2.1 Virginia Life Insurance Policy Requirements

The Standard Provisions Framework

Virginia regulates individual life insurance through Title 38.2, Chapter 33 of the Code of Virginia and the Bureau of Insurance (a division of the State Corporation Commission, or SCC). The law sets minimum standard provisions: an insurer may give the policyholder more favorable terms but never less favorable than the statute. Virginia weaves these standard-provision rules through the 150-question Prometric Series 11-01 exam, so memorize the thresholds precisely.

Free Look Period

The free look (also called the right to examine) lets a policyowner return the policy for a full, unconditional refund of all premiums — no surrender charge, no questions asked. The clock starts when the policy is delivered, not when it is issued.

Common trap: A senior buyer (65+) does not automatically get a longer free look on every life policy — the extended period applies to replacements and to senior/LTC products. Don't confuse the free look with the 31-day grace period; one is a refund window at the start, the other is a payment cushion during the policy's life.

Incontestability Clause

Virginia requires a 2-year incontestability clause. After the policy has been in force during the insured's lifetime for two years from the issue date, the insurer can no longer contest it for material misrepresentation or concealment on the application.

• Exceptions that survive the two years: non-payment of premium, and impersonation/fraud where someone other than the insured was examined.
• A reinstated policy starts a fresh contestable period for statements made on the reinstatement application (commonly 2 years).
• The clause protects the beneficiary — once contestability lapses, an honest application error can no longer defeat the claim.

Suicide Clause

The suicide exclusion may not exceed 2 years. If the insured dies by suicide within two years, the insurer's liability is limited to a refund of premiums paid; after two years, suicide is fully covered like any other death. A reinstatement does not extend the suicide period beyond the original two years from issue unless the policy permits, a point examiners like to test against the incontestability rule.

Grace Period

Virginia mandates a 31-day grace period regardless of premium mode (monthly, quarterly, semi-annual, or annual). The policy stays fully in force during the grace period, so a death claim is paid — but the insurer deducts the unpaid premium from the death benefit.

Worked example: A policy with a $250,000 death benefit and a $300 monthly premium lapses into grace. The insured dies on day 20 of grace. The insurer pays $250,000 minus the one overdue $300 premium = $249,700.

Required Standard Provisions

Virginia law lists provisions that must appear in every individual life contract:

Misstatement of Age — Worked Example

If an applicant understates her age and the premium paid would have bought a smaller amount at her true age, the death benefit is reduced proportionally. Formula: Adjusted benefit = (premium paid ÷ correct-age premium rate) × face per unit. The contract is never voided for an age error — a frequently missed answer.

Nonforfeiture Options

1. Cash Surrender — take the cash value in a lump sum.
2. Reduced Paid-Up — a smaller, fully paid permanent policy, no further premiums.
3. Extended Term — the automatic default if the owner makes no election; cash value buys term insurance equal to the original face for as long as it lasts.

Reinstatement Mechanics

A lapsed policy may be reinstated within 3 years if the owner proves continued insurability and pays all overdue premiums with interest. Reinstatement is cheaper than buying a new policy because the original age and premium rate are preserved, but it restarts a contestable period for statements on the reinstatement application. The owner must also repay or reinstate any outstanding policy loan.

Beneficiary and Settlement Rules

Virginia recognizes revocable and irrevocable beneficiaries. A revocable beneficiary can be changed at will; an irrevocable beneficiary's written consent is required to change the beneficiary, take a loan, or surrender the policy. If no named beneficiary survives the insured, proceeds pass to the owner's estate. The owner may also elect a settlement option instead of a lump sum:

• Interest only — insurer holds the proceeds and pays interest.
• Fixed period — equal payments over a set number of years.
• Fixed amount — set dollar payments until proceeds plus interest are exhausted.
• Life income — payments for the beneficiary's lifetime, optionally with a period-certain or refund guarantee.

Exam Tip: Death proceeds paid as a lump sum are generally income-tax-free to the beneficiary, but the interest portion of any installment or interest-only option is taxable. Watch for questions that try to tax the entire installment payment.