Term Life Insurance - Understanding Common Clauses and Limitations

One thing many people overlook when comparing quotes on term life insurance is the terms and exclusions attached to each policy. These can have a significant impact if someone ever has to make a claim against the policy. Before you sign up for a policy, make sure you fully understand all of these.

One of the most common ones you will see is what industry experts call an ownership clause. The person who owns the policy has the right to determine the beneficiaries of the policy. No one else can make that determination or change.

Another common clause you need to understand when comparing quotes is the incontestable clauses. These provisions protect the policyholder from the insurance company claiming the policyholder misrepresented something. The insurance company has a period after you get the policy to make sure everything you told them is accurate and that you held nothing back.

That is why many require you to go through health exams and give a complete medical history. Once they get through that period, they cannot make any claims to revoke the policy on information you did not disclose. These are usually 24 months long.

A common clause to understand when comparing quotes on term life insurance is the financial ones. A grace period clause gives you a certain number of days in which to make the payments on the policy once they become past due.

The policy remains fully in effect during that period and will pay a death benefit if the insured dies during the grace period. If the policyholder lets the policy lapse due to nonpayment, most policies have a reinstatement clause that allows the policyholder to pay up the past due premiums and get the policy back in place.

Exclusions are the big thing many people do not pay attention to when comparing quotes on term life insurance. A common one is the suicide clause that will not pay due to the insured's suicide within a two-year period. Another common one is the dangerous activity exclusion.

If you participate in high-risk activities such as base-jumping or rock climbing, you might not have coverage if you die during one of those activities. The war exclusion is very common. It does not provide a death benefit if the insured dies during combat. Read all exclusions very carefully before you sign on the bottom line. These can come back to haunt your beneficiaries in the future.

By: Mark Prip

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