IV. Explaining the Life Insurance Policy 闡釋人壽保險單

The entire contract provision states that the policy, together with the application form, riders and endorsements that form part of it, makes up the whole contract between the insurer and the policyholder. Verbal promises and marketing material outside these documents are not contract terms, and any change needs the insurer's formal approval in writing.

The incontestability provision limits the insurer's rights: once a policy has been in force during the life insured's lifetime for a stated period, usually two years, the insurer generally cannot challenge its validity for non-disclosure or misrepresentation. Exceptions stated in the policy, such as fraud, still apply.

The grace period is extra time, usually 30 or 31 days, to pay a renewal premium after its due date, during which the policy stays in force so that it does not lapse through a temporary oversight or cash shortage. If the life insured dies during this period, the insurer still pays the claim but deducts the overdue premium.

A beneficiary is the person named to receive the death benefit when the life insured dies. The policy owner may name primary and contingent beneficiaries, and whether a designation is revocable or irrevocable determines how freely the owner can deal with the policy; in Hong Kong, a policy on a person's own life expressed to be for the benefit of a spouse or children can also create a statutory trust that keeps the proceeds out of that person's estate.

Nonforfeiture benefits ensure that a policyholder who stops paying premiums or gives up the policy does not lose the cash value already built up. The usual choices are to take the surrender value, convert to reduced paid-up insurance or convert to extended term insurance.

A policy loan lets the policyholder borrow from the insurer against a life policy with a cash value, up to a limit linked to that value. There is no fixed repayment schedule, but interest accrues, any unpaid balance is deducted from policy benefits, and the policy may terminate if the debt exceeds the cash value.

The reinstatement provision lets a policyholder revive a lapsed policy within a stated period by meeting the insurer's conditions, usually evidence of insurability and payment of the amounts owed. Reinstatement continues the original contract, so premiums are generally still based on the original entry age, but events during the lapse are generally not covered.

If the age or sex stated in a policy is wrong, the insurer normally does not set the policy aside but adjusts the benefit to what the premiums paid would have bought at the correct age and sex. This adjustment is generally not limited by the incontestability provision, but if the true age falls outside the insurable range, the insurer can generally treat the policy as void and refund the premiums.

Assignment is the transfer of a policyholder's rights under a life policy to an assignee, either permanently and in full (absolute assignment) or as security for a loan (collateral assignment). The assignee needs no insurable interest but should give the insurer written notice, and acquires no better rights than the assignor had.

The policyholder of a participating policy can choose how policy dividends are used, commonly by taking cash, reducing premiums, accumulating at interest, buying paid-up additions or buying one-year term additions. Dividends are not guaranteed, and each option affects cash flow, cover and policy values differently.

Settlement options let the policyowner or beneficiary decide how policy proceeds are paid: as a lump sum, or under an interest, fixed period, fixed amount or life income arrangement. Candidates must be able to tell what each option fixes, how interest affects it and whether payments stop when the payee dies.

The suicide exclusion guards against anti-selection: if the life insured dies by suicide within a set period, usually one year from policy issue or reinstatement, the insurer normally only refunds the premiums paid, without interest. After that period, the death benefit is normally payable in full.