2.1 Arizona Life Insurance Policy Requirements

Arizona law (A.R.S. Title 20) imposes specific required provisions on individual life insurance policies sold in the state. These standardize contracts and protect policyholders and beneficiaries. Master the day counts and the "adjust, don't void" rules — they dominate the state section.

Free look (right to examine)

Arizona gives the policyowner a free-look period to examine a newly delivered policy and return it for a full premium refund, with the policy treated as void from the start.

Arizona's free-look rules sit in A.R.S. Title 20 and the Administrative Code (e.g., the disability examination rule at A.A.C. R20-6-501 sets a 10-day minimum for disability/health policies). Many Arizona prep sources also describe a 20-day courtesy period for seniors age 65+; treat the 10-day statutory minimum as the safe baseline and verify any senior extension against the specific policy/insurer.

Exam Tip: During the free look, the owner returns the policy and receives all premium paid back, as if the policy never existed — no surrender charge, no questions asked.

Incontestability

Arizona requires a 2-year incontestability provision. After the policy has been in force during the insured's lifetime for two years from issue, the insurer cannot contest the policy for material misrepresentations in the application.

• Exceptions: non-payment of premium and (in many cases) provisions relating to disability or accidental-death riders.
• Fraud: while incontestability is strong protection, the most egregious fraud may still be challenged in limited circumstances — but ordinary misstatements become incontestable after 2 years.
• Reinstatement restarts a new contestable period (typically 2 years) for statements made in the reinstatement application.

Suicide exclusion

Arizona limits the suicide exclusion to a maximum of 2 years from issue. If the insured dies by suicide within the exclusion period, the insurer's liability is generally limited to a refund of premiums paid (or premiums less any indebtedness). After 2 years, suicide is covered like any other cause of death.

Grace period

Life policies must provide a grace period (commonly 31 days, with some Arizona sources citing 30) during which a late premium can be paid without lapse and the full death benefit remains in force. If death occurs during grace, the unpaid premium is deducted from the proceeds.

Misstatement of age or sex

If the insured's age or sex was misstated, Arizona does NOT void the policy. Instead, the death benefit is adjusted to the amount the premium actually paid would have purchased at the correct age/sex. This protects beneficiaries while keeping the contract actuarially fair.

Other required provisions

Beneficiary and unfair-discrimination rules

• Change of beneficiary: The owner may change a revocable beneficiary by written request; the change is generally effective when received by the insurer (relating back to the signing date). An irrevocable beneficiary must consent to changes.
• No surviving beneficiary: Proceeds are typically paid to the owner's estate.
• Unfair discrimination prohibited: Insurers may not discriminate between individuals of the same class and equal life expectancy in rates or benefits, and may not refuse coverage based on race, color, religion, or national origin. Risk classification based on actuarially justified factors (age, health, tobacco use, occupation, avocation) is permitted.

Exam Tip: "Misstatement of age = adjust the benefit, never void the policy" and "2-year incontestability / 2-year suicide" are the highest-yield life-law facts on the Arizona section.

Worked example: misstatement of age

Assume a $250,000 whole-life policy where the insured understated her age by three years. At the true age, the premium she actually paid would have purchased only $230,000 of coverage. Under Arizona's misstatement-of-age rule, the beneficiary receives $230,000, not $250,000, and the policy is not rescinded. The insurer adjusts the benefit to maintain actuarial fairness while still honoring the contract — a far better outcome for the beneficiary than denial.

Settlement options and interest

Arizona requires insurers to pay death proceeds promptly and may require interest on proceeds not paid within a statutory period after due proof of death. Beneficiaries may elect settlement options instead of a lump sum:

Accelerated death benefits and contestability nuances

Many Arizona life policies offer accelerated death benefit riders allowing a terminally or chronically ill insured to access part of the death benefit while living. Producers must disclose tax and benefit-reduction consequences. Remember that the incontestability clock generally runs only while the insured is alive: if the insured dies within the contestable period, the insurer retains the right to investigate material misrepresentations even past the two-year mark for that claim.

Exam Tip: The contestable period runs during the insured's lifetime — a death inside the two-year window keeps the insurer's right to contest alive for that claim even after two calendar years have elapsed.