Individual life policy provisions, free look, and grace period

Texas doesn't let life contracts be written from scratch

Before an individual life policy can be delivered in Texas, it has to contain the provisions the legislature requires. Those required provisions — and a short list of things a policy may not do — live in Title 7 of the Insurance Code, and specifically in Chapter 1101, the life insurance chapter. A company may be more generous than the statute, but never less. That single idea answers most exam questions: the statute sets the floor, the policy sets the actual terms.

The free look: the applicant's exit ramp

An individual life policy must give the owner a period after delivery to examine it and return it for a full refund of premium. For Texas exam purposes that period is 10 days, and many companies voluntarily print a longer window. Key mechanics:

• The clock starts when the policy is delivered to the owner, not when it was applied for or issued.
• Returning the policy within the window voids it from the start; the company refunds the entire premium paid, not a pro-rated amount.
• No reason is required, and no penalty or surrender charge may be deducted.

This is why delivery date matters so much to a producer: it is the trigger for the free look, and you should document it.

The grace period: keeping coverage alive

After the first premium, every premium gets a grace period — a stretch of time after the due date during which the policy stays in force even though the premium is unpaid. Texas requires at least one month, which policies commonly express as 31 days.

If the insured dies during the grace period, the death benefit is payable; the company simply deducts the unpaid premium from the proceeds.

The grace period is not free coverage — it is coverage the insured still owes for.

Lapse and reinstatement

If the premium is still unpaid when the grace period ends, the policy lapses (or, if there is cash value, a nonforfeiture option takes over). A life policy must also contain a reinstatement provision, letting the owner restore a lapsed policy within the period stated in the contract by:

1. providing satisfactory evidence of insurability, and
2. paying all back premiums with interest (plus repaying or reinstating any policy loan).

Other required provisions to know

• Entire contract / representations — the policy and attached application are the whole contract, and the insured's statements are treated as representations, not warranties.
• Incontestability — after the policy has been in force two years during the insured's lifetime, the insurer cannot contest it except for nonpayment of premium.
• Misstatement of age — benefits are adjusted to what the premium paid would have purchased at the correct age, rather than voiding the policy.
• Policy loans, nonforfeiture values, and dividends on participating policies must be described in the contract.

Free look protects the buyer's decision; the grace period protects the coverage.