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OPTIONAL PROVISIONS

In addition to the required provisions and the prohibited provisions, there are numerous other provisions that are neither required nor prohibited:

suicide provision. An insurer may elect to include suicide as a covered risk from the day the policy is issued. However, this is not normally the case, and as a general rule most insurance contracts do not provide coverage for a death by suicide within the first one or 2 years after the policy is issued. If the policy does not contain a suicide exclusion provision, then a death by suicide is covered by the policy and the death benefit is payable to the beneficiary regardless of when the suicide occurs.

The following is a typical insurance contract suicide provision:

Suicide of the insured, while sane or insane, within 2 years of the issue date, is not covered by this policy. In that event, we will pay only the premiums paid to us less any unpaid policy loans.

ownership provision. Ordinarily the insured is the applicant and owner of the policy. The ownership provision in the life insurance contract describes some of the rights of the owner. The typical ownership provision stipulates that the owner of the policy is the insured unless the application states otherwise. The provision also usually states that the policyowner may change the beneficiary, assign the policy to another party, and exercise other ownership rights. If these powers are described, the provision will also define how such powers are to be exercised in order to be recognized by the insurance company.

assignment provision. As with most contracts and most interests in property, the policyowner has, as a matter of law, the right to transfer some or all of his or her rights to another person. In contract law this is generally known as the right to assign. The act of transferring a property right is an assignment. The right to assign an ownership interest in an insurance policy exists even without an assignment provision in the contract. However, most contracts include an assignment clause because it sets out clearly the conditions upon which an assignment can be made. If the policy contains a provision prohibiting an assignment, any attempted assignment by the policyowner will not be binding on the insurer. If the policy sets conditions for an assignment, the policyowner must comply with these restrictions. A sample assignment clause might provide the following:

You may assign this policy if we agree. We will not be bound by an assignment unless it has been received by us in writing at our home office. Your rights and the rights of any other person referred to in this policy will be subject to the assignment. We assume no responsibility for the validity of an assignment. An absolute assignment will be the same as a change of ownership to the assignee.

plan change. This provision simply asserts that the parties may agree to change the terms of the contract. It does not add anything that does not already exist under the law. A sample contract change provision might read as follows:

Subject to our rules at the time of a change, you may change this policy for another plan of insurance, you may add riders to this policy, or you may make other changes if we agree.

accelerated benefits. As a result of the AIDS epidemic and public concern about other terminal illnesses, some insurers have added a provision that permits the insured to withdraw policy death benefits under certain circumstances. These accelerated benefits or living benefits provisions state that if the insured develops a medical condition that renders the insured terminally ill, then he or she may withdraw a portion of the policy�s death benefit.

The 1990 NAIC Accelerated Benefits Model Regulation was designed to regulate accelerated benefit provisions of individual and group life insurance policies and to provide required standards of disclosure. (See Section 1 below of the model regulation.)

Accelerated benefits are defined as benefits payable during the lifetime of the insured under a life insurance contract to a policyowner (or certificate holder for group insurance) upon the occurrence of life-threatening or catastrophic conditions that are specified in the policy. To qualify as accelerated benefits, the lifetime payments must reduce the death benefit otherwise payable under the contract.

The model regulation prescribes that the condition that permits the payment of the accelerated benefits must be a medical condition that drastically limits the insured�s normal life span expectation (for example, to 2 years or less). The regulation also lists several diseases as examples of a qualifying medical condition: acute coronary artery disease, a permanent neurological deficit resulting from a cerebral vascular accident, end-stage renal failure, HIV (AIDS), or such other medical condition as the commissioner may approve.

Twenty-three states have adopted regulations or statutes similar to the NAIC model. The first two sections of the model regulation are as follows:

Section 1. Purpose

The purpose of this regulation is to regulate accelerated benefit provisions of individual and group life insurance policies and to provide required standards of disclosure. This regulation shall apply to all accelerated benefits provisions of individual and group life insurance policies except those subject to the Long-Term Care Insurance Model Act, issued or delivered in this state, on or after the effective date of this regulation.

Section 2. Definitions

A. "Accelerated benefits" covered under this regulation are benefits payable under a life insurance contract:

(1) To a policyowner or certificateholder, during the lifetime of the insured, in anticipation of death or upon the occurrence of specified life-threatening or catastrophic conditions as defined by the policy or rider; and

(2) Which reduce the death benefit otherwise payable under the life insurance contract; and

(3) Which are payable upon the occurrence of a single qualifying event which results in the payment of a benefit amount fixed at the time of acceleration.

B. "Qualifying event" shall mean one or more of the following:

(1) A medical condition which would result in a drastically limited life span as specified in the contract, for example, twenty-four (24) months or less; or

(2) A medical condition which has required or requires extraordinary medical intervention, such as, but not limited to, major organ transplant or continuous artificial life support, without which the insured would die; or

(3) Any condition which usually requires continuous confinement in an eligible institution as defined in the contract if the insured is expected to remain there for the rest of his or her life; or

(4) A medical condition which would, in the absence of extensive or extraordinary medical treatment, result in a drastically limited life span. Such conditions may include, BUT ARE NOT LIMITED TO, one or more of the following:

(a) Coronary artery disease resulting in an acute infarction or requiring surgery;

(b) Permanent neurological deficit resulting from cerebral vascular accident;

(d) Acquired Immune Deficiency Syndrome; or

(e) Other medical conditions which the commissioner shall approve for any particular filing; or

(5) Other qualifying events which the commissioner shall approve for any particular filing.

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