Important Terms You Should Know

What we mean here by the common terms are the normal conditions that are attached to each term insurance policy. In this section we will attempt to show you what you can normally expect from term insurance products This is to establish a valid baseline so you can form a better understanding on what you can expect from the term insurance products and what you can’t.

The first and most obvious would be to falsely state and wrongly misrepresent any information to the insurance policy providers. The most obvious would be a previously known life threatening disease or simply misstating your age. If your policy is still in force you can opt to correct the misrepresented information and have the insurer levy a slight fee or penalty. Whatever it is, it is almost always a bad idea to lie to the insurance company about your personal details. When your beneficiaries attempt to collect on your death benefit, they are the ones that are going to get into trouble.

The good thing with life insurance is that the pay-out rate for those who still have an active policy when they die is very good. It is the best if you compare it with any other insurance type. This is mainly because of two very important clauses which were developed a long time ago to protect the beneficiaries. The two clauses are the “Entire Contract Clause” and the “Incontestable Clause”. All companies that sell life insurance products must by law include these clauses for the good of their clients.

Let’s look at the first of these clauses, the “Entire Contract Clause”. The clause basically states that the contract and the application for the life insurance policy constitutes the entire contract. Basically it means that the contract doesn’t make or take reference to any other document other than the policy and the application papers. As such no by-laws or charter changes over the years can have any material change to the policy. Put simply, what you have signed on the dotted lines is what you agreed too and that there can never be any changes unless it is consented too by the client.

The next clause to protect the policy holder is the “Incontestable Clause”. This clause states that insurer can only cancel the policy within the first 2 years of the policy. After two years the insurer does not have the right to cancel the policy for whatsoever reason. This is true even if you misrepresented information and the insurer failed to realize it. There are only very few situations which this clause fails to hold-up. One is when major fraud has taken place and the insurance applicant can be established not to have any insurable interest in the insured. This would be in the situation where someone else took the medical test other than the insured or that the beneficiary murders the insured for the death benefit.

Another interesting term / condition that you should know about is will what happen in the event of a suicide. Most term insurance products would also have a suicide clause which basically is a protection for the insurer against those who want to take out a life insurance policy and take their lives to benefit their loved ones. The suicide clause basically states that any suicide that happens within the first 2 years of the policy would mean that no benefits will be paid out. After two years term insurance policies would almost always pay out.

Another important term that is vital for you to know and recognize is what premiums are. They are in effect the cost of having the insurance coverage. Most insurance providers will allow you the choice of a few different payment frequency options. The most common frequency of payment is a yearly payable premium. Insurers will however generally allow anything up to a monthly payment. If the policy holder elects to pay monthly, the insurance company will normally levy a small “interest” charge for the additional office work.

In relation to the premiums, you should also be familiar with the grace period. In insurance terms, the grace period is the amount of time that the insurance company will allow you to keep up with your premium payments before your policy lapses. Most insurance companies will allow a grace period of up to a month, however some low cost providers may even allow up to a week only. It is vital that anyone signing up for term insurance recognizes this term and find out how long the have before their insurance lapses. If the insurance policy lapses, any cash investment scheme will be returned minus penalties and office processing costs.