This lesson focuses on the following topics:
•POLICY CLAUSES CON’T
Reinstatement Clause
If the premium is not paid during the grace period, a life insurance policy may
lapse for nonpayment of premiums. The Reinstatement Clause allows the policy
owner the right to reinstatement of a lapsed policy under certain conditions. The
conditions are:
• The insured must provide evidence of insurability, a condition that insurers
often waive for lapses of less than two months.
• All overdue premiums plus interest must be paid.
• A policy loan must be repaid or reinstated.
• The policy has not been surrendered for its cash value.
• The lapsed policy must be reinstated within a certain period, usually three to
seven years.
If the policy owner wishes to continue the same type of life insurance coverage, it
usually is more economical to reinstate a policy than to buy a new one. This is
because a new policy is likely to have a higher premium, since it will be issued
when the insured is older.
Misstatement Clause
The insured's age may be misstated in the application. Under the Misstatement
Clause, the amount paid is the amount of life insurance that the premium would
have purchased at the insured's correct age.
EXAMPLE:
• Assume that Mary's correct age is thirty but is incorrectly recorded in
the application as age twenty-nine. Assume that the premium for an
ordinary life application at age twenty-nine is $20.00 per $1,000.00 and
$21.00 per $1,000.00 at age thirty.
• If Mary has $15,000.00 of Ordinary Life Insurance and dies, only 20/21
the of the proceeds will be paid, or $14,286.00.
Beneficiary Designations
The beneficiary is the person or party named in the policy to receive the policy
proceeds. There are numerous Beneficiary Designations in life insurance. They include
the following:
The Primary Beneficiary – is the first party who is entitled to receive the
proceeds at the insured's death.
The Contingent (Secondary) Beneficiary – is the beneficiary entitled to the
policy proceeds if the primary beneficiary is not alive.
A Revocable Beneficiary – designation means that the policy owner has the
right to change the Beneficiary Designation without the beneficiary's consent. An
Irrevocable Beneficiary designation means that the policy owner cannot change
the beneficiary without the irrevocable beneficiary's consent.
A Specific Beneficiary – designation means that the beneficiary is named and
can be identified. For example, Martha Smith may be specifically named to
receive the policy proceeds if her husband should die.
A Class Beneficiary – designation means that a specific individual is not named
but is a member of a group to whom the proceeds are paid. One example of a
Class Beneficiary Designation would be "children of the insured”.