5.1 Standard Life Insurance Provisions: Section 410 of the Insurance Company Law
Section 410 begins: no policy of life or endowment insurance (other than industrial policies with monthly or more frequent premiums) shall be delivered in this Commonwealth unless it contains, in substance, the following provisions, "or provisions which, in the opinion of the Insurance Commissioner, are more favorable to the policyholder." Here is each clause in the order the outline prints it, with the Pennsylvania text as read on October 12, 2026.
| Outline label | Clause | What Pennsylvania requires |
|---|---|---|
| Payment of premiums | (a) | All premiums payable in advance |
| Grace period | (b) | A grace of thirty days or one month for paying any premium after the first year; the company may charge interest not exceeding 8% per year for the days of grace; the policy stays in full force during grace; if the insured dies during grace, the overdue premium (and deferred premiums of the current policy year) with interest may be deducted from the claim |
| Incontestability | (c) | The policy is incontestable after it has been in force during the insured's lifetime for two years from its date of issue, except for nonpayment of premiums; at the company's option, disability benefit provisions and accidental-death-benefit provisions may also be excepted |
| Entire contract | (d) | The policy is the entire contract; if the company wants the application to be part of it, a copy of the application must be endorsed on or attached to the policy and the policy must say the policy and application constitute the entire contract |
| Misstatement of age (and sex) | (e) | If the age of the insured, or of any person whose age is considered in determining the premium, is misstated, the amount payable is what the premium would have purchased at the correct age |
| Participation (dividends) | (f) | A participating policy must say that it participates in the surplus and that, beginning not later than the end of the third policy year, the company will annually determine the divisible surplus; the owner may take the dividend in cash or by another stated option (an alternative: beginning not later than the end of the fifth policy year, with apportionments at periods of no more than five years) |
| Options on default | (g) | A provision specifying the options available if a premium is not paid |
| Loan value | (h) | A loan value at any time after three full years' premiums have been paid and while no premium is in default beyond the grace period; the company may defer a loan (other than a loan to pay premiums) for six months; not required for term insurance |
| Nonforfeiture and cash surrender | (i) | A nonforfeiture benefit and cash surrender value (for modern policies, as required by section 410A, the Standard Nonforfeiture Law) |
| Table of values | (j) | A table showing loan values and options each year during at least the first twenty policy years |
| Reinstatement | (k) | The right to reinstate on written application at any time within three years from the date of default, unless the policy was surrendered or the extended term expired, on evidence of insurability satisfactory to the company, payment of overdue premiums with interest at a rate stated in the policy not exceeding 8% per year, and payment of other indebtedness with interest |
| Payment of claims | (l) | When the policy becomes a claim by death of the insured, settlement shall be made upon receipt of due proof of death |
A clause making a policy incontestable "shall preclude only a contest of the validity of the policy and shall not preclude the assertion, at any time, of defenses based upon provisions in the policy which exclude or restrict coverage," whether or not they are excepted in the incontestability clause. That sentence is why a contestable period does not make an excluded cause of death payable after two years: incontestability bars a challenge to validity, not enforcement of the policy's own exclusions.
Exam traps: statutory numbers. Grace period: 30 days or one month (not 31). Incontestable: two years, from date of issue, during the insured's lifetime. Reinstatement: three years from default (not five). Loan value: after three full years' premiums. Dividend determination begins no later than the end of the third policy year (or the fifth, under the alternative). Interest on grace and reinstatement: 8% per annum maximum.
Death benefits: timing, interest, and the suicide clause
Interest on late claims (ICL § 411B). Life insurance death benefits not paid within thirty days after satisfactory proof of death was submitted bear interest at the rate payable on death benefits left on deposit with the insurer, from the date of death to the date of payment. If proof is submitted more than 180 days after death, interest runs from the date the proof was submitted rather than the date of death. The section applies to all life policies except variable policies.
Suicide. Section 410 does not list a suicide clause among the required provisions. A suicide exclusion is a contract term, usually a two-year exclusion that refunds premiums instead of paying the face amount; the national rule you learned (a clause limiting liability for suicide) appears in the Pennsylvania statute only incidentally, in the section on exchanges, which lets a rewritten policy use the date of the exchange to restart the suicide and incontestability periods (ICL § 420). The exam question is almost always about the effect, not the statute.
Prohibited provisions (ICL § 411; the outline's 40 P.S. § 511). No life policy may be delivered in Pennsylvania if it contains:
- a provision for forfeiture of the policy for failure to repay a loan or pay loan interest while the total indebtedness is less than the cash value;
- a provision limiting the time within which any action may be commenced to less than two years after the cause of action accrues;
- a provision that the policy purports to be issued or to take effect more than six months before the original application (the limit on backdating); or
- a mode of settlement at maturity of less value than the face amount (plus dividend additions, less indebtedness and premiums that may be deducted).
Backdating. Backdating a policy to save age is legal in Pennsylvania, but only up to six months before the date of the application. Backdating further than that is a prohibited provision.
Nonforfeiture (ICL § 410A)
If the owner stops paying premiums on a permanent policy, the Standard Nonforfeiture Law protects the cash value. Pennsylvania's version requires that, on default, the company grant, upon request not later than sixty days after the premium due date, a paid-up nonforfeiture benefit; that a specified paid-up benefit becomes effective automatically unless the person entitled elects another available option not later than sixty days after the due date; and that, on surrender within sixty days after the due date after at least three full years' premiums (ordinary insurance), the company pay a cash surrender value in lieu. The company may reserve the right to defer payment of any cash surrender value for six months after demand. The policy must carry a statement of the mortality table and interest rate used and a table of values. Policy loan interest is regulated by ICL § 410F.
Right to examine (free look) (ICL § 410D)
Chapter 1 gave the three Pennsylvania tiers. Here they are again where the exam files them, under policy provisions: an individual fixed-dollar life or endowment policy must carry a prominent first-page notice that the policyholder may return it within at least 10 days of delivery and have the premium refunded; 45 days if the policy is offered as a replacement of existing life insurance or an annuity with the same insurer or insurer group; 20 days if offered as a replacement with a different insurer. Individual variable life has the same tiers with the refund formula in the statute. The 10-day period runs from the delivery date defined in ICL § 404-A.
In Pennsylvania: Policy delivery date. Mailing date if mailed, physical delivery date if hand-delivered, or electronic transmission date. The insurer must prove delivery.
5.2 Ownership, Assignment, Loans and the Beneficiary
The policyowner holds every contractual right, and the owner need not be the insured — a spouse, a parent, a business, or a trust can own a policy on someone else's life. Those rights include paying premiums, naming and changing beneficiaries, selecting dividend and settlement options, borrowing against cash value, surrendering the policy, and assigning it.
A policy loan against cash value has no fixed repayment schedule. The owner can repay on any timetable or not at all, but interest accrues, and if a loan balance plus interest is still outstanding when the insured dies, the insurer subtracts it from the death benefit. Loans are available on whole life and most universal life policies.
Assignment transfers policy rights to someone else, and there are two kinds. An absolute assignment is a permanent, complete transfer of all ownership rights to a new owner — common when a policy is gifted or used to fund a business buy-sell agreement. A collateral assignment is a partial, temporary transfer, usually to a lender, conveying only enough rights to secure a debt; the owner keeps every other right, and the assigned interest returns to the owner once the debt is repaid. If the insured dies with a collateral assignment in place, the lender is paid first out of the proceeds and the beneficiary receives the remainder.
5.3 Beneficiary Designation and Beneficiary Clauses
The beneficiary is the person or entity that receives the death benefit. Policies recognize a primary beneficiary, a contingent (secondary) beneficiary who collects only if every primary predeceases the insured, and sometimes a tertiary beneficiary behind that. Beneficiaries can be named individually or as a class, such as "my children."
A revocable designation can be changed by the owner at any time without anyone's permission. An irrevocable designation gives the named beneficiary a vested interest: the owner cannot change the beneficiary, and generally cannot surrender the policy, borrow against it, or assign it, without that beneficiary's written consent.
When a named beneficiary dies before the insured, the distribution method decides where that share goes. Per stirpes ("by the branch") sends a deceased beneficiary's share down to that beneficiary's own descendants. Per capita ("by the head") divides the proceeds equally among the surviving named beneficiaries at the same level, ignoring the deceased one's line. A parent naming three children per stirpes protects the grandchildren of a child who dies first; per capita would instead split everything between the two surviving children.
Two related rules handle the timing of death. The common disaster provision and the Uniform Simultaneous Death Act address the case where the insured and the primary beneficiary die in the same event and no one can prove who died first: the insured is presumed to have survived the beneficiary, so the proceeds pass to the contingent beneficiary rather than into the primary beneficiary's estate. A minor beneficiary cannot legally receive proceeds directly; the proceeds must flow through a trust or a custodian named under the state's Uniform Transfers to Minors Act. A spendthrift clause restricts a beneficiary's ability to assign or borrow against future installment payments and shields those payments from most of the beneficiary's creditors — useful when proceeds are paid out over time rather than in a lump sum.
In Pennsylvania: divorce and beneficiary designations (20 Pa.C.S. § 6111.2). The outline cites this section by name. It applies when an individual domiciled in Pennsylvania designates his or her spouse as beneficiary of a life insurance policy, annuity, pension or profit-sharing plan or similar contract, and at death is divorced from that spouse, or dies during divorce proceedings before a decree is entered, if grounds have been established under the Divorce Code. A designation of the spouse or former spouse that was revocable at death becomes ineffective for all purposes and is construed as if the spouse or former spouse had predeceased the individual, unless it appears the designation was intended to survive the divorce based on (1) the wording of the designation, (2) a court order, (3) a written contract between the individual and the spouse or former spouse, or (4) a designation of the former spouse as beneficiary after the divorce decree. An insurer that makes payments to the spouse or former spouse that would have been proper in the absence of the section is not liable unless restrained by court order, but the person who received the payment is answerable to anyone prejudiced. Exam use: a Pennsylvania insured names her husband beneficiary, divorces, and dies without changing the form. The proceeds go as though the husband predeceased her (to the contingent beneficiary), unless the beneficiary form, court order, contract or a post-decree designation shows an intent to keep him. The producer's takeaway: advise clients to review beneficiaries after a divorce.