Life insurance contract: the important clauses

Life insurance contract: the important clauses


We are not life insurance contractors and yet it is essential that we pay close attention to certain clauses in order to protect all of your family and finances. What is essential in a life insurance contract is above all the beneficiary clause. There are other important clauses such as those relating to the premium and costs associated with the contract, as well as the methods of calculating the cash value of the contract.

 

The beneficiary clause

Designating one or more beneficiaries in the life insurance contract helps ensure that the insurance capital will come back to him or her without going through inheritance. The beneficiary can be any natural or legal person living at the time of the insured's death, including people to be born at the time of designation. In order to avoid any ambiguity, it is advisable to identify the beneficiary by name and capacity, knowing that the law considers that the term spouse only designates the legally married spouse. As specified in the contract, the beneficiaries are revocable or irrevocable and the holder of the life insurance can at any time modify or designate or revoke one or more beneficiaries, knowing that the consent of the irrevocable beneficiary is required for any modification of his designation.

In the event that the beneficiary dies before the insured, a new one should be named, the other solution being to name a subordinate beneficiary upon signing the contract, or at any other time, who will replace in his rights the deceased beneficiary. It is also possible to appoint a subrogated owner who will become the policy owner on the death of the first owner.

 

The clause on the premium and the costs linked to the contract

There are different types of life insurance contracts, but also different premiums. Some contracts provide for a uniform premium while others mention an increasing premium: these generally apply in the context of term life insurance without cash value and whose premium increases periodically simply to cover the cost of insurance without capital accumulation. With age, the premium increases substantially.

Some premiums are said to be brittle, that is, they are high premiums, but spread over a short period of time, they can be either uniform or increasing. The costs associated with the contract also have a significant impact on the profitability of life insurance: these are the entry fees and application fees taken when the contract is registered, the transaction costs for each payment made. , or annual administrative management fees, also called administration fees.

 

The methods of calculating the surrender value

The surrender value corresponds to the amount obtained if you terminate your life insurance. The calculation methods are determined upon subscription of the contract, both for partial surrenders and for total surrender. When signing the contract, pay attention and negotiate the penalties provided for in the event of partial or total surrender, and any costs that may be claimed. There are basically two ways to calculate the cash value of life insurance: the payout rate, or the amount of income distributed by the insurance. Note that this amount, unlike the amounts invested in life insurance, is generally subject to tax. That’s why rather than terminating life insurance, it’s usually better to borrow up to 90% of the cash value in order to keep the benefit of your policy while avoiding tax.

Life insurance contracts can seem complex, but paying close attention to important clauses, such as those relating to beneficiaries, premiums and fees, and cash value can avoid most pitfalls. Without forgetting that it is also possible to be assisted by a broker in this process.