Life Insurance – Prohibited Clauses

What are clauses that are illegal / prohibited? Someone from Grand Prairie, Arlington, Mansfield, Burleson, Crowley, Lake Worth, or other places in Texas may ask that question. Here are a few examples of clauses / provisions that are illegal in Texas when they are included in a life insurance policy.
The following provisions cannot be included in life insurance policies:
1. Per Texas Insurance Code, Section 1101.053, a policy cannot limit the time to sue to less than two years. Section 1101.053 reads: “A life insurance policy may not include a provision that limits the time during which an action under the policy may be commenced to a period of less than two years after the date the cause of action accrues.”
2. Per Texas Insurance Code, Section 1101.054, a policy cannot purport to take effect more than six months before the original application date, if that would qualify the insured for a rate based on a younger age. Section 1101.054 reads:
“(a) Except as provided by Subsection (b), a life insurance policy may not contain a provision under which the policy is issued or takes effect on a date more than six months before the date of the original policy application if the provision causes the insured to rate at an age that is younger than the age of the insured on the date of the application. …
(b) An insurer of a life or endowment insurance policy or annuity contract may, with the consent of the policyholder or contract holder, exchange the policy or contrct for, or convert the policy or contract into, a policy of another insurance plan of insurance or an endowment or annuity contract as of a date not earlier than the effective date of the original policy or contract.
(c) If an exchange or conversion is made under Subsection (b) and the newly written policy or contract is issued as of a date earlier than the date of the application for exchange or conversion, the amount of life or endowment insurance or annuity provided under the newly written policy or contract may not exceed the greater of:
(1) the amount that the premium paid for the original policy or contract would have purchased on the plan of the newly written policy or contract for an individual the age of the insured on the effective date of the original policy or contract; or (2) the amount of the original policy or contract.”
3. Per Texas Insurance Code, Section 1101.055, a policy cannot limit benefits, except if the death resulted from suicide, stated hazardous occupations, or aviation activities. Section 1101.055 reads:
“(a) Except as provided by Subsection (b), a life insurance policy may not contain a provision for a settlement at maturity that is less than the amount insured on the face of the policy plus the amount of any dividend additions to the policy minus the sum of any amount of debt to the company that issues the policy and the amount of any premium that may be deducted from the settlement under the terms of the policy.
(b) A life insurance policy may provide for settlement that will be less than the amount required under Subsection (a) if the death of the insured is:
(1) by the insured’s own hand regardless of whether the insured is sane or insane;
(2) caused by following a hazardous occupation that is stated in the policy; or (3) the result of aviation activities under conditions specified in the policy and approved by the department under Chapter 1701.”
4. Per Texas Insurance Code, Sections 705.003 and 705.004, a policy cannot contain any provision that statements or answers in the application, if untrue or false, render the policy void. These sections should be read by anyone who thinks they may apply to them. However, the better thing to do would be to consult with an experienced Insurance Law Attorney. He would know how the law applies and would be able to apply the facts of any one case to the law to give the best advice.