Free Life Policy Provisions Options and Riders Study Guide
Alabama Life, Accident & Health exam — Life Policy Provisions Options and Riders.
The national guide explains the standard life policy provisions, nonforfeiture options, dividends, settlement options, beneficiaries, and riders. Alabama writes the required provisions into Ala. Code 27-15 (ordinary life), 27-16 (industrial life), and 27-18 (group life). The Alabama questions ask for the specific periods and for the amount payable when an exclusion applies.
Free look: no general statutory period for life
Alabama has no statute requiring a free-look period on every individual life policy. The exam tests two related rules instead:
- The Life Insurance Buyer's Guide must be given before the initial premium is accepted. If the policy has an unconditional refund provision of at least 10 days, the guide may be delivered with the policy (Ala. Admin. Code 482-1-131-.05).
- A policy bought to replace existing life coverage must give a 30-day right to return for a full refund (482-1-133-.06).
Individual health policies do carry a statutory 10-day free look. That rule is in the Individual Accident and Health Provisions guide.
Required provisions in an individual life policy
| Provision | Alabama rule |
|---|---|
| Grace period | 30 days, or one month of not less than 30 days. The policy stays in force, and an overdue premium may be deducted from a death claim (27-15-3) |
| Incontestability | Incontestable after two years in force during the insured's lifetime, except for nonpayment of premium. Disability and accidental death benefit provisions may be excluded from the clause (27-15-4) |
| Entire contract | The policy plus the attached application, or a summary of it. If a summary is attached, the original application governs any conflict and must be kept at least three years (27-15-5) |
| Misstatement of age or sex | Benefits are adjusted to what the premium would have bought at the correct age or sex (27-15-6) |
| Dividends | Divisible surplus is apportioned annually starting no later than the end of the third policy year (27-15-7) |
| Policy loans | The insurer may defer a loan (other than for premiums) up to six months. The policy may terminate when debt equals or exceeds the loan value, but only after 30 days' mailed notice (27-15-8). The fixed loan rate may not exceed 8%, or the policy may use an adjustable rate tied to Moody's bond yields (27-15-8.1) |
| Reinstatement | Within three years of default, with evidence of insurability and payment of overdue premiums and debt with interest (27-15-11) |
| Premium increases | An in-force premium may be raised only if the policy or a document delivered with it gave written notice that it could rise (27-15-12) |
| Death claims | A policy's settlement period may not exceed two months after proof of death. If the insurer doesn't pay within 30 days of proof, it owes interest from the date proof was received (27-15-13) |
Reinstated policies can be contested for fraud or material misrepresentation in the reinstatement application for the same period that applied after original issue (27-15-25).
Before pleading misrepresentation or fraud in the issuance of a life policy or annuity, the insurer must pay all premiums received into court (27-14-7(b)).
Suicide and other exclusions
Alabama allows only these exclusions (27-15-24):
- war or military service
- aviation
- specified hazardous occupations or avocations
- residence outside the continental United States and Canada
- suicide within two years of issue, sane or insane
When an exclusion applies, the insurer pays at least the policy reserve. If the policy has been in force two years or less, it pays at least the gross premiums charged, less dividends and debt. A rule like "no benefit for a heart attack within two years" is not permitted.
Nonforfeiture
Under Alabama's standard nonforfeiture law (27-15-72):
- A cash surrender value is required once premiums have been paid for three full years (five for industrial policies).
- The owner has 60 days after the due date of the defaulted premium to choose cash or a paid-up option. Otherwise the paid-up option stated in the policy takes effect automatically.
Beneficiaries, assignment, and minors
- A person may insure their own life and name anyone as beneficiary (27-14-3(b)).
- A policy taken out in good faith may be assigned to anyone, with or without an insurable interest, unless the policy says otherwise (27-14-21).
- Proceeds payable to a beneficiary other than the insured are generally protected from the insured's creditors (27-14-29).
- A minor aged 15 or older may buy life insurance or an annuity on their own life and can't disaffirm the contract for minority (27-14-5).
- A minor aged 18 (still a minor under Alabama law) may give a valid receipt for up to $3,000 a year in proceeds if no guardian has been appointed (27-14-25).
Illustrations
Under 482-1-114:
- A policy sold with an illustration needs a basic illustration signed by the applicant and producer, with a copy to the applicant.
- Illustrations may not use terms like "vanishing premium."
- Owners of illustrated policies receive an annual report.
- Each insurer designates an illustration actuary.
Industrial life (27-16)
- Face amount of $2,500 or less, marked "industrial policy," with premiums payable monthly or more often.
- Grace period: four weeks for weekly-premium policies (one month for monthly).
- Incontestable after two years.
- Reinstatement within two years of default.
Burial insurance pays in merchandise and services worth no more than $1,500 (27-17-1).
Group life (27-18)
| Rule | Alabama figure |
|---|---|
| Grace period | At least 30 days |
| Incontestability | 2 years. An insured's statement counts only if it is in a written instrument the person signed |
| Conversion after leaving employment | Apply and pay within 31 days, without evidence of insurability. The new policy may be any form except term |
| Death during the conversion period | The convertible amount is paid as a group claim |
| Group policy itself ends | People insured at least 5 years may convert, and the amount may be limited to the lesser of the lost coverage or $2,000 |
Common exam traps
- Alabama has no general life free-look statute. Remember the 10-day Buyer's Guide exception and the 30-day replacement right.
- An excluded death within the first two years returns at least premiums less dividends and debt. After that, the minimum is the reserve.
- Death claims not paid within 30 days of proof earn interest.
- Industrial life: $2,500 face amount, four-week grace period, two-year reinstatement.
- Group life grace is 30 days in Alabama.
Practice Life Policy Provisions Options and Riders questions All Life, Accident & Health topics
Practice questions are study aids generated for exam preparation and are not actual exam questions. Content is provided for educational purposes and is not legal advice. Verify current statutes, rules, and exam specifications with the Insurance Department and the exam administrator before relying on it.
