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Unlike other lines of insurance, there is not a standard Life Insurance Policy form that all companies use. Despite efforts by insurance companies to offer products different from their competitors, insurance policies are more notable for their many similarities than their differences. The foundation of the uniformity is rooted in the state-level regulation of the industry and the adoption of NAIC guidelines. Regulators in each state protect consumers by establishing strict guidelines as to what must and must not be included in an insurance policy. Furthermore, in an effort to promote state-by-state uniformity of insurance industry regulation, most states have adopted the standard wording of NAIC Model Regulations. As such, this standard wording is similar among the many different life insurance contracts available to consumers. We will begin this section with a discussion of the standard provisions that appear in most life insurance contracts, and then look at some of the standard exclusions and additional policy options. This chapter will introduce life insurance policy provisions, riders, and exclusions. In this chapter, you will learn the rights and obligations of insurance contracts and how insurers can modify already existing provisions to increase or decrease policy benefits and premiums to meet an individual’s specific needs. The chapter is broken into six sections: Life Insurance Policy Provisions. Provisions and Options Related to Cash Value. Provisions and Options Related to Policy Proceeds. Options Related to Dividends. Life Insurance Policy Riders. ► Standard Life Insurance Policy Provisions Most states require the same set of provisions to be included in all life insurance contracts. These standard or usual provisions are almost identical in verbiage no matter the insurance company or what locale in which the policy is issued. These “standard provisions” found in all life insurance policies identify the duties, obligations, and rights of the parties to the contract. A provision may also be referred to as a policy clause. Generally speaking, provisions are intended to protect the owner of the policy. In an effort to promote state-by-state uniformity of insurance industry regulation, most states have adopted the standard wording of NAIC Model Regulations. The entire contract clause or provision is found at the beginning of the policy. It states that the entire contract consists of all included policy documents, the attached photocopy of the original application, and any attached riders or endorsements. Nothing may be incorporated by reference, meaning that the policy cannot refer to any outside documents as being part of the contract. Therefore, the insurer cannot deny a claim in the future by stating that it did not provide the policy owner with the entire contract. Additionally, the entire contract provision prohibits the insurer (including the agent) from making any changes to the policy, either through policy revisions or changes in the company's bylaws, after the policy has been issued. Naturally, the policy owner or insured also cannot make any changes to the policy. The following is an example of an actual “entire contract” provision appearing in a life insurance policy: “The insurer has issued the policy in consideration of the application and payment of the premium. A copy of the application is attached and is part of the policy. The policy with the application makes up the entire contract. All statements made by or for the insured will be considered representations and not warranties. This insurer will not use any statements in defense of a claim unless it is made in the application, and a copy of the application is attached to the policy when issued.” This clause does not prevent a mutually agreeable change from being made to the policy if the policy expressly provides a means for modifying the contract after it has been issued. Changes or additions to a life insurance contract are called endorsements, riders, or amendments. Only authorized company officers can modify or amend an insurance contract, and again the changes must have the policy owner's agreement before taking effect. Examples of mutually agreeable changes may include the policy owner changing the face amount of an adjustable life policy or adding additional coverage through a rider. Execution Clause The execution clause states that the insurance contract will be executed when both parties (the insurer and the policy owner) have satisfied the conditions of the contract. In other words, when both parties have fulfilled their responsibilities, the contract will be executed. Sometimes listed separately from the entire contract provisions, this provision states that any changes made to the contract must be in writing and endorsed or attached to the policy. It also states that only an officer of the insurer or authorized home office personnel possess the authority to make any changes or modifications or waive a policy provision. A producer or agent does not need to countersign any such modification. Privilege of Change Clause (Policy Change Provisions). The privilege of change clause, or policy change provision, outlines the conditions under which the company will allow the policy owner to change the policy’s coverage. If the premium is increasing, but the face value remains the same, the insured would not have to prove insurability. However, the insured is required to prove insurability if the premiums are decreasing or the face value is increasing, as it could result in adverse selection. Insuring Clause Provision. The insuring clause or agreement sets forth the company's fundamental promise to pay benefits upon the insured's death. This provision appears on the first page of the policy, referred to as the policy face or cover page. This provision identifies the insurer’s promise, the scope and limits of coverage provided by the policy. In other words, it specifies the death benefit or face amount. Additionally, the insuring clause identifies the amount annual premium, the frequency with which the premium is paid, and the name of the beneficiary. An insuring clause might state that the promise to pay is subject to a policy’s provisions, exclusions, and conditions. Typically, the insuring clause is undersigned by the president and secretary of the insurance company. One company's insuring clause reads: "This agreement has been made between the policy owner and the insurer. It provides a coverage limit of $100,000 payable to the primary or other beneficiaries in the event of the insured’s death. The annual premium is $400 to be paid in the method or mode selected by the policy owner. Further, the Company agrees to pay the surrender value to the policy owner if the insured is alive on the maturity date." Consideration Clause. As previously discussed, there must be an exchange of value between the two parties for the contract to be legally enforceable. Consideration is the value given in exchange for a contractual promise. In an insurance policy, the consideration clause states that the policy owner's consideration consists of completing the application and paying the initial premium. The consideration clause or provision in an insurance policy also specifies the amount and frequency of premium payments that the policy owner must make to keep the insurance in force. The policy owner provides truthful statements and a premium “in consideration” of the insurer’s promise to pay the death benefit if the insured dies while the policy is in force. If for some reason, the consideration is not complete on the part of the policy owner, the contract will be void. Void means that there was never a valid contract nor coverage in effect. For example, if the policy owner’s check bounces or is returned for insufficient funds, there is no coverage because there is no consideration. If the check clears the bank, but the insurer later finds that the applicant engaged in material misrepresentations concerning his or her health, again, there will be no coverage since there is no valid consideration. In this latter instance, the insurer will void or cancel the policy and return the premiums to the policy owner. The incontestable clause or provision specifies that after a certain period of time has elapsed (usually two years from the issue date), the insurer no longer has the right to contest the validity of the insurance policy so long as the contract continues in force. Therefore, after the policy has been in force for the specified term, the company cannot contest a death claim or refuse payment of the proceeds even on the basis of fraud, a material misstatement, or concealment. The incontestable clause applies to the policy face amount plus any additional riders that are payable at death. Although the incontestable clause applies to death benefits, it generally does not apply to accidental death benefits or disability provisions if they are part of the policy. Because conditions relating to accidents vary and are often uncertain, the right to investigate them usually is reserved by the company. The insurance company may only challenge (contest) a claim during the policy’s contestable period. Therefore, claims outside of the contestable period are generally incontestable. It should be noted that there are three situations to which the incontestable clause does not apply. A policy issued under any of these circumstances would not be considered a valid contract, which gives the insurer the right to contest and possibly void the policy at any time: