Individual life contract standard provisions

What a standard provision is

A standard provision is contract language the law expects a policy to contain, so every buyer gets the same core protections no matter which insurer issues the policy. Florida's pattern is that a required provision must appear in substance, or be replaced by a provision the Office of Insurance Regulation considers more favorable to the policyholder. The exact wording can vary; the protection cannot be watered down.

Florida applies this pattern to individual contracts. The standard provisions required for individual life policies do not apply to group life policies, which have their own required provisions. A group policy on a plan other than term must still carry equitable nonforfeiture provisions, but they need not match the individual ones.

The core individual life provisions

These are the provisions the exam expects you to know on an individual life policy:

Entire contract: the policy plus the attached application make up the whole contract. Nothing outside it, such as an unattached rule or bylaw, can change the deal. The insured's statements are treated as representations, not warranties.
Grace period: after a premium due date, coverage stays in force for a grace period, typically 30 or 31 days (one month). If the insured dies during the grace period, the insurer pays the death benefit minus the unpaid premium.
Incontestability: once the policy has been in force for two years during the insured's lifetime, the insurer can no longer contest it for misstatements in the application, even material ones. Nonpayment of premium is never barred by this clause.
Misstatement of age or sex: the policy is not voided. Instead the benefit is adjusted to what the premium paid would have bought at the correct age or sex.
Reinstatement: a policy that lapsed for nonpayment, and was not surrendered for cash, can be restored within a set period, commonly three years, with evidence of insurability and payment of back premiums with interest.
Policy loans and nonforfeiture options: a cash value policy lets the owner borrow against the cash value, with any unpaid loan deducted from the death benefit. If premiums stop, the owner keeps value through cash surrender, reduced paid-up, or extended term insurance.

Policies also commonly carry a suicide exclusion, usually limited to the first two years, during which the insurer returns premiums rather than paying the face amount.

A timeline runs left to right across an individual life insurance policy. At the start, labeled Issue, a box says the entire contract is the policy plus the attached application. Above the timeline, the first two years are shaded orange and labeled contestable, with the suicide exclusion applying; after the two-year mark the shading turns green and reads incontestable. Further along, a red point marks a missed premium, which drops down into a grace period of about one month, during which a death claim is paid minus the unpaid premium. If the premium is still unpaid, the policy lapses and two paths branch off: nonforfeiture options, meaning cash surrender, reduced paid-up, or extended term insurance; and reinstatement, which needs evidence of insurability and back premiums. A side note says a misstated age or sex adjusts the benefit instead of voiding the policy. A footnote says that in Florida these individual provisions do not apply to group life policies, under section 627.558, subsection 2. — When each standard provision of an individual life policy comes into play

Insurable interest at the start

Anyone of legal capacity may insure his or her own life for any beneficiary. Insuring someone else's life requires the benefits to be payable to the insured, the insured's personal representatives, or someone with an insurable interest when the contract was made. The interest need not continue after coverage begins. It can rest on close relationship by blood or law with love and affection, on an expected substantial financial advantage from the insured's continued life, or on being a party to a business buy-sell contract.

Florida's Standard Nonforfeiture Law

Florida's Standard Nonforfeiture Law for Life Insurance sets the minimum values behind the nonforfeiture options. For ordinary insurance, adjusted premiums and present values use the 1980 Standard Ordinary Mortality Table (industrial insurance uses the 1961 Standard Industrial table). Before the operative date of the valuation manual, the nonforfeiture interest rate is 125 percent of the statutory valuation interest rate, rounded to the nearest quarter percent, and never below 4 percent; after that date, the valuation manual governs. Substandard policies may use appropriately modified tables.

Annuities have their own list

A fixed or variable annuity or pure endowment contract may not be delivered in Florida unless it contains in substance the provisions of ss. 627.465 to 627.470, or more favorable ones. Provisions that do not fit a single-premium contract are left out. Reversionary, survivorship, and group annuities are excluded from this requirement.