2.1 Indiana Life Insurance Policy Requirements

Indiana's Standard Policy Provisions

Indiana Code (IC) Title 27 sets the minimum provisions every individual life insurance policy delivered in the state must contain. The Indiana Department of Insurance (IDOI) reviews forms before they may be sold. These are floor requirements: an insurer may offer terms more favorable to the policyowner but never less favorable. On the exam, watch for answer choices that quietly weaken a mandatory provision (a 5-day grace period, a 3-year incontestability window) — those are always wrong.

Grace Period (Tiered, Not Flat)

A common trap: Indiana's grace period is not a flat 31 days. IC 27-1-12 ties the minimum to the premium-payment mode:

During the grace period the policy stays in force. If the insured dies before the grace period ends, the death benefit is paid minus the unpaid premium. The policy cannot lapse for nonpayment until the grace period expires.

Worked example: An annual-premium policy bills $1,200 on March 1. The insured dies March 20 without paying. Because the annual mode carries a 31-day grace period, the policy is in force; the beneficiary receives the face amount minus the $1,200 owed.

Incontestability Clause

Indiana requires a 2-year incontestability clause measured from the policy's issue date. After two years the insurer cannot void the contract or deny a claim for a material misstatement on the application — even an innocent or negligent misrepresentation.

• Survives contestability (always deniable): non-payment of premium, and fraud rising to the level Indiana courts recognize as defeating the clause.
• A reinstated policy generally starts a new 2-year contestable period on the reinstated coverage.
• The clause protects beneficiaries: once the window closes, a forgotten or misremembered health detail can no longer sink the claim.

Suicide Exclusion

The suicide exclusion cannot exceed 2 years from issue. If the insured dies by suicide within that window, the insurer's liability is limited to a refund of premiums paid (not the face amount). After two years, suicide is paid like any other covered death. A reinstatement may restart the suicide period on the new coverage.

Other Mandatory Provisions

Misstatement-of-age trap: If an applicant understated her age, the death benefit is reduced to what the premium paid would have bought at the correct age. The carrier does not deny the claim or rescind the policy.

Free Look

Indiana policies are delivered with a free look (commonly 10 days for ordinary life). The owner may return the policy within the period for a full premium refund, no questions asked. Note: a replacement policy carries a longer 20-day free look under the replacement rule (covered in 2.3) — don't confuse the two windows.

Beneficiary and Unclaimed-Property Protections

Indiana shields death proceeds from most creditors of the insured and requires insurers to honor designations as written and use good-faith efforts to locate beneficiaries. If a beneficiary cannot be found, unpaid proceeds become unclaimed property reported to the Indiana Attorney General's unclaimed property division, where heirs may later claim them. Benefits cannot be forfeited for minor, technical paperwork defects.

Quick checklist for policy delivery

• Deliver the actual policy to the owner and obtain a delivery receipt
• Display the free-look notice prominently
• Attach all riders and endorsements
• Provide premium-due notices going forward

Nonforfeiture and Policy Loans

Permanent (cash-value) policies in Indiana must include nonforfeiture options so a lapsing owner is not stripped of the equity already built up. The three standard options are cash surrender (take the cash value, ending coverage), reduced paid-up insurance (a smaller, fully paid permanent policy with no further premiums), and extended term insurance (the cash value buys term coverage at the original face amount for a limited period). Extended term is typically the automatic default if no option is elected.

A cash-value policy must also allow policy loans against the cash value at a stated interest rate. Outstanding loans plus interest reduce the death benefit dollar-for-dollar if unpaid at death.

Settlement Options

When the insured dies, the beneficiary need not take a lump sum. Indiana policies offer settlement options: lump sum, interest-only, fixed-period, fixed-amount, and life income (with or without a guaranteed period or refund). Choosing life income shifts longevity risk to the insurer in exchange for a guaranteed payout the beneficiary cannot outlive — a frequently tested distinction from the simple fixed-period option, which pays for a set number of years regardless of how long the beneficiary lives.

Common trap: A fixed-period option pays out the entire proceeds plus interest over a chosen number of years and then stops; a life-income option pays for the beneficiary's lifetime. Do not equate them on the exam.