Male   Female
  • What are required provisions in a life insurance policy?
  • July 30, 2014
  • What are required provisions in a life insurance policy?By Emily Miller

    Within each life insurance contract, certain provisions may vary from policy-to-policy and company-to-company but there are certain provisions that are required by law to be in every life insurance policy. These provisions enforce the foundation that life insurance was built upon.

    Below is a brief description of these provisions. The scope of each provision may vary among policy types but every policy should contain some aspects of the following provisions.

    Grace Period

    A very useful feature, whose inclusion in every life insurance policy is mandated by every single state in the United States, grants the policyholder a window of time to pay a missed premium that is past due without having the policy lapse. The minimum grace period varies by state law but the typical range is 28 to 31 days.

    The period officially begins the day the missed premium payment is due and ends at the close of business after the prescribed number of days have passed.

    Late Remittance Offers

    It is important to make a distinction between the grace period rules and a late remittance offer; they are not the same. For starters, grace periods are mandatory while late remittance offers are solely based on the insurer’s discretion.

    A later remittance offer is when an insurance company accepts an overdue premium payment after the grace period has passed and reinstates the policy without requiring the policyholder to complete a reinstatement application.

    Keep in mind that this is not an extension of the grace period and coverage is not continued as a result of the offer. These offers are intended to encourage the policyholder to reinstate the policy; they do not extend coverage.

    Policy Loans

    By law, an insurance company must allow the policyholder to take out a loan against the policy’s cash surrender value or death benefit if the policy generates a cash value. The loan is secured by a policy’s cash value and cannot exceed the cash value.

    Incontestable Clause

    With this provision, the insurance company may not contest any claims following a specific period of time from the initiation of the policy, but this does not include fraud. The discovery of any fraudulent activity will lead the company to contest any claims and possible pursue criminal charges.

    Divisible Surplus

    While this only applies to participating policies, an insurer is required to determine and apportion any divisible surplus among other participating policies at frequent intervals.

    Below is example of a typical divisible surplus provision, according to McGill’s Life Insurance.

    “While this policy is in force, except as extended term insurance, it will be entitled to the share, if any, of the divisible surplus that we shall annually determine and apportion to it. This share is payable as a dividend on the policy anniversary,” quoted in McGill.

    Entire Contract

    A standard insurance contract provision that limits the agreement between the insured and the insurer to the provisions contained in the contract and primary function is to protect the insured.


    If premiums were not paid in a timely fashion and the policy lapses, it may be reinstated within a specific period of time if the policyholder remains insurable. Reinstating the policy may include changes in premium costs and resetting the provisions for contestability and suicide.

    Misstatement of Age or Sex

    Since the age and sex are important factors in determining an applicant’s insurance premium, relying on inaccurate information could result in the insurance company readjusting the benefits to fit the correct information. Rather than voiding the contract in its entirety, the typical practice is to adjust the policy premium to reflect the truth.

    McGill highlights what a sample provision may look like:

    “If the age or sex of the insured has been misstated, we will adjust all benefits payable under this policy to that which the premiums paid would have been purchased at the correct age or sex,” quoted in McGill.

    Non-forfeiture Provisions

    A clause in an insurance policy that allows for the insured to receive all or a portion of the benefit or a partial refund on the premiums paid if the insured misses premiums payments, causing the policy to lapse. It may only be in effect for a limited period of time, and may only kick in after the policy has been active for several years.

  • Category: Articles Library, Life Insurance

Leave a Reply



Consumer Insurance Guide SM provides a wide selection of originally-authored articles and expert advice targeted to the self-directed insurance shopper. Our mission is to provide consumers with useful, money-saving information on all things having to do with making sound insurance purchase decisions.

Consumer Insurance Guide SM is owned by Life Quotes, Inc. 8205 South Cass Avenue, Darien, IL. For editorial, content feeds, advertising and lead purchase opportunities, contact Robert Bland at

Originally founded in 1984 as Quotesmith Corporation, Life Quotes, Inc. owns and operates and, two online consumer insurance information services that cater to the needs of self-directed personal and corporate insurance shoppers.

About Us  |   Contact Us  |   Press Releases  |   The Best Privacy Policy  |   Life Insurance  |   Careers
For Agents & Brokers  |   Site Map  |  

Copyright ©1984-2015 Life Quotes, Inc., 8205 South Cass Avenue, Suite 102, Darien, Illinois. Life Quotes, Inc. and certain of its personnel are licensed as insurance agents, brokers or producers in all states. CA agent #0A13858, LA agent #200696, MA agent #333509159. dba Life Quotes Insurance Services in CA under agent #0827712, in LA under agent #205078. dba Life Quotes Insurance Services, Inc. in UT under agent #90093. All rights reserved. Telephone (630) 515-0170. Founded 1984.