What Does The Ownership Clause In A Life Insurance Policy State?

Find out what the ownership clause and other clauses in life insurance policies state.

The only aim of life insurance policies is to give financial protection to families of policyholders if they die. The different types of insurance policies are all tweaked to meet specific customer needs so when you’re also shopping around for the perfect policy, make sure it suits you by all means.

When you go to buy a policy, there are so many things that are decided in the beginning; the moment you sign the contract. It is imperative to read the whole document and see what each clause states to prevent future clashes.

Life Insurance Clauses

The different insurance clauses determine the level of coverage that is received by the policyholder.

Ownership Clause in Contract

An ownership clause in a life insurance contract provides ownership of the contract to the policyholder. That is when they decide who the beneficiaries will be and how much death benefit they will receive when the insured person dies.

There are three essential things to consider here:

  • The owner of the policy who purchases coverage on behalf of the policyholder
  • The insured person whose life is being covered by the insurance company
  • The beneficiaries who will receive the death benefit when the insured person dies

Since ‘ownership’ is granted to the policyholder, all decisions are taken by them often without the consent of beneficiaries. When the insured dies, naturally all dealing between them and the insurance company is transferred and administered by beneficiaries instead.

In short, the ownership clause is which designates who the owner and beneficiaries of the life insurance policy will be. It also gives a brief description of the owner’s rights and how to keep the system from lapsing- primarily by paying premiums regularly.

Beneficiary Clause

This is the clause that determines who your beneficiaries are going to be. As mentioned above, the death benefit in life insurance policies is to create a financial legacy and to transfer your money down to your heirs. This clause in the contract lets you decide who your primary and contingent beneficiaries will be.

A primary beneficiary is the one who gets the full death benefit when the insured dies. In an uneventful situation, if the primary beneficiary also dies at the same time as the insured, the death benefit is given to the contingent (secondary) heirs.

There is no limit on how many people a person selects as their beneficiary; if it is more than one, they are required to set a percentage amount that will be divided among them.

It is considered smart to decide the primary and contingent beneficiaries at the time of the policy because if the policyholder dies unexpectedly, and there are no beneficiaries, the insurance money could go to the estate. So if you want your family to enjoy the death benefit, make sure you name primary and contingent beneficiaries both at the time of signing the policy.

Incontestable Clause

The incontestable clause allows an insurer to void the policy in case of any concealment in the necessary information. If the policyholder provides false or concealed information to the insurance agency, they have the right to cancel the policy and return your premiums during the first two years of the policy. And naturally, the death benefit will not be paid if the insured dies during this time.

However, when those first two years of the policy pass and any concealed information is revealed, the insurance company loses the right to cancel the policy.

Despite this clause, there are exceptions where the insurance company will not pay the claim even after the two years have passed. Highly unlikely but this is in cases of extreme deliberate fraud.

Grace Period Clause

Even if the premiums are affordable and everything with your insurance policy is going well so far, there could come a time where your monthly budget is exceeding. Maybe an unexpected expense arose, and now you can’t pay your premium for the current month.

The grace period clause comes in handy in such circumstances. If you’re unable to pay the premium during one specific month, don’t fear that the policy will lapse. Some insurance companies provide a grace period of 21-30 days during which you HAVE to pay the premium to keep the policy from lapsing. Consider this grace period as a warning sign.

If the insurer dies during this waiting period, the insurance company will pay the full death benefit to beneficiaries after subtracting the due premium for the month.

Reinstatement Clause

This is another crucial clause in the life insurance contract, which allows policyholders to reinstate their policy if it has lapsed. Due to non-payment of premiums, the insurance company reserves the right to cancel the procedure; however, if you pay all due premiums along with interest, you can have the policy reinstated.

When the grace period ends, and premiums still haven’t been paid, it could leave an unpleasant impression on the insurance company. You have to prove to them that you’ll be frequent with the payment once the policy is reinstated.


Insurance companies have contracts with essential clauses that shouldn’t be overlooked. In such a scenario, it is vital to read the entire agreement, rules and regulations thoroughly, owner’s rights etc. so that you know exactly what the policy is covering. And if you have any questions, don’t be shy to ask them.

With every life insurance clause, you have a set of instructions that you have to consider when signing the policy, and to keep the policy in force; you have to keep paying premiums promptly.

Tony Bennett

Tony Bennett

Tony Benett makes his living in the insurance industry by teaching and consulting. He is also recognized by the legal profession as an expert on insurance coverages. His insurance experience includes having worked at the company level, owned an independent general agency and having worked for an insurance association. He has received various certificates over the past few years and helps his clients and readers by giving them a realistic outlook on what they can expect to achieve within their set targets. At Insurance Noon, he is known for his in-depth analysis and attention to details with accuracy. He has been published as one of the most referred agents by his peers in the insurance community. Tony loves the outdoors and most sport events. His passion other than providing excellent advice is playing golf.

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