All of the following are mandatory life insurance policy provisions EXCEPT

Uniform policy provisions refer to a set of clauses, some mandatory and some optional, that insurance companies include in written insurance policies. Each state has a uniform individual accident and sickness policy provisions law which dictates precisely the provisions that must appear in an insurance policy. In general, the state requires 12 mandatory provisions and gives the insurance company discretion to include any of 11 optional provisions when writing a policy.

Key Takeaways

• Uniform Policy Provisions are a set of mandatory and optional clauses included in health insurance policies.
• There are 12 mandatory and 11 optional clauses for use by insurance companies.
• Each state has created its version of the uniform individual accident and sickness law, detailing what provisions are required and which are optional.

Understanding Uniform Policy Provisions, Health Insurance

Uniform policy provisions provide insurance carriers with a list of required and optional items to include when writing insurance policies. The National Association of Insurance Commissioners (NAIC) played a leading role in developing the list of provisions. Each state has implemented its own version of the uniform individual accident and sickness law, which lays out specific requirements. The states can customize their requirements as long as those adjustments do not infringe on the rights of the insured. The provisions appear in an insurance policy as a series of clauses.

Mandatory Uniform Policy Provisions

The 12 mandatory provisions include the rights and obligations of both the insurer and the insured. Among the burdens that fall on the insurer are the need to include any relevant information within the original policy or official amendments, the requirement of a stated grace period for delinquent premium payments, and instructions for reinstatement of a policyholder who misses that grace period. The provisions that cover the responsibilities of the policyholder include requirements that they notify the insurer of a claim within 20 days of a loss, provide proof of the extent of that loss, and update beneficiary information when changes take place.

Optional Uniform Policy Provisions

After the 12 mandatory provisions, insurers may include any of 11 optional clauses in a policy. The policyholder and the insurer can negotiate which of these provisions will be part of the policy, but generally, the insurer will have the final say. The 11 optional provisions tend to place more of a burden on the insured to comply with certain requirements than on the insurer. These requirements include the obligation to inform the insurer of changes in income, especially if due to a disability, or changes to a more or less dangerous occupation. The optional clauses also state that any misstatements regarding age, use of illegal substances, or engagement in illegal occupations will have an adverse impact on the insured’s ability to collect on claims otherwise covered by a policy.

Generally, after a policy has been in force for two years, the insurance company cannot contest the validity of the policy for any reason other than failure to pay the premiums.

Misstatement Of Age Or Gender

If the applicant lists the wrong age or gender on the policy, this provision allows the insurance company to recalculate benefits and/or premiums based on the applicant’s true age or gender.

Suicide

This policy provision generally states that if a insured commits suicide within the first two years of the insurance contract, the death benefit is limited to the total premiums paid.

Grace Period

After the first premium payment, life insurance policies provide a minimum grace period of 31 days after the due date to make the next premium payment. If the premium is not paid before the grace period expires, the policy will lapse. During the grace period the policy remains in force. If the insured dies during the grace period, the insurance company may deduct any premium due from the death benefit.  

Reinstatement Provision

This provision allows a policy to be reinstated if for some reason the policy has lapsed. The reinstatement is subject to the limitations and requirements spelled out in the policy. Generally, the insured must make written application for reinstatement, meet the company’s underwriting guidelines, and pay all overdue premiums (plus interest) and reinstatement fees.

Nonforfeiture Benefits

The following nonforfeiture benefits may be available if a policy lapses due to non-payment of premiums:

• Reduced Paid-up Insurance — This option allows the insured to receive reduced paid-up life insurance coverage.
• Extended Term — This option allows the policyowner to keep the policy in force, as term life coverage, to a specified future date. The length of the extended term benefit will depend on the amount of cash value in the policy and the age of the insured.
• Cash Surrender — The owner may elect to take the available cash value in a lump sum.

Automatic Premium Loan

This provision requires the company to collect past due premiums by means of a policy loan. This prevents the policy from lapsing provided the available loan value is sufficient to pay the premium. In most cases the policyowner must choose to enact this provision.

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