Life Insurance Clauses – DECODED
Life insurance may be understood as a contract between an insurance company and the life assured. The former provides insurance coverage to the latter against the risks to their life in return for a premium. A life insurance policy may be helpful to anyone looking to secure the financial future of their loved ones. If the life assured passes away in a manner covered by the life insurance policy, the insurer may pay a sum assured to the nominee/s under the policy.
As with other kinds of contracts, a life insurance policy, too, has a set of clauses. Any individual looking to buy a policy needs to be well-aware of these life insurance clauses so that they make a rational decision.
Let’s learn more about these clauses below.
What are Life Insurance Clauses?
In a life insurance policy, the clauses may be the rights your policy may grant you and the duties you may be expected to carry out towards the policy and the insurance company. In a manner, these may be sections or parts of a life insurance contract containing certain provisions regulating the various aspects of the policy. The next section may help you get a better understanding of life insurance clauses.
List of Some Life Insurance Clauses
It may be noted that each policy may have its own set of clauses, depending on the coverage provided under the policy. Regardless, the following are some of the clauses you may come across in a life insurance policy:
● Free look period clause  
Buying an insurance policy may be a long-term commitment. Hence, you may want to make sure you are committing to the right policy. The free look period clause may help you with this to an extent. The insured will be allowed a period of at least 15 days (30 days in case of electronic policies and policies sourced through distance mode) from the date of receipt of the policy to review the terms and conditions of the policy and to return the same if not acceptable.
You may use the free look period to go through the life insurance terms and conditions, coverage aspects, charges, and so on. And, if you feel they are not satisfactory, you may return the policy in conjunction with the free look period clause of the policy. If you have not made any claim during the free look period, the insurer shall refund the premium paid less any expenses incurred by the insurer for your medical examination and the stamp duty charges.
If the risk has already commenced and you decide to return the policy, a deduction towards the proportionate risk premium for period on cover shall be applicable.
Where only a part of the insurance coverage has commenced, such proportionate premium commensurate with the insurance coverage during such period shall be deducted and the remaining shall be paid out to you.
In respect of unit linked policy, in addition to the above deductions, the insurer shall also be entitled to repurchase the unit at the price of the units as on the date of the return of the policy.
● Grace period clause 
Grace period is a period of 15 days for policies with monthly modes of payment and 30 days for yearly, half-yearly and quarterly modes available to the policyholder, from the date of the first unpaid premium, to pay the renewal premiums and keep the policy active. During the grace period, the insurance coverage will be available as per the terms and conditions of the policy.
● Renewability Clause 
This clause may specify the insurance policy conditions involving the renewability aspect of your life insurance plan. If your policy has lapsed, you may be able to renew/reinstate it based on the underwriting guidelines of the insurance company and the renewability clause of the policy.
Renewing the policy might require you to undergo medical tests and pay the pending premiums, depending on the insurer’s terms and conditions. The renewability clause may also be referred to as the revival clause.
● Suicide claim clause 
The coverage of suicide under a life insurance plan may be subjected to terms and conditions. The suicide clause of pure term insurance policy states that if the life assured passes away due to suicide within 12 months from the date of commencement of risk or from the date of latest revival of the policy, whichever is later, 80% of the total premiums received under the policy is paid as death benefits. This is also subject to policy terms & conditions. In some cases, the surrender value may be paid as on the date of the life insured’s suicide
In case of ULIPs, usually under suicide clause, the claimant will be entitled to the fund value, as on the date of intimation of death, if the life assured passes away due to suicide, within 12 months from the date of commencement of risk or from the date of latest revival of the policy, whichever is later.
The life insurance terms and conditions may differ if the suicide occurs after the end of 12 months2.
● Survival period clause 
This clause may be applicable not to the base life insurance coverage but to the critical illness rider if you may have opted for it. Essentially, the survival period refers to the duration the rider life insured (the person covered by the rider) may survive after they have been diagnosed with a critical illness covered by the policy.
If the rider life insured survives this period, they may be eligible to receive the benefits as laid out in the critical illness rider document. Since the nature of various types of illnesses may be different, there is a chance of a separate survival period for certain diseases.
If you are opting for the rider, remember to read through the survival period clause with care, especially if you may be at risk for a particular illness.
● Nomination clause
This clause may list out the specifications related to the nomination of your life insurance. The nominee may be the person who receives the life insurance benefits if the life insured passes away when the policy is in force. The nominations under life insurance may be governed as per the provisions of Section 39 of the Insurance Act, 1938 and its amendments.
Besides these, there are many life insurance clauses you may come across. You may want to consult your insurance agent for a detailed list of them.
Why Is It Important to Understand Life Insurance Clauses?
Before you buy a life insurance plan, it may be vital to go through the life insurance clauses, so as to:
- Choose a suitable plan - Knowing the fundamentals of any life insurance plan may help you determine if it is the suitable plan for you.
- Avoid surprises later on - When you know the extent of the coverage of your life insurance policy and its attached clauses, you may not have to face any unpleasant surprises in the future.
- Make well-informed decisions – If you understand the clauses of life insurance policy well, you may be able to apply them whenever required in your life insurance buying journey. For instance, if you know what the free look period clause of your life insurance policy states, you may be able to return the policy if it is not up to your mark. Being aware of the grace period clause may help you keep your policy and its coverage active.
Thus, one may have to make themselves familiar with the different life insurance clauses, such as the free look period, grace period, revival clause, and so on. Taking a little bit of time in the beginning to understand these clauses may go a long way in providing you with a better life insurance experience in the long run.
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