The national guide explains the standard life policy provisions, nonforfeiture options, dividend options, settlement options and riders. Hawaii writes many of these into statute. The required provisions for individual life policies are in HRS 431:10D-102, the permitted exclusions in HRS 431:10D-108, and the replacement rules in HRS Part 431:10D-501 ff. These notes give the Hawaii numbers.

National concepts in brief

• Nonforfeiture options: cash surrender, reduced paid-up and extended term. They protect the cash value if the policy lapses.
• Dividend options: cash, reduce premium, accumulate at interest, paid-up additions, and term additions.
• Settlement options: interest only, fixed period, fixed amount, and life income.
• Common riders: waiver of premium, accidental death, guaranteed insurability, accelerated benefits, cost of living, return of premium, child term and other-insured riders.
• Automatic premium loan uses the cash value to pay an overdue premium.

Required provisions in Hawaii individual life policies

Loan interest (HRS 431:10D-103):

• A fixed maximum of 8% a year, or
• an adjustable rate capped at the higher of Moody's Corporate Bond Yield Average or the cash value rate plus 1%. The adjustable rate is reset at least yearly and no more than quarterly.

A reinstated policy can be contested over statements in the reinstatement application only for the same period that applied after original issue (HRS 431:10D-110). Incontestability does not stop the insurer from enforcing exclusions that restrict coverage (HRS 431:10D-109).

Permitted exclusions and suicide

A Hawaii life policy may exclude or restrict the death benefit only for (HRS 431:10D-108(b)):

• war or military service;
• specified aviation activities;
• hazardous occupations;
• residence outside the U.S. and Canada;
• suicide, sane or insane, within two years of the issue date.

Exclusions based on illness (such as cancer) are not allowed. When an exclusion applies, the insurer must still pay at least a reserve amount, adjusted for loans or dividends (HRS 431:10D-108(c)). A life policy may not shorten the time to sue to less than three years after the claim accrues (HRS 431:10D-108(a)).

Free look, delivery and payment

• Free look: 10 days from receipt for individual life and individual accident and health policies, with a premium refund (HRS 431:10-214). The returned policy is void from the start. The insurer may keep actual medical exam costs only if the notice says so. Single-premium nonrenewable and travel accident policies are exempt.
• Interest on death claims: if not paid within 30 days of death, interest runs from the date of death at 6% a year or more (HRS 431:10-243).
• Paying the named beneficiary discharges the insurer, unless written notice of another person's claim reached its home office first (HRS 431:10-230).

Ownership, consent and creditor protection

• Consent: an individual life or health policy generally needs the insured's written consent. Exceptions: a spouse may insure the other spouse, and a person with an insurable interest may insure a minor (HRS 431:10-206, 10-234).
• Insurable interest must exist when the contract is made (HRS 431:10-204).
• Creditor protection: proceeds and cash values payable to a spouse, child, parent or other dependent are protected from the insured's creditors. Premiums paid in fraud of creditors are not protected (HRS 431:10-232). Group life proceeds are likewise not subject to legal process for debts (HRS 431:10-233).
• Spendthrift settlements: if the policy bars commuting the proceeds, the beneficiary cannot assign or borrow against the payments (HRS 431:10-232(b)).

Group life provisions (HRS 431:10D-213)

• Grace period: at least 30 days for premiums after the first.
• Incontestability: the group policy is incontestable after two years. A member's own statements cannot be used after two years during that member's lifetime.
• Facility of payment: up to $2,000 may go to whoever paid funeral or last-illness expenses.
• Conversion on leaving the group: an individual policy without evidence of insurability, priced at the member's attained age and risk class.
• If the group policy itself ends: only members insured for five years may convert, and the amount may be capped at $10,000.
• Death during the conversion period: the convertible amount is paid as a group claim.
• Late notice of the conversion right: if the member is not told at least 15 days before the period ends, the period is extended, but never more than 60 days past the original deadline (HRS 431:10D-214).
• Assignment: a member may assign ownership rights to anyone other than the policyholder (HRS 431:10D-215).

Replacement (HRS 431:10D-501 to 10D-508)

Producer duties:

• Submit a statement, signed by the applicant and the producer, saying whether existing policies or annuities will be replaced.
• If yes, present and read the replacement notice no later than when the application is taken.
• Leave copies of all sales material used.

Replacing insurer:

• Notifies each existing insurer within 5 business days.
• Gives the owner a 30-day right to return the new policy for an unconditional full refund.
• Keeps replacement records for 5 years or until the next exam, whichever is later.

Existing insurer: provides policy values within 5 business days of the owner's request (HRS 431:10D-506).

Financed purchase: a loan, withdrawal or surrender taken 4 months before to 13 months after the new policy's effective date is presumed to be one (HRS 431:10D-502).

Internal replacement: credit is given for time already served under the old policy's incontestability and suicide periods (HRS 431:10D-505(b)).

Not covered by the replacement rules: credit life and some group coverage.

Violations: advising an applicant to answer "no" falsely is a listed violation. Penalties include fines, license action and forfeited commissions.

Unclaimed benefits

Insurers must compare in-force policies against a death master file at least semi-annually (HRS 431:10D-654).

Common exam traps

• Hawaii's incontestability rule has no fraud exception. After two years, only nonpayment counts, and disability and accidental death riders are excluded from the rule.
• An excluded suicide (within two years) still pays at least the reserve, not just a refund of premiums.
• Reinstatement is allowed for 3 years with interest of 6% or less.
• The free look is 10 days, but 30 days on a replacement.
• The fixed loan rate is capped at 8%.
• Group conversion when the plan ends requires 5 years of coverage and may be capped at $10,000.