Financial Intel Monthly

Reading and Understanding Your Life Insurance Policy

Feb 5, 2020 12:37:02 PM / by The Retirement Group

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Most people hate the thought of reading a life insurance policy (or any insurance policy, for that matter). However, if you can find the time and muster the patience, it's probably a good idea to read through your policy. If you do, you'll understand your policy better and gain an understanding of your rights and obligations under the contract.

The parts of a life insurance policy

A life insurance policy contains the following parts:

  • A cover page that identifies the insurance company and the type of plan, offers your right to return the policy within 21 days if you're not satisfied, and is signed by an insurance company officer.
  • A schedule of benefits and specifications page that describes the amount of benefits, the premium and other charges, the insured, the issue date, the policy number, and the premium class (e.g., preferred, standard).
  • Tables showing future premium projections or guaranteed cash values, depending on the type of policy.
  • A section devoted to definitions of the terms used in the policy.
  • A section that explains your rights as an owner. As the owner, you have certain privileges of ownership, including the right to transfer or assign the policy, the right to change the beneficiary, the right to receive the cash value and dividends (if applicable), and the right to borrow against the cash value (again, if applicable).
  • A settlement section that includes instructions on how to make a claim and information about the choices your beneficiary has regarding the death benefit.
  • Riders (benefits you added to the standard policy) or endorsements (changes to the standard policy), if any, will be attached to the policy along with a copy of your application.
  • Policy provisions, which are another important part of your life insurance policy. Despite the lack of a uniform contract, most states have enacted legislation that makes certain policy provisions mandatory, and the commissioner of insurance must approve the final wording adopted by the insurance company. Even if certain provisions are not required by law, competition between companies generally forces them to be very similar. Here are some common provisions to look for when you read your policy.

Entire contract

Most states require that a clause be inserted in your policy stating that the policy and the application attached to it together form the entire contract between you and the insurer. This clause is beneficial to you because if your insurer accuses you of misrepresentation and seeks to void the contract, it's prevented from using other evidence outside of the contract. It can void the contract only if you made false statements on your application.


This provision states that the contract cannot be contested, except for nonpayment of premiums, after the policy has been in force during the insured's lifetime for a period of two years from the date of issue. This provision allows the insured to (eventually) be secure in the fact that the beneficiaries will not have to prove that statements made on the application were true to collect the policy benefits. It also gives the insurance company a period in which it can contest a policy for fraudulent statements made on the application.

Misstatement of age

This is somewhat of an exception to the incontestability provision. The incontestability provision does not apply when you, the insured, misrepresent your age. The reason is simple. Because age is a key factor in determining whether a company offers you life insurance and in setting premiums, some applicants are tempted to understate their age in order to pay a lower premium. Understandably, insurers want to avoid this. The misstatement of age clause provides that if you have misrepresented your age, the insurer will lower the face amount of the policy to the amount of insurance that the premium paid would have purchased at the correct age.

Grace period

Your policy specifies the due date for premiums (e.g., monthly, quarterly, semiannually, annually). Whatever the due date, you generally must pay your premiums on or before that date. If you fail to do so, however, you may still pay the premium during the grace period. The grace period is required by most state laws and typically lasts for 31 days. For example, if you have a premium due on January 1 and don't pay it by that date, you would have until February 1 to make the payment before the policy would lapse. If you died on January 15, the death benefit proceeds would still be paid, but minus the amount of the premium in default.


Most life insurance contracts contain a clause that allows you to reinstate or reactivate a lapsed policy (i.e., one for which you did not pay the premium due by the end of the grace period). However, reinstatement is not your unconditional right. If available, it will be subject to a number of very specific requirements on your part. First, if you had a cash value policy, reinstatement will be possible only if, at the time of the policy's lapse, you did not withdraw its cash surrender value. Second, reinstatement must be accomplished within a specified time period, normally five years after the lapse. Third, you must resubmit proper evidence of your insurability as if you were applying for the insurance all over again. Finally, an insurer will generally permit reinstatement only if you pay all of the overdue premiums (plus interest) and any indebtedness from loans that may have existed at the time of lapse (plus interest).


Almost all life insurance policies exclude suicide during a specified period after the policy is issued. Under this clause, the typical period during which coverage for suicide will be denied is two years (although some policies limit it to one year). If the insured commits suicide (whether sane or insane) within two years after the issue date of the policy, the insurer will not pay any death benefits to the beneficiary. The insurer would be responsible for refunding only the premiums paid on the policy.


This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by,,,,, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at


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