Definition of Life Insurance Stipulation

Life insurance protects your family, but only if you do not violate any contract stipulations.

A life insurance company uses various stipulations to ensure the company can reliably and predictably pay claims to beneficiaries. A stipulation, also called a "policy provision" is defined as "The content of a life insurance contract which details the terms of the policy and the requirements placed upon both the policyholder and the insurer." When you sign an insurance application, you promise to adhere to the contract and all of its stipulations.

Identification

There are two main stipulations contained in most life insurance policies. The first one is a suicide stipulation. This stipulation says the company will not pay benefits if the insured commits suicide within the first two years of the policy. The other stipulation is that the insurance company will not pay death benefits if the insured misstated a material fact on the application.

Benefits

The stipulations an insurance company puts in place ensure that life insurance companies can stay in business and continue to pay death benefit claims. Premature death from suicide could quickly deplete insurance company cash reserves, as could claims based upon misstatements about health or age.

Considerations

When applying for a life insurance policy, do not misstate any material facts and do not intentionally violate any stipulations or terms of the contract. Any of these could result in your policy being canceled by the insurance company. Pay your premiums when they are due.

References

• "Practicing Financial Planning for Professionals, Practitioner's 10th edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
• "Ernst & Young's Personal Financial Planning Guide, 5th Edition"; Martin Nissenbaum, Barbara J. Raasch, Charles L. Ratner; 2004
• "Life & Health Insurance, License Exam Manual, 6th Edition"; Dearborn Financial; 2004