Page 60 - A Canuck's Guide to Financial Literacy 2020

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Life Insurance Policy Provisions

Grace Period
This is the period of time after the due date of a premium payment. The grace period is
usually 30 days. After 30 days have passed, the insurance policy is said to have "lapsed"
and will be cancelled. There are ways to reinstate it.

Reinstatement Provision

If a policy lapses due to non payment of premiums, there are processes in which a life
insurance company would follow in order to reinstate the policy. Reinstatement could
depend on providing evidence of insurability and payment of any premiums due.

Incontestable Clause

An incontestable clause can be found in most life insurance policies which prevent the
insurance company from cancelling the contract due to misstatements on the application,
after a certain period of time has passed. This period is usually two years but could vary.

Suicide Clause

Life insurance policies have a suicide clause that will prevent the beneficiary from receiving
a lump sum if the insured commits suicide within a specified period. This period is usually
two years. If so, the beneficiary is entitled to only "return of premiums".

Ownership Clause

The ownership clause gives the right to the policyholder to state the beneficiary on the
policy. The beneficiaries can be named individuals or estate. To name a beneficiary, the
policyholder must have a vested interest in the life insured such as a business partner, wife,
husband, children, etc.

Loan Provisions

Insurance companies may have loan provisions regarding policy loans. Policy loans are
loans by the insurance company to the policy holder based on the cash value of the policy.
(CSV).

Settlement Provisions

The beneficiary of a life insurance company may have several settlement options regarding
how the funds are to be paid out. It could be in cash, receiving payments over time,
receiving an annuity, etc.