Life Cycle of a Life Insurance Policy
Last updated on March 3rd, 2022
Your life insurance policy is a legally binding, written contract between you and your chosen insurance company. It contains the terms and conditions with which you agree to pay your premium. It also lays down the terms and conditions with which the insurance company agrees to compensate you for any unforeseen loss in the future.
It is crucial that you, as the policy owner, fully understand the content of your life insurance policy. It will help you avoid coverage gaps and misunderstandings. These gaps can leave your family in a dire situation should something happen to you.
Parts of a Life Insurance Policy
You need to know the parts of your insurance policy for you to fully comprehend what it contains. The first few pages usually contain a high-level summary of your coverage. It states the name of your insurance company, your insurance plan, the insured, the policy owner and other terms.
Your insurance policy will contain a declaration page followed by a schedule of benefits. It is a good idea to ask your insurer a policy summary for each insurance product you have so you can easily review them.
A policy summary will usually contain the following information:
- Life insurance policy basics
- Amount of coverage
- Life insurance policy benefits
- Policy restrictions
The Life Stages of a Life Insurance Policy
As a policy owner, you must also understand the important life stages of your life insurance policy. Here are four significant stages that your policy goes through.
-
Cooling-off period
The cooling-off period of a life insurance policy is also known as its trial period or free look period. It is an important factor for consumer protection required by the Australian Consumer Law. It is a necessary period where a new insurance policyholder can terminate the policy without getting penalised.
Depending on the insurance company, it can last for ten (10) up to thirty (30) days. If you are not satisfied or happy with your policy, you can cancel within the specified free look period, and you will get a full refund.
-
Contestability period
The contestability period is a set amount of time, usually two years from your policy issue date, where an insurer can contest and deny your claims. It protects insurance companies from fraud. If you have been truthful and honest in your application, then you have nothing to worry about.
This period is the time frame where insurers can review your application. From their review, they can either adjust or deny your death benefit.
It becomes an essential factor when something happens to you within the first two years. Your insurance company can hold off any pay-out while they review your application for fraud. If they find that you lied in your application, it can significantly affect your death benefit. They can hold the release of your death benefit even if your death has nothing to do with your lies.
Your insurer can sue you even if you live beyond the contestability period. A lapsed policy can also restart your policy’s contestability period.
-
Incontestability period
After the two-year contestability period, your life insurance policy will enter an incontestability period. During this time, your insurance company cannot review your application information and claims. They cannot withhold payment of your death benefit to your beneficiaries.
-
Expiry age
Your life insurance’s expiry age is your policy’s age limit. When you reach this age limit, your policy ends, and you can no longer make any future claims. You will not receive refunds for the premiums that you have paid. However, you can still make claims for any events that happened before the expiry age.
Your insurer should give you notice that your policy is about to expire. You have the option to renew your policy or let it expire.
Getting a life insurance policy is not enough. It will also be beneficial for you and your beneficiaries if you fully understand your policy. Need more information about life insurance? Keep browsing Makes Cents for useful tips, insights and updates on life insurance plans and packages.
Have you considered switching your life insurance policy? Use our Life Insurance comparison service today.
