional proof of your insurability. In order to take advantage of this provision, you are often required to renew your policy within a set number of days - you have fewer days to renew as you get older. This insurance rider may also expire at a certain age.
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Spouse and Children's Insurance Rider
An extra policy option that, for a higher premium, offers coverage for your spouse and/or your children.
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Withdrawal Provision
This provision allows you to withdrawal money from your life insurance policy up to the amount of the cash value you have accumulated. However, in doing so, your life insurance policy is reduced by the amount you withdrawal.
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Accidental Death or Double Indemnity Rider
Generally, the addition of this provision doubles your death benefit if you die from an accident. Often the policy will stipulate an age when this coverage will unconditionally expire. Before purchasing a life insurance policy with an accidental death rider, read over the terms and condition. Pay close attention to the insurance company's definition of "accidental", which is often times very restricted. Adding this coverage is relatively inexpensive and may prove to be quite invaluable. However, accidental deaths (especially by the insurance company's definition) are seldom. So, if you want to lower your costs, forgoing accidental death coverage is ideal.
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Waiver of Premium Rider
This extra insurance rider protects your insurance policy from being canceled in certain situations, even if you are unable to pay the premium. Most policies limit the age you can use this rider to being older than 65. If, after you turn 65, you become disabled and are disabled for longer than six months, your premiums will be waived. Usually, the premiums you paid during the six months of disability will be reimbursed, but it depends upon the life insurance policy. Once you are no longer disabled, you are required to resume your premium payments as before. The definition of being disabled varies from policy to policy so read over your insurance company's guidelines. Find out what qualifies as being disabled and how long you are able to retain your policy without paying the premiums. Become familiar with all the details, restrictions, and responsibilities outlined within the policy before agreeing to the extra cost.
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Family Income Benefit Rider
This insurance rider guarantees your family will continue receiving your monthly income if you die. When purchasing a policy with this provision, you choose a length of time you would like to provide this security to your family. As you grow older the duration will decrease and eventually expire. Depending upon the situation, your beneficiaries can choose to receive the amount in a lump sum instead of in monthly increments. This is an invaluable life insurance supplement for families with one income source. In the event of the salaried individual's death, the family will not suddenly be cut off from all sources of income but, instead, will be able to depend upon reliable monthly payments of your death benefit.
Happy Investing
Source:Moneycontrol.com
Some of the most important life insurance riders include the accidental death rider, the guaranteed insurability rider, the waiver of premium rider, and the family income benefit rider. We think you should purchase a life insurance policy that include these riders if you can afford it.
Otherwise, read over the detailed insurance term definitions of each insurance rider below and determine, based on your own situation, which coverage you can do without and which ones you can't.
(a.k.a. Guaranteed Insurability Rider) When included in your life insurance policy, this provision guarantees the policy's renewability at the end of its term. If you decide to renew your policy, you will not be required to provide additional proof of your insurability. In order to take advantage of this provision, you are often required to renew your policy within a set number of days - you have fewer days to renew as you get older. This insurance rider may also expire at a certain age.
An extra policy option that, for a higher premium, offers coverage for your spouse and/or your children.
This provision allows you to withdrawal money from your life insurance policy up to the amount of the cash value you have accumulated. However, in doing so, your life insurance policy is reduced by the amount you withdrawal.
Generally, the addition of this provision doubles your death benefit if you die from an accident. Often the policy will stipulate an age when this coverage will unconditionally expire. Before purchasing a life insurance policy with an accidental death rider, read over the terms and condition. Pay close attention to the insurance company's definition of "accidental", which is often times very restricted. Adding this coverage is relatively inexpensive and may prove to be quite invaluable. However, accidental deaths (especially by the insurance company's definition) are seldom. So, if you want to lower your costs, forgoing accidental death coverage is ideal.
This extra insurance rider protects your insurance policy from being canceled in certain situations, even if you are unable to pay the premium. Most policies limit the age you can use this rider to being older than 65. If, after you turn 65, you become disabled and are disabled for longer than six months, your premiums will be waived. Usually, the premiums you paid during the six months of disability will be reimbursed, but it depends upon the life insurance policy. Once you are no longer disabled, you are required to resume your premium payments as before. The definition of being disabled varies from policy to policy so read over your insurance company's guidelines. Find out what qualifies as being disabled and how long you are able to retain your policy without paying the premiums. Become familiar with all the details, restrictions, and responsibilities outlined within the policy before agreeing to the extra cost.
This insurance rider guarantees your family will continue receiving your monthly income if you die. When purchasing a policy with this provision, you choose a length of time you would like to provide this security to your family. As you grow older the duration will decrease and eventually expire. Depending upon the situation, your beneficiaries can choose to receive the amount in a lump sum instead of in monthly increments. This is an invaluable life insurance supplement for families with one income source. In the event of the salaried individual's death, the family will not suddenly be cut off from all sources of income but, instead, will be able to depend upon reliable monthly payments of your death benefit.
Happy Investing
Source:Moneycontrol.com
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