Massachusetts Life Insurance Policy Provisions, Options and Riders
This chapter covers the standard provisions every Massachusetts life policy must contain, ownership and the free look, how death proceeds are paid, nonforfeiture values and policy loans, the riders and living benefits a policy may carry, and group life conversion. Variable and indexed life insurance are covered in a later chapter, with annuities. The chapter on Massachusetts State Regulations covers the Massachusetts Life and Health Insurance Guaranty Association.
Life insurance policy provisions, options and riders
Standard provisions (Mass. Gen. Laws ch. 175, § 132)
No life or endowment policy or annuity contract may be issued or delivered in Massachusetts until its form has been on file with the Commissioner for 30 days, unless the Commissioner approves it in writing sooner, and not if the Commissioner objects in writing within those 30 days (Mass. Gen. Laws ch. 175, § 132). Section 132 then lists the provisions each individual policy must contain. Wording that is, in the Commissioner’s opinion, more favorable to the insured or the beneficiary than the statute’s satisfies a requirement. Group life policies have their own list in § 134 (below), and variable policies need only the grace, reinstatement, nonforfeiture and other provisions appropriate to them.
Grace period (Mass. Gen. Laws ch. 175, § 132(1))
The insured has 30 days of grace to pay any premium after the first year, and the policy stays in full force during that time. The insurer may charge interest of not more than 6% a year for the days of grace that pass before the premium is paid. If the insured dies during the grace period before paying, the overdue premium (with interest) and any deferred premiums for the current policy year may be deducted from the proceeds (Mass. Gen. Laws ch. 175, § 132(1)).
Incontestability (Mass. Gen. Laws ch. 175, § 132(2))
The policy must become incontestable after it has been in force during the insured’s lifetime for two years from its date of issue, with three exceptions:
- Nonpayment of premium
- Violation of policy conditions on military or naval service in time of war
- If the insurer elects, contesting claims for total and permanent disability benefits or accidental death benefits
Entire contract (Mass. Gen. Laws ch. 175, §§ 131, 132(3))
The policy and the application make up the entire contract. No statement by the insured can be used to defend against a claim unless it appears in a written application and a copy of the application is endorsed on or attached to the policy when issued (Mass. Gen. Laws ch. 175, § 132(3)). If the copy is not attached, the application is not part of the policy and may not be received in evidence for any purpose (§ 131).
Misstatement of age (Mass. Gen. Laws ch. 175, § 132(4), (12))
If the insured’s age was misstated, the amount payable is what the premium would have purchased at the correct age. For this rule, “insured” includes any other person whose age is used to set the premium (Mass. Gen. Laws ch. 175, § 132(4), (12)).
For example, if a policy’s premium would have bought $90,000 of coverage at the insured’s true age, the insurer pays $90,000 rather than the $100,000 face amount stated.
Reinstatement (Mass. Gen. Laws ch. 175, § 132(11))
The policyholder may reinstate a lapsed policy at any time within three years from the date of default, unless the cash surrender value has already been paid or the extended term period has run out. Reinstatement requires:
- Evidence of insurability satisfactory to the insurer (including evidence on anyone else whose death would trigger a benefit)
- Payment of all overdue premiums and any other debt to the insurer on the policy
- Interest of not more than 6% a year, or that rate compounded semiannually at the insurer’s option
Ownership (Mass. Gen. Laws ch. 175, §§ 123, 128)
- Consent of the insured. A life insurer may issue a policy only on a written application signed or assented to in writing by the person to be insured. A parent, guardian or other person with legal custody may sign for a minor under age 15, and either parent, a step-parent, or a husband or wife may sign for a single policy on two or more family members (§ 123).
- Minors age 15 and over. A Massachusetts minor who has reached age 15 may buy life insurance on their own life, for their own benefit or for a spouse, child, parent, brother, sister or grandparent, and may exercise the rights under the policy (§ 128).
- Changing the beneficiary. An insurer may not act on a written request to change the beneficiary unless the requester’s signature is witnessed by a disinterested person: someone over 18 who is not named as a beneficiary in the change. After accepting the change, the insurer sends written notice of it to the insured at the owner’s last known address (§ 123).
Assignability (Mass. Gen. Laws ch. 175, § 134C)
Subject to the policy’s terms, a person insured under a group life policy may assign any or all incidents of ownership, including the right to name the beneficiary, to have an individual policy issued and to pay premiums (Mass. Gen. Laws ch. 175, § 134C). For an individual policy, a policy loan is made on an assignment of the policy to the insurer (§ 142, below).
Right to examine (free look) (Mass. Gen. Laws ch. 175, § 187H; 211 CMR 34.06(1)(d))
Which free-look rule applies depends on the policy:
| Policy | Free-look period | Source |
|---|---|---|
| Individual life policy with a face amount under $25,000 | 10 days from delivery | Mass. Gen. Laws ch. 175, § 187H |
| A policy sold through a producer that replaces existing life insurance or an annuity | 20 days from delivery | 211 CMR 34.06(1)(d) |
| Variable life policy | 10 days from receipt | 211 CMR 95.08(1)(g) |
Under § 187H, the owner may cancel for any reason by returning the policy to the insurer’s home or branch office, or to the agent who sold it; any premium paid is refunded and the policy is void from the beginning. In a replacement, a replacing insurer that uses a producer must give the applicant the right to an unconditional refund of all premiums paid. The replacement regulation does not apply to exempt transactions such as group or credit life, employer-paid coverage or replacements within the same insurer group (211 CMR 34.03(1)).
Interest on insurance proceeds and payment of claims (Mass. Gen. Laws ch. 175, §§ 119A–119C, 125)
When the insured dies, the claim payment under an individual policy includes more than the face amount:
- Interest. Death proceeds must include interest beginning 30 days after the insured’s death, at the insurer’s rate for proceeds left on deposit. The interest is not payable until the insurer receives proof of death. If the insurer pays no interest on proceeds left on deposit, the rate is 6% (§ 119C).
- Unearned premium. For a policy in force on a premium-paying basis (other than a single-premium policy), the proceeds must include any premium paid for a period beyond the end of the policy month in which death occurred, unless the refund is due someone else under the contract (§ 119B).
For example, if an insured who pays annually dies in the third month of the policy year, the beneficiary receives the death benefit plus the premium paid for months four through twelve.
When the insurer keeps proceeds under a settlement option and the contract expressly withholds permission, the payee may not commute, encumber or assign them, and if the contract so provides, the payments are not subject to the payee’s debts (§ 119A).
A lawful beneficiary other than the person who took out the policy is entitled to the proceeds against that person’s creditors, even if that person kept the right to change the beneficiary. The exception is premiums paid in fraud of creditors: those premiums, with interest, go to the creditors out of the proceeds (§ 125).
Nonforfeiture: cash surrender value (Mass. Gen. Laws ch. 175, §§ 144, 144½)
Section 144½ is the current nonforfeiture law; § 144, which the outline cites, does not apply to policies issued on or after § 144½’s effective date (§ 144½(a)).
- Paid-up benefit. If a premium is not paid, the insurer must grant, on request within 60 days after the premium’s due date, a paid-up nonforfeiture benefit effective as of the due date. The benefit named in the policy takes effect automatically unless another option is elected within those 60 days.
- Cash surrender value. On surrender within 60 days after a defaulted premium’s due date, once premiums have been paid for at least 3 years (ordinary insurance), the insurer pays a cash surrender value instead of a paid-up benefit.
- Paid-up policies. A policy that is fully paid up, or that is continued as a paid-up benefit that began on or after the third anniversary, has a cash surrender value payable on surrender within 30 days after a policy anniversary.
Policy loans (Mass. Gen. Laws ch. 175, § 142)
After premiums have been paid for at least three full years, the policyholder is entitled, on written application and an assignment of the policy to the insurer, to a loan of up to the policy’s loan value, on the sole security of the policy (§ 142(2)).
The policy must set the loan interest rate in one of two ways (§ 142(3), (4)):
- A fixed rate of not more than 8% a year, or
- An adjustable maximum rate, which may not exceed the higher of the published monthly average of Moody’s composite yield on seasoned corporate bonds for the month ending two months before, or the rate used for the policy’s cash surrender values plus 1%
An adjustable rate is set at least once every 12 months (not more often than every three months); it may rise, and must fall, when the change would be one-half percent or more (§ 142(6)). Policyholders get reasonable advance notice of any increase (§ 142(7)).
A loan does not cause a lapse until the total debt, with interest, equals or exceeds the loan value, and not until 30 days after the insurer mails notice to the policyholder’s last known address (§ 142(8)). An insurer need not make a loan of less than $25, and § 142 does not apply to term policies, extended term insurance, industrial policies or variable contracts.
Disability riders: waiver of premium (Mass. Gen. Laws ch. 175, § 24)
A life insurer may include in its life policies, and in its annuity contracts, provisions for waiver of premiums or special benefits if the insured becomes totally and permanently disabled from any cause. The provision must state the benefits, their cost and what counts as total and permanent disability, and the charge for the benefit must be stated separately in the policy (Mass. Gen. Laws ch. 175, § 24).
Massachusetts law does not name a universal life policy’s waiver of stipulated premium; § 24 authorizes waiver of premium and disability benefits in general terms.
Living benefits: accelerated benefits (211 CMR 55.00)
An accelerated benefit product is a provision in, or rider to, an individual or group life policy that pays benefits during the insured’s lifetime, reducing the death benefit otherwise payable, if the insured becomes totally and permanently disabled as the regulation defines it (211 CMR 55.04). The qualifying conditions, as the policy specifies, are:
- Terminal illness: a condition a physician certifies will result in a drastically limited life span as the contract specifies, for example 24 months or less
- Chronic illness: certification by a licensed health care practitioner that the insured cannot perform, without substantial help, at least two activities of daily living (eating, toileting, transferring, bathing, dressing and continence) for at least 90 days, has a similar level of disability, or needs substantial supervision because of severe cognitive impairment
- A named medical condition that has required or will require extraordinary medical intervention without which the insured would die, such as end-stage renal disease or a major organ transplant
At application, the applicant receives a free-standing disclosure statement in at least 12-point type, signed by the owner and the writing producer, and another when benefits are accelerated (211 CMR 55.06(1)). It warns that receiving accelerated benefits may affect Medicaid and Supplemental Security Income (SSI) eligibility, and that merely owning such a policy may affect eligibility (211 CMR 55.100). The policy must also note that the benefit may be taxable if it is based on a medical condition that is neither a terminal nor a chronic illness under federal definitions (211 CMR 55.06(2)(l)).
Accelerated benefits: minimum standards (211 CMR 55.05)
| Standard | Rule |
|---|---|
| Pre-existing conditions | No pre-existing condition exclusion is allowed |
| When the benefit provision takes effect | On the policy or rider’s effective date for accidental injury; no more than 30 days after that date for other qualifying events (unless the insured chose an elimination period on a chronic-illness-only policy) |
| Lump sum | The policyholder must be offered the full amount as a lump sum, except where benefits are paid only for chronic illness; never as an annuity contingent on the insured’s life |
| Use of proceeds | The insurer may not restrict their use or try to recoup them, except in contestable cases of material misrepresentation, fraud or criminal misconduct; chronic-illness-only benefits pay only for qualified long-term care services |
| Premiums after acceleration | Accelerating the full death benefit waives future premiums with no waiver rider needed; a partial acceleration need not, unless the policy already has a waiver of premium provision that applies |
| Cash value | Reduced by no more than a pro-rata share, or the payment may be treated as a lien against the death benefit |
| Charge | The insurer may charge a separate premium |
Long-term care riders (211 CMR 55.06(2)(c); 211 CMR 65.00)
Long-term care insurance policies are regulated by 211 CMR 65.00 (211 CMR 65.01). When a life policy’s accelerated benefit can pay for long-term care services, 211 CMR 55.00 treats it as an accelerated benefit: its description must use the term “accelerated benefit,” the term “long-term care insurance” may not be used to describe or market it (211 CMR 55.06(2)(c)), and the disclosure says it is not part of a long-term care or nursing home insurance policy (211 CMR 55.100).
Children’s term rider and accidental death (Mass. Gen. Laws ch. 175, §§ 24, 144(7), 144½(g))
A life insurer may provide an accidental death benefit: a larger amount if death is caused by accident than if it results from other causes (§ 24).
Term insurance on a child, in a policy on a parent’s life, that expires before the child is 26, is uniform in amount after the child is 1 and has not become paid up by a parent’s death, is disregarded in figuring cash surrender values and nonforfeiture benefits. So are accidental death and dismemberment benefits and total and permanent disability benefits. None of them must be included in a paid-up nonforfeiture benefit (§ 144½(g); § 144(7) for older policies), so these riders build no required cash value.
If an accelerated benefit is paid and some death benefit remains, the accidental death benefit is not affected; if no death benefit remains, the accidental death benefit has no effect (211 CMR 55.05(13)).
Group life insurance: conversion to individual policy (Mass. Gen. Laws ch. 175, §§ 134(4), 134A)
A group life policy is incontestable after two years from issue (except for nonpayment) and gives the employer a 31-day grace period for every premium except the first (§ 134(1), (6)). When an employee’s coverage ends because employment or membership in an eligible class ends, the certificate must give the employee a conversion right (§ 134(4)):
- The employee stays insured for 31 days
- Within those 31 days, the employee may apply and pay the first premium for an individual policy without evidence of insurability, at the premium for their attained age
- The policy may be any form the insurer customarily issues except term, for no more than the amount of insurance that ended
Conversion also applies when the group policy itself ends, or is amended to end coverage for the employee’s class, for an employee insured five or more years. In that case the insurer may limit the new policy to the lesser of the ending coverage minus any group coverage the employee becomes eligible for within 31 days, and $2,000.
The certificate holder must be notified of the conversion privilege within 15 days after the event (§ 134A). If notice comes more than 15 but less than 90 days after the event, the time to convert is extended 15 days after the notice. If no notice is given within 90 days, the privilege expires at the end of the 90 days.
For example, an employee whose job ends on June 1 and who is first notified of the conversion right on July 10 has until July 25 to convert.
Lesson summary
- Grace period 30 days after the first year (interest up to 6%); incontestable after two years during the insured’s lifetime; reinstatement within three years; misstated age adjusts the benefit to what the premium would buy (§ 132).
- The insured must sign or consent to the application; minors 15 and over may contract for their own insurance; a beneficiary change needs a disinterested witness over 18 (§§ 123, 128).
- Free look: 10 days for individual policies under $25,000 (§ 187H), 20 days for replacements (211 CMR 34.06), 10 days for variable life (211 CMR 95.08).
- Death proceeds earn interest from 30 days after death (6% if the insurer pays none on deposits) and include premium paid beyond the month of death (§§ 119B, 119C).
- Cash value after 3 years of premiums; nonforfeiture election within 60 days of default (§ 144½). Policy loans after three full years, at up to 8% fixed or an adjustable maximum; no lapse until debt reaches the loan value and 30 days after notice (§ 142).
- Accelerated benefits (211 CMR 55): no pre-existing condition exclusion, a lump-sum option, no restriction on use, and they may never be marketed as “long-term care insurance.”
- Group conversion: 31 days, no evidence of insurability, any form but term; notice within 15 days, and the right expires at 90 days if no notice is given (§§ 134, 134A).