Once you’ve made the decision to help protect your family with life insurance, it’s important to understand your coverage. The American Institute of Certified Public Accountants (AICPA) recommends reading through your policy so that you know its benefits and obligations. While this may seem like a daunting task, life insurance policies typically contain standard sections. Understanding the typical sections of a life insurance policy, and what’s contained in those sections, can help make it easier to review your policy.
AT A GLANCE
The first few pages of a policy are essentially a high-level summary. You’ll find basic information here on what the policy is worth, what the payments will be and the name of the insured. Many insurance companies include a cover page with the policy that contains the following:
• Name of the insuring company
• Type of plan (for example: term, whole life or universal)
• Terms of the policy’s “free look period”
• Signature of an officer from the insuring company
According to the National Association of Insurance Commissioners (NAIC), the first part of your actual policy is the schedule of benefits and specifications, or the declaration page. The information contained in this section should be familiar, as you likely discussed it with your agent during the application process. It typically includes the following:
• Amount of benefits (sometimes called the face amount)
• Amount of your payments (sometimes called the premium amount)
• Name of the insured
• Policy issue date
• Policy number
• Premium class (sometimes called the rate class)
The insuring agreement section outlines the major details of the policy. This includes what’s covered by the insuring company and your rights as an owner, such as changing the beneficiary and, when applicable, borrowing against the policy’s cash value. The insuring agreement is made up of a number of smaller sections, which vary based on your specific policy. The AICPA notes the following parts are generally included:
• Tables or illustrations.
These are used to show potential future premiums, cash value details and death benefits. They can also demonstrate how the cost of insurance may fluctuate over time.
Most policies include a section that defines the terms used in the policy. Knowing what the terms mean can help you better understand the policy.
This section provides instruction on how a beneficiary can make a claim and the choices available for receiving the policy’s benefit.
• Endorsements and riders.
Additional coverages that make changes to the policy or add benefits will be listed in this section.
Additional provisions will likely be included in your policy, although they will vary from policy to policy, the AICPA says. State insurance regulations, the insuring company and the type of policy you purchased determine the provisions included in a policy. Common provisions include:
• Your application.
Most states consider the insurance contract to be the application and policy pages together.
• Incontestability provision.
This establishes the period of time during which a policy can be contested for potentially inaccurate information on the application. Assuming premiums have been paid, insurance companies can typically only investigate the application in the first two years the policy is in force, according to the AICPA.
• Grace period.
If you miss a payment, most policies provide a specified amount of time for you to make a payment before the policy lapses.