What are standard conditions or clauses of a life insurance policy?

Insurance policies of all types, including life insurance, are written with certain rules and exceptions, generally referred to as conditions or, more commonly, clauses. These clauses determine how the policy will be treated in certain circumstances, who the beneficiaries are, and more.

Beneficiary Clause - This part of the policy determines who the beneficiaries of the policy are. A life insurance policy can pay to a person, charity, corporation or any other entity of your choice. Keep in mind that not having a beneficiary will pay out to your estate, making the proceeds taxable and allowing the state to claim a large portion of the benefits of the policy.

Survivorship Clause - This clause names your spouse as the beneficiary of the policy, but only if they survive you by a specific number of days listed in the policy.

Misstatement of Age Clause - This condition of the policy gives the insurance company the right to penalize you, raise your premiums, or even cancel the policy completely if it is discovered that you misrepresented your age on the application.

Incontestability Clause - If the insurance discovers that you have misrepresented yourself or held back material on the application, they can cancel the policy within the contestability period. After that period has elapsed, the policy cannot be voided for these reasons.

Spendthrift Clause - This clause gives the insurance company the option of paying the proceeds in installments rather than all at once, which could be beneficial if your named beneficiary is in debt and could have the benefits garnished or seized.

Suicide Clause - This gives the insurance company the right to deny settlement of the policy if you die because of suicide. This period of time is specified within the policy, and if suicide occurs after the time has elapsed, the insurance company is required to make full payment of the policy settlement.

War Clause - Most insurance companies will not pay out on a life insurance policy if you die as a result of war. In this situation, the insurance company would return the premiums you paid on the policy to the beneficiary rather than paying the policy value.

Aviation Clause - This clause relieves the insurance company from paying claims that resulted from death related to flying airplanes or other flying craft.

Free Look Period - This clause gives you a specified number of days to change your mind about the policy. Choosing to cancel the policy within this time means that the insurance company must return all monies paid into the policy.

Grace Period Clause - This is the period of time the insurance company will wait before canceling a policy that has lapsed. Missing a payment is tolerated, but only if you catch up on the premiums during the specified grace period. If you pass away during this period, the insurance company will typically deduct the unpaid premiums from the settlement when the claim is paid.

Reinstatement Clause - This clause determines how long a policy can lapse for before it is canceled. If you bring the policy up to current during this period of time, the policy will be reinstated, but you may have to pay an additional fee or penalty.

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