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

Life insurance policies’ only aim 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 buy a policy, many things are decided when you sign the contract. It is imperative to read the document and see what each clause states to prevent future clashes.

Life Insurance Clauses

Life insurance serves as a valuable asset in generating wealth. By alleviating the financial strains on your family in the event of your absence, it can offer both ongoing income and a temporary source of funds. These funds are crucial in addressing various needs, such as mortgage payments, medical emergencies, and educational expenses. Nonetheless, to ensure that your life insurance policy adequately supports your loved ones when you cannot, it is essential to comprehend the specifics of the product you are acquiring.

Continue reading to gain a deeper insight into the provisions typically found in life insurance policies and grasp their significance in relation to your coverage.

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, they often make all decisions without the beneficiaries’ consent. When the insured dies, all dealing between them and the insurance company is transferred and administered by beneficiaries.

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

Beneficiary Clause

The beneficiary clause plays a crucial role in determining who will receive the benefits from a life insurance policy. It empowers policyholders to designate their primary and contingent beneficiaries, ensuring that their financial legacy is passed on according to their wishes.

A primary beneficiary is the individual entitled to receive the full death benefit in the event of the insured’s passing. In cases where the primary beneficiary is deceased at the same time as the insured, the contingent beneficiaries step in to receive the benefits.

There’s no restriction on the number of beneficiaries a policyholder can select, but if there are multiple beneficiaries, it’s essential to specify the percentage each will receive.

It’s advisable to designate primary and contingent beneficiaries at the policy’s inception. In the unfortunate event of the policyholder’s unexpected demise without named beneficiaries, the insurance proceeds may end up in the estate. By proactively naming beneficiaries, policyholders ensure that their loved ones can benefit from the death benefit as intended.

Beneficiary Survivorship Clause

Under this provision, the policy proceeds will be transferred to the designated beneficiary, such as your wife, but with the condition that the beneficiary must outlive you by a specified number of days.

Misstatement of Age Clause

Accurate disclosure of your age is crucial when determining the appropriate amount of life insurance coverage. As you grow older, the insurance premium increases. Therefore, falsifying your age to lower your premiums can have severe consequences. In such a scenario, your insurer can cancel your policy, raise your premiums, or modify the coverage amount.

Incontestable Clause

The incontestable clause allows an insurer to void the policy in case of any concealment of the necessary information. Suppose the policyholder provides false or concealed information to the insurance agency. In that case, 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 two years have passed. Highly unlikely, but this is in cases of extreme deliberate fraud.

Spendthrift Clause

If you have named your son, who has a gambling problem, as a beneficiary, there is a risk that his creditors may target your life insurance proceeds upon your death. The spendthrift clause grants the insurance company the authority to withhold the proceeds and shield the funds from creditors. In such cases, the insurer may distribute the money to your son in regular installments rather than as a lump sum.

Suicide Clause

The suicide clause in your insurance policy specifies that if the individual insured attempts or commits suicide within a specified period from the policy’s commencement, the insurance company will not pay out the death benefit. In the event of suicide, the insurer will only refund the premiums previously paid to the family.

*If you or someone you know is struggling with depression or mental health issues, it is important to seek help immediately. Remember, you are not alone. If you or a loved one is contemplating suicide, please contact the National Suicide Prevention Lifeline at 1-800-273-8255 or through their live chat service, which is available 24/7. They offer free and confidential support.

War Clause

Typically, insurance companies do not provide compensation for deaths resulting from war or war-related circumstances. As per this clause, if you become a victim of war, your insurer will not pay out the benefits to you. Instead, the insurer will refund the premiums previously paid to your family.

Aviation Clause

Per this clause, your insurer will not compensate your surviving family members if you pass away while traveling by air or on an airplane. However, if you are an airline employee, you can purchase aviation insurance by paying higher premiums.

Period of Free Examination

Suppose you are dissatisfied with the terms and conditions of the policy. In that case, you have a specified period to return the policy after receiving it, and your premiums will be fully refunded. The exact time frame for this free examination period may vary depending on your insurer.

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 when 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 cannot pay the premium for one month, don’t fear 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 and interest, you can reinstate the policy.

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

Conclusion

Insurance companies include essential clauses in their contracts that should not be overlooked. It’s crucial to thoroughly read the entire agreement, rules, regulations, and owner’s rights to understand what the policy covers precisely. Don’t hesitate to ask questions if you have any.

Every life insurance clause comes with a set of instructions to consider when signing the policy. To maintain the policy in force, it’s necessary to promptly pay premiums.