2.1 Colorado Life Insurance Policy Requirements

Colorado law imposes specific protective provisions on life insurance policies delivered in the state. These provisions are largely consistent with the NAIC standard provisions, so most are familiar from national study—but the exam tests the Colorado numbers, so commit them to memory.

Free Look Period

Colorado gives a life insurance buyer a free-look right (also called a right to examine): the owner may return the policy within the stated window for a full refund of premium, no questions asked. Colorado's senior-protection rules extend the free-look period for buyers age 60 and older.

During the free-look window the owner can review the contract, return it, and receive every dollar of premium back. The clock starts when the policy is delivered, not when it is issued.

Exam Tip: The senior age threshold in Colorado is 60+, not 65. A 62-year-old buyer gets the extended look; a 58-year-old gets the standard period.

Incontestability Clause

Colorado requires a two-year incontestability clause in life policies:

• After the policy has been in force for two years during the insured's lifetime, the insurer cannot contest the policy based on misstatements in the application.
• Exceptions: the clause does not bar denial for nonpayment of premium, and it does not shield fraud to the extent the law permits a fraud defense.
• The two-year period runs from the issue date.
• If a lapsed policy is reinstated, a new contestable period generally begins as to statements in the reinstatement application.

The practical effect: an honest beneficiary is protected from a claim denial over an innocent application error once the policy has matured past two years.

Suicide Clause

Colorado limits the suicide defense to the first policy year. C.R.S. 10-7-109: "The suicide of a policyholder after the first policy year of any life insurance policy ... shall not be a defense against the payment of a life insurance policy."

• If the insured dies by suicide within the first policy year, the policy's suicide exclusion can apply (typically a refund of premiums rather than the face amount).
• After the first policy year, suicide is not a defense: the insurer pays like any other death.

Exam Tip: Colorado's two clocks differ: incontestability is 2 years (C.R.S. 10-7-102), but the suicide defense ends after 1 year. A distractor will often offer the 2-year figure many other states use for suicide.

Unfair Discrimination Prohibitions

Colorado prohibits unfair discrimination in underwriting and rating. Two Colorado-emphasized protections are frequently tested:

What insurers MAY consider

Underwriting on legitimate, actuarially supported risk factors is permitted:

• Age
• Current health conditions and medical history
• Tobacco/nicotine use (directly tied to mortality)
• Occupation and hazardous avocations (within limits)
• Driving record and other risk-related lifestyle factors

The line is risk-based vs. status-based: charging a smoker more reflects mortality risk and is allowed; refusing coverage because someone is a domestic-violence survivor or carries a genetic marker is prohibited.

Colorado emphasis: The prohibition on using genetic information in life underwriting is a Colorado-stressed consumer protection. If a question asks which factor may not be used, genetic test results and domestic-violence status are the trap-free correct choices.

Beneficiary Protections and Claims

Colorado expects insurers to handle death claims fairly and promptly:

• Prompt payment of valid claims after proof of death is furnished.
• Interest may be owed on benefits not paid within the time the law allows.
• Insurers must not unreasonably delay or deny claims (an unfair claims-settlement practice under Article 3).

Unclaimed benefits and escheat

If a beneficiary cannot be located, the death benefit is not forfeited:

• The insurer must treat unpaid benefits as unclaimed property.
• Unclaimed funds eventually escheat to the Colorado State Treasurer.
• A beneficiary can still claim the money from the state afterward.

Policy Delivery and Forms

• Policy forms must be filed with and not disapproved by the DOI; they must be readable and not unfairly misleading.
• The policy and required disclosures must be delivered to the owner.
• Electronic delivery is permitted with the owner's consent.

Together these rules give a Colorado life policyholder a predictable bundle of rights: a chance to back out (free look), protection once the policy matures (incontestability and the closed suicide window), nondiscriminatory underwriting, and assurance that a death benefit will reach the family or the state rather than vanish.

Exam Tip: When asked which provision protects a beneficiary from a denied claim over an old application error, the answer is the incontestability clause; the free-look protects the owner at the start.

Other Required Standard Provisions

Beyond the headline clauses, Colorado life policies must include several owner protections:

• Grace period — one month, not less than 30 days, for every premium after the first year (C.R.S. 10-7-102(1)(i)), during which the policy stays in force; death during grace pays the benefit minus the overdue premium.
• Reinstatement — a lapsed policy may be reinstated (commonly up to 3 years) on proof of insurability and payment of back premiums with interest; this restarts the contestable and suicide periods.
• Misstatement of age or sex — the benefit is adjusted to what the premium would have bought at the correct age; the policy is not voided.
• Entire contract — the policy plus the attached application is the whole agreement.
• Nonforfeiture options — cash surrender value, reduced paid-up insurance, or extended term insurance.

Settlement Options and Accelerated Benefits

When a death benefit becomes payable, the beneficiary can choose among settlement options: lump sum, interest-only, fixed-period, fixed-amount, or a life-income option. Colorado expects prompt payment once proof of death is received and may require interest on amounts not paid within the time the law allows. Many Colorado policies also offer an accelerated (living) benefit letting a terminally or chronically ill insured access part of the death benefit early; required disclosures must explain how acceleration reduces the remaining death benefit.

Exam Tip: Misstatement of age does not void a Colorado life policy; the benefit is recalculated to the amount the premium would have bought at the true age. Distinguish this from material fraud, which the incontestability clause does not bar.