2.1 Arkansas Life Insurance Policy Requirements

How Arkansas Standardizes Life Policies

Arkansas regulates life insurance under Title 23 of the Arkansas Code (the insurance subtitle), administered by the Arkansas Insurance Department (AID). The statutes force every individual life contract delivered in the state to contain a list of consumer-protective provisions so that an agent cannot strip them out to make a product look cheaper. On the exam, these mandated provisions are tested as fixed numbers — memorize the day counts.

Free Look Period

The free look (also called the right-to-examine period) lets a buyer cancel for a full premium refund with no questions asked. The clock starts when the policy is delivered, not when the application is signed.

Exam trap: The default is 10 days for life and annuities; LTC is the outlier at 30 days. If a question pairs an LTC scenario with "10 days," it is wrong.

Incontestability Clause

Arkansas requires a 2-year incontestability clause. Once a policy has been in force for two years during the insured's lifetime, the insurer cannot void it for a material misrepresentation on the application.

• Exceptions that survive forever: non-payment of premium and, in fraud cases, the insurer may still resist.
• The clause protects beneficiaries: after year two an honest-mistake error on the app (wrong weight, omitted minor condition) can no longer be used to deny the death claim.

Suicide Clause

The suicide exclusion can run no longer than 2 years from the issue date. If the insured dies by suicide within that window, the insurer's liability is limited to a refund of premiums paid (it does not pay the face amount). After two years, suicide is covered at the full face amount.

Worked example: A $250,000 policy is issued January 1, 2026. The insured dies by suicide in month 18. The insurer returns the premiums paid — not $250,000. Had death occurred in month 25, the full $250,000 would be payable.

Misstatement of Age or Sex

If the insured's age or sex was misstated, Arkansas does not void the policy. Instead the benefit is adjusted to the amount the premium actually paid would have purchased at the correct age. Example: a 45-year-old listed as 40 paid too little; the death benefit is reduced proportionally.

Policy Delivery and Receipt

A producer must deliver the issued policy to the owner and, in practice, obtain a signed delivery receipt that starts the free-look clock. Delivery also matters for the effective date of coverage: when an applicant pays the initial premium with the application, a conditional receipt typically binds coverage as of the application or medical-exam date, provided the applicant proves insurable at the rate applied for. If no premium accompanies the application, coverage generally does not begin until the policy is delivered and the first premium is paid while the applicant's health is unchanged.

Required Standard Provisions

Arkansas adopts the Standard Nonforfeiture and standard policy provision framework. Memorize this table; the day counts and the "adjust vs. void" distinctions are heavily tested.

Grace Period in Practice

• A premium due March 1 is still timely if paid by the 31st day after.
• Coverage stays in force during grace; if the insured dies, the death benefit is paid less the unpaid premium.
• The policy cannot lapse for non-payment until the grace period expires.

Nonforfeiture Options

When a permanent policy lapses or is surrendered, the accumulated cash value cannot simply be forfeited. The owner chooses one of three statutory options:

Memory hook: Reduced Paid-Up keeps coverage forever at less money; Extended Term keeps full money for less time. This pair is the single most-missed nonforfeiture question.

Beneficiary and Claim Protections

• A valid death claim must be paid promptly; interest accrues if the insurer unreasonably delays settlement.
• The insurer must use good-faith efforts to locate beneficiaries.
• Naming a revocable beneficiary lets the owner change the designation freely; an irrevocable beneficiary must consent to changes, loans, or surrender.
• If no named beneficiary survives, proceeds go to the owner's estate and may face probate.

Settlement Options

Arkansas policies must let the beneficiary elect how proceeds are paid rather than forcing a lump sum. The standard menu is: lump sum; interest only (insurer holds the principal and pays interest); fixed period (equal payments over a set number of years); fixed amount (set payment until funds run out); and life income (payments guaranteed for the beneficiary's lifetime, optionally with a period certain or refund feature). Only the lump sum and interest-only options keep the full principal intact; life-income options trade principal for longevity protection.

Common Exam Traps for This Section

• Confusing the 31-day grace with the 10-day free look — grace prevents lapse after issue; free look lets you cancel right after delivery.
• Assuming misstatement of age voids the policy. It does not; it adjusts the benefit.
• Thinking reinstatement is automatic. It requires proof of insurability plus back premiums and interest within the 3-year window.