The ins and outs of life insurance policy documents

Your idea of a good time probably doesn’t include an evening spent poring over your life insurance policy documents. Their dense language and legal jargon make for dull reading, and frankly, just about anything else you could do with your free time would be more entertaining. (And we’re saying that as a professional publication about life insurance!)

Still, you’ve got good reason to familiarize yourself with the contents of your policy. They outline everything you and your beneficiaries need to know about your coverage, including how to file a claim in the event of your death, and what conditions must be met for your insurer to pay out benefits.

These are important matters. Read on to learn what those details are, and what they mean.

What are policy documents and why do they matter?

Your life insurance policy is a legal contract between you and your insurer, and your policy documents outline the terms and conditions for your coverage. You probably haven’t read the terms and conditions of the sites you visit daily, either, but would you do so if you knew that hundreds of thousands or even millions of dollars were on the line?

That’s how important your policy documents are. They govern your coverage, the insurance claims process, and the eventual payout of your death benefit. You need to know what they contain to avoid any costly and unpleasant surprises in the future — your future, or your loved ones’.

What do policy documents from life insurers contain?

If you’ve only dealt with homeowners policies or health plans before, you may not be used to receiving extra paperwork on top of your policy and application details. More documents are required for a life insurance policy, which we’ll cover below.

Basic Plan Information

Your life insurance documents will start by listing the basic details of your policy, including:

• Your name and personal information
• The policy number and issue date
• The type of policy you purchased
• Your categories of coverage
• Your term length
• Your premium amount
• Your beneficiaries
• The risk class your insurer assigned to you based on your medical history/exam and other factors

You can refer back to this section for a high-level view of your life insurance policy details and see, at a glance, what you can and cannot make a claim for.

Information about the benefits you picked

The death benefit is why you buy life insurance in the first place. It’s how you provide for your loved ones after you’re gone. Your insurance documents will include detailed information about the payout amounts your beneficiaries will receive and any riders attached to your policy.

Benefit illustration section

The benefit illustration section uses tables to break down your coverage amount and future premium payments into a more easily digestible form. If you have a term life policy, you’ll find information about the estimated premiums you’ll pay if you renew your policy. If you have a cash value policy, like whole life insurance, you’ll find a breakdown of your future premium payments and coverage, as well as the cash surrender value of your policy over time.

Claim for death benefit section

Equally important as your death benefit amount is who can claim it and under what circumstances. Every life insurance policy contains exclusions or manners of death that your insurer won’t pay out benefits for. Insurers add these exclusions to minimize the risks they take on by insuring you, and some common ones include death by:

• Suicide
• Acts of war
• Military service
• Aviation accidents
• Skydiving
• Dangerous or illegal activities

Insuring agreement section

In the policy’s insuring agreement section, your insurer affirms they will pay your beneficiaries on your behalf — provided you don’t die under excluded circumstances.

Policy term definition section

If you’re having difficulty wading through the policy’s legalese, this section defines all the terms used in your contract. You may have used some of these terms before yourself, but you’ll want to understand their legal meaning since that’s what governs your policy and the eventual benefits payout.

Claims and settlement instruction section

Your policy will include the step-by-step instructions your beneficiaries should follow to file a claim. These steps will differ somewhat between insurers and plans, so you need to pay attention to the precise language used.

You should read through these instructions with your loved ones well before they need them. It’ll be one less thing for them to worry about after you’re gone.

Additional coverage options and riders section

When you purchase your life insurance, you can make add-ons and alterations to your policy through different types of riders and endorsements. Some examples of these include:

• A disability income rider replaces part of your income should you become disabled and unable to work.
• A term conversion rider lets you convert a term life policy to a permanent life insurance policy before the term’s end.
• A waiver of premium rider lets you stop paying your insurance premiums for up to six months if you become disabled and unable to work.
• A critical illness rider that allows you to access a certain amount from your death benefit if you become critically ill.
• An accelerated death benefit rider that allows you to access part of your death benefit if you develop a terminal illness.

(Note that eligible Haven Term policyholders enjoy access to the Haven Life Plus bonus rider. It includes discounted and no-cost services like a health app subscription, secure online document storage, and much, much more.)

Provisions section

Life insurance policies include numerous provisions outlining your rights, the rights of your insurer, and the features, conditions, and benefits of your coverage. Some standard life insurance provisions include:

• A reinstatement provision lets you reinstate a lapsed life insurance policy under certain conditions. You have to reinstate it within a certain time period, typically three to five years, and you can only do so if you haven’t surrendered your policy for its cash value.
• A free look or right-to-return provision lets you cancel your policy for a full refund if you do it within a certain time period, usually 30 days or less.

Contestability section

Most life insurance contracts include a contestability clause. Under this clause, your insurer has only so long after your policy is in force to investigate it for misstatements and cancel your policy. Usually, this period is two or three years. Your insurer can’t void your coverage for incorrect information they discover after that time has passed.

Note that this clause doesn’t cover intentional fraud and has a few common exemptions.

For example, if you misstate your age on your application, your insurer might not cancel your coverage, but they can adjust your death benefits to reflect your actual age. And in some states, insurers can include a policy provision allowing them to cancel your coverage if you die before the contestability period ends.

Missed payment grace periods section

If you don’t pay your insurance premiums, your coverage can lapse, causing you to lose your death benefits. But every policy includes a missed payment grace period, which gives you a little extra time to catch up if something goes wrong. The most common grace periods are 15 or 31 days after your payment due date. You can keep your policy in good standing by paying your full premium within that time frame.

Tax information section

Your beneficiaries typically won’t have to pay taxes on any death benefits they receive, but there are certain exceptions. They can choose between a lump sum and annuity payout, the latter of which involves receiving a series of payments over several years. And any interest that accrues in their annuity account may be taxable.

You may also need to pay taxes on life insurance if:

• You have an employer-sponsored group life plan with a death benefit of $50,000 or more.
• You surrender your policy to your insurer for its cash value, and it’s more than the premiums you’ve paid
• You sell your policy to a third party for more than you’ve already paid in premiums.

Why do you need a policy document for your life insurance coverage?

The official documents for your life insurance policy include everything you and your loved ones need to know about your coverage. Sure, they don’t make for an enjoyable afternoon of light reading, but they’re an essential reference to have on hand if an issue arises or your beneficiaries need to file a claim.

But a lot can happen between receiving your policy documents and filing a claim. And how many of us can say we’ve kept all our paperwork in working order for 10, 20 or even 30 years? (It’s worth noting here that eligible Haven Term policyholders enjoy no-cost access to LifeSite, online document storage with military-grade encryption.)

If you need to track down a lost policy, you can use free online tools like the National Association of Insurance Commissioners (NAIC) Life Insurance Policy Locator Service. When you apply, the NAIC reaches out to participating insurance companies to see if they can match the name you gave them to any existing life insurance policies. If a policy is located and you’re named as its beneficiary or another authorized party, the NAIC will send you the necessary information.

Find the right insurance policy for the coverage you need

Your life insurance policy isn’t just a legal document. It’s a promise to your loved ones that they’ll be cared for even after you’re gone. At Haven Life, we can help you find the right term life insurance policy to meet your family’s needs. Apply today and find out if you qualify for up to $3 million in life insurance coverage.