15.7 Life Insurance Policy Provisions Options and Riders

Standard Provisions

Entire Contract: The insurance policy, together with the application, forms the complete contract between the insurer and the insured.

**Payment of Premiums: **All premiums are required to be paid in advance either to the insurer’s home office or to an authorized company agent.

Grace Period: Every life insurance policy must provide a grace period of one month after the first premium payment is made. During this period, coverage remains in force, although the insurer may charge interest on the overdue premium. If the insured dies during the grace period, any unpaid premium will be deducted from the policy proceeds payable under the policy.

**Reinstatement: **If a life insurance policy lapses because premiums were not paid, the policy may be reinstated within 3 years after the lapse by providing satisfactory evidence of insurability and paying all overdue premiums along with any applicable interest.

Misstatement of Age: If the insured’s age was understated, the policy benefit will be adjusted to the amount of insurance that the premiums actually paid would have purchased at the insured’s correct age.

Payment of Claims (Death Settlement): When a life insurance policy becomes payable due to the death of the insured, the insurer must settle the claim within 2 months after receiving satisfactory proof of death.

Statements of the Insured: In the absence of fraud, all statements made by the insured in the application are considered representations rather than warranties.

Incontestability: A life insurance policy issued in Ohio becomes incontestable after it has been in force for 2 years. Exceptions to the incontestability provision include nonpayment of premiums, violations of policy conditions related to military or naval service during wartime or aeronautical activities, and—at the insurer’s option—provisions relating to total and permanent disability benefits or additional coverage for accidental death. After a policy becomes incontestable, the insurer may not deny a claim based on errors, omissions, or misstatements except in cases involving fraud. This provision does not apply to misstatements of age.

Prohibited Provisions: The following provisions are not permitted in life insurance policies issued or delivered in Ohio:

• A provision allowing forfeiture of the policy for failure to repay a policy loan or loan interest when the total indebtedness is less than the policy’s loan value.
• A provision requiring legal action against the insurer to be brought within less than 5 years.
• A provision allowing settlement at policy maturity for less than the face amount of the policy, after deducting any outstanding indebtedness.
• A provision restricting policy dividends to only certain participating policies or selected policyowners.
• A provision granting preferential benefits or advantages that would not be available to policies purchased from the insurer at a later date or under different circumstances, resulting in discrimination against future policyholders.

Modifications: At the request of the policyowner, a life insurance company may exchange, modify, or convert a life insurance policy, endowment policy, or annuity into another type of policy or annuity on or after the effective date of the original contract. If a newly issued policy or annuity is written before the application date for the exchange, alteration, or conversion, the amount of insurance or annuity under the revised plan may not exceed the greater of the following:

• The amount of insurance or annuity that the premium paid for the original policy or annuity would have purchased on the new plan at the insured’s age on the original policy or annuity effective date.
• The amount of coverage or annuity provided under the original policy or annuity.

Beneficiaries

Life insurance may be purchased for the benefit of a person’s spouse, children, other dependents, or a creditor designated in accordance with the terms of the policy.

A religious, charitable, scientific, literary, educational, or other organization recognized by the IRS as a nonprofit entity may own a life insurance policy or be named as the beneficiary of a policy issued on an individual’s life. Such an organization is considered to have an insurable interest and has the right to enforce the policy and receive its benefits.

The Superintendent may suspend, revoke, or refuse to renew a license, impose a civil penalty, or apply other sanctions against a licensee who causes or allows a policyowner or insurance applicant to name the insurance agent—or the agent’s spouse, parent, child, or sibling—as the beneficiary of a policy or annuity, or as the owner or beneficiary of a trust funded by a policy or annuity sold by the agent, unless the agent or the agent’s relative is the insured or applicant.

Exemption of Proceeds from Claims of Creditors: All policy or annuity benefits payable to a designated beneficiary upon the death of the insured are protected from claims by the creditors of the insured or annuitant. If the policy or contract provides for payment to a creditor, the insurer’s payment in accordance with the contract fully releases the insurer from further liability.

Insuring the Life of a Spouse: A married individual may purchase life insurance on the life of their spouse for the benefit of the named beneficiary. The policy benefits payable to the beneficiary are protected from claims made by creditors of both the insured spouse and the beneficiary spouse.

Beneficiary in the Event of a Spouse’s Death: If a spouse dies before the insured, policy benefits may be made payable, as designated in the policy, to the couple’s children or to a guardian on behalf of minor children for their benefit. If there are no children or other designated beneficiary, ownership of the policy transfers to the named insured, and the proceeds become payable to the insured’s estate.

Beneficiary Revocation: Unless otherwise provided in a divorce decree, the dissolution of a marriage automatically revokes the designation of a former spouse as the beneficiary of death benefits.

Living Benefit Provisions/Riders

Accelerated Benefits (Terminal Illness): Accelerated benefits are policy benefits paid to the policyowner during the insured’s lifetime when a qualifying event occurs. These benefits:

• Are based primarily on mortality risk rather than morbidity risk
• Are paid in fixed amounts
• Reduce the death benefit otherwise payable under the life insurance policy

A qualifying event includes any of the following circumstances:

• A medical condition that significantly shortens the insured’s expected life span to the period specified in the policy
• A medical condition requiring extensive or extraordinary medical treatment or care
• A condition that would typically require continuous confinement in an eligible institution
• A condition that, without extensive or extraordinary medical care, would substantially reduce the insured’s life expectancy
• Any other event approved by the Superintendent for a specific policy filing

Accelerated benefits do not include benefits intended to provide or supplement long-term care insurance coverage. These benefits are classified as life insurance benefits and may not be marketed as long-term care insurance.

The available payment options include receiving the benefit as a lump-sum payment or in periodic payments for a specified period of time only.

At the time of application, a disclosure statement must be provided informing the applicant that receiving accelerated benefits may result in taxable consequences and advising the policyowner to consult a personal tax advisor regarding the tax treatment of the payment.

An accelerated benefit rider or policy provision may not include waiting periods, eligibility proof requirements, exclusions, or restrictions that are not already contained in the underlying life insurance policy. It also may not place restrictions on how the accelerated death benefit proceeds may be used.

Long-Term Care Benefits

If an individual life insurance policy includes long-term care benefits, a policy summary must be provided to the applicant when the policy is delivered. In addition to all other required disclosures, the policy summary must include:

• A statement explaining how the long-term care benefits impact other policy provisions, including the death benefit
• A description of the available long-term care benefits, including the duration of benefits and any guaranteed lifetime benefit features
• Any exclusions, limitations, or reductions that apply to long-term care benefits
• An explanation of how exercising other policy rights may affect the long-term care benefits
• A description of any guarantees related to the cost of long-term care benefits
• The current and projected maximum lifetime benefits available under the policy
• Whether long-term care inflation protection is offered under the policy

While long-term care benefits funded through the acceleration of a life insurance death benefit are being paid, the insurer must provide the policyowner with a monthly statement. The report must include a summary of benefits paid, an explanation of any changes to policy values resulting from those payments, and the remaining amount of long-term care benefits available under the policy.

Nonforfeiture Benefits

A nonforfeiture benefit must be available to the policyowner if premium payments default after premiums have been paid for at least 3 years. The benefit must provide a stated form of insurance. The net value of the benefit must be at least equal to the policy reserve at the time of default, plus any dividend additions, minus no more than 2.5% of the amount insured and minus any outstanding indebtedness owed to the insurer. The policy must also state that it may be surrendered to the insurer within 1 month after the date of default in exchange for a specified cash value. The insurer may postpone payment of the cash surrender value for up to 6 months after the policy has been surrendered.