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Did You Know: Life Insurance Policies are Contracts?


Did You Know: Life Insurance Policies are Contracts?

Most people just sign on the dotted line, and don’t know that their life insurance policies are actually legally enforceable contracts. A recent article in The Aiken Standard, “Life insurance policy is a contract,” explains that as long as you pay the premiums as required, then when the insured dies, the insurance company has contractually agreed to pay the death benefit.

When looking at term insurance, note that since the death benefit is payable only for the period of time specified in the policy, the term premium is based on the probability of death occurring during that period of coverage.

Since the death benefit is much bigger than the annual premium, life insurance contracts are aleatory (based on chance): both parties realize that, depending on unforeseen circumstances, the policy owner may receive a value that’s out of proportion to the value that is given up, especially in the early years of a policy.

Life insurance contracts are also unilateral because only the insurer makes an enforceable promise to pay a death benefit in exchange for the performance by the policy owner of just one action, which is paying the premiums. When the policy is issued by the insurance company and the first premium is paid, the contract is in effect.

One more interesting part of a life insurance policy is the suicide clause. This clause is designed to protect the insurance company from those who might buy insurance on themselves with the intention of committing suicide. Life insurance companies have added language into most all life insurance policies sold in the U.S. which states that if the insured commits suicide within two years of the policy’s issue date, the payable death benefit is limited to a return of the premiums plus interest.

This provision has been upheld by a Supreme Court ruling, and in order to further protect the interests of life insurance companies, policies also include a provision that states that this suicide provision stands regardless of the mental health status of the insured.

Your estate planning attorney will be able to review life insurance policies with you to ensure that they are in alignment with your estate plan.

Do you live in Miami-Dade, Broward, or Palm Beach counties in Florida? Laws are constantly changing-- has your estate plan been reviewed in the last 2-3 years? Call me (954-888-1747) right away for peace of mind. I can help!

  • My practice is exclusively estate planning and probate,
  • I have prepared numerous estate plans in 16 years of practice,
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  • I am here for YOU today and there for your FAMILY tomorrow.

Reference: Aiken (SC) Standard (March 18, 2017) “Life insurance policy is a contract”

Why would we recommend D.T.F.? Several Reasons: Your ability to explain complex estate problems, clearly and patiently; your total lack of arrogance and pretense; a strong feeling that you are motivated by what you perceive is best for your client, rather than what would generate the largest legal fees; finally, and importantly, you are a lovely guy. A.C.

Two words cannot sum up the entire process of creating my “trust.” I enjoyed your attention to detail, your patience of explaining terms and conditions until I understood, also giving me copies to read and understand. Thank you for your suggestions on what was best for “me” but still allowing me to make my choice. Most of all, thank you for thinking of “me.” Wells Fargo said “you were the best” I cannot deny that. Again thank you very much for everything. Anna is an asset or a compliment to the firm. She is warm and very caring. It was great doing business. Thank you.