Regulation of Life Insurance Policies Flashcards
Required Provisions in Life Insurance Policies
Individual life insurance policies issued in New York must include the following provisions.
Ownership [Sec. 3203]
Ownership [Sec. 3203]
The policyowner has certain ownership rights in a life insurance policy, including:
- the right to name and change the beneficiary;
- assign ownership of the policy to a third party;
- cancel the policy;
- determine how dividends paid will be used;
- and take a policy loan, if a cash value exists.
Assignment [Sec. 3203]
A life insurance policyowner has the right to assign all or part of his or her ownership rights in a policy. An assignment vests in the assignee the incidents of ownership that have been assigned.
Entire Contract [Secs. 3203(a)(4), 3204]
The insurance policy constitutes the entire contract between the parties. If the insurer intends to make the application a part of the contract, a copy of the application must be attached to the policy when issued. All agreements between the insurer and the policyowner are contained within these documents.
The insurer or producer may not change any provision in an application or policy unless the applicant gives his or her written consent.
Right to Examine (Free Look) [Sec. 3203(a)(11)]
The policyowner is entitled to review the policy for at least ten days after it is delivered. If unsatisfied with it for any reason, the policyowner can return it to the insurer for a full refund of the premium paid.
A policy that is sold by mail must contain a 30-day free-look period.
Payment of Premiums [Sec. 3203] +
Grace Period [Sec. 3203(a)(1)]
Payment of Premiums [Sec. 3203]
The policy will state the amount of the premium as well as the time and manner in which it is to be paid.
Grace Period [Sec. 3203(a)(1)]
After the insured has paid the initial premium, he or she has a grace period of 31 days or one month within which to pay every subsequent premium. The policy remains in force during the grace period.
For flexible premium policies, the policyowner has a grace period of 61 days to pay every subsequent premium after the initial premium, beginning on the date the policy’s net cash surrender value is insufficient to pay the charges necessary to keep the policy in force for one month.
If a claim is made during the grace period, the insurer may deduct the amount of the premium that is due from any amount that it pays on the claim.
Reinstatement [Sec. 3203(a)(10)]
If the policyowner defaults on a premium payment and lets the policy lapse, the policyowner may reinstate the policy within three years of the date on which it lapsed if he or she
- submits an application;
- provides evidence of insurability;
- pays all past due premiums plus interest; and
- pays any other policy indebtedness plus interest.
Incontestability [Sec. 3203(a)(3)]
After a policy has been in force for two years, it becomes incontestable with respect to the truthfulness of any statements that the policyowner made in the insurance application.
Misstatement of Age [Sec. 3203(a)(5)]
If the age of the insured has been misstated and the premium was based on this misstatement, the benefits will be adjusted to reflect what the premium would have purchased for the correct age.
Exclusions [Sec. 3203(b), (c)]
An individual life insurance policy may specify that it will not pay the death benefit if the insured commits suicide within two years of policy issue. However, the i_nsurer must provide for at least the return of premiums paid_ on the policy.
A policy may exclude or restrict coverage for the insured’s death while he or she is a resident in a specific foreign country, though it cannot exclude or restrict coverage for death resulting from a specific cause.
Nevertheless, a policy can exclude or restrict coverage for death caused by:
- war or warlike acts while the insured is serving in the armed forces or a civilian unit
- flying in an aircraft as a crewmember aboard a noncommercial flight
- specific hazardous occupations, if death occurs within two years of policy issue
If the insured dies as a result of these activities, the policy must provide for at least the return of premiums paid on the policy.
Statements of the Applicant [Sec. 3204]
All statements made by the applicant when a policy is issued, reinstated, or renewed are considered representations and not warranties.
Proof of Death [Sec. 3203]
Life insurance proceeds must be paid when the insurer receives proof of death.
Accelerated or Living Benefit Provisions and Riders
[Sec. 3230]
An accelerated benefits provision allows some of a life insurance policy’s death benefit (face value) to be paid while the policyowner is living.
Conditions for Payment
After an insurer receives an accelerated benefit request and sends information to the policyowner regarding the effect it will have on the death benefit, the insurer is prohibited from paying any benefits for 14 days. The policyowner can rescind a request to accelerate benefit payments at any time during the application process.
Effect on Death Benefit
Within five days after receiving an application to accelerate benefits, an insurer must give the policyowner an illustration showing the effect that acceleration will have on the policy’s cash value and policy loans, along with a computation showing the amount of death benefit payable at death and if benefits are accelerated. The insurer must also inform the policyowner that there are other ways to achieve the intended goal, including a policy loan.
Key Points
- Individual life insurance policies issued in New York must contain a number of specific provisions and clauses.
- The free-look period for an individual life insurance policy is at least ten days. If the policy is delivered by mail, the free-look period is at least 30 days.
- The grace period for payment of a premium on an individual life insurance policy is 31 days or one month. The policy remains in force during this period.
- Flexible premium policies must contain a 61-day grace period.
- A lapsed life insurance policy may be reinstated within three years of the lapse.
- After two years, a life insurance policy becomes incontestable with respect to statements made on the application.
- Benefits will be adjusted for misstatements of age to reflect what the premium would have purchased for the correct age.
- The entire contract of insurance consists of the policy and the insurance application.
- Life insurance proceeds must be paid when the insurer receives proof of death.
- An accelerated benefits provision allows some of a life insurance policy’s death benefit (face value) to be paid while the policyowner is living.
