2.1 Pennsylvania Life Insurance Policy Requirements

Where These Rules Come From

Pennsylvania's required policy provisions are set by Title 40 of Pennsylvania Statutes (40 P.S.), primarily Section 510, and enforced by the Pennsylvania Insurance Department (PID). The PID licensing exam tests these as the 'Pennsylvania-specific' overlay on top of the national life-insurance content. When a question gives you a fact pattern set 'in Pennsylvania,' expect the day counts below to be the trap answers.

Free Look Period

Every individual life policy delivered in Pennsylvania must give the owner a period to examine it and return it for a full refund of all premiums paid - no questions, no penalty.

Common trap: The replacement free look is 20 days, longer than the 10-day standard, because Chapter 81 requires a prominently printed notice on page one of any replacement policy granting an unconditional 20-day refund. Do not assume every PA free look is 10 days.

Worked example: A 42-year-old buys a non-replacement whole life policy delivered March 1. She has until March 11 (10 days) to return it for a full refund. Had this been a replacement of an existing policy, she would have until March 21 (20 days).

Incontestability Clause

Section 510 requires every life policy to be incontestable after 2 years from the date of issue during the insured's lifetime.

• After 2 years the insurer cannot void coverage or deny a claim for a material misstatement or concealment in the application.
• Exceptions that survive incontestability: non-payment of premium, and provisions relating to military/aviation/hazard riders. Outright fraud can still be challenged in some circumstances, but routine application misstatements cannot.
• A reinstated policy starts a new contestable period (measured from reinstatement) only as to statements made in the reinstatement application.

Suicide Clause

Pennsylvania caps the suicide exclusion at 2 years from issue.

• Death by suicide within 2 years: insurer pays only a return of premiums paid (not the face amount).
• Death by suicide after 2 years: the full death benefit is payable like any other claim.
• The suicide and incontestability periods run together but are legally separate - an exam item may pay the face amount under suicide (covered) while still being inside a contestability window for an unrelated misstatement.

Grace Period

Section 510 requires a grace period for premiums after the first year. Pennsylvania expresses it as 'one month or 30 days' during which the policy stays in full force; the industry standard delivered in PA is commonly 31 days.

Key rules during the grace period:

• Coverage remains in force; a claim during grace is paid.
• If the insured dies during the grace period, the insurer deducts the unpaid premium from the death benefit. (Worked example: $250,000 face, $400 monthly premium unpaid at death -> beneficiary receives $249,600.)
• If the premium is never paid, the policy lapses at the end of grace, then nonforfeiture options apply.

Other Mandatory Standard Provisions

Worked example - misstatement of age: A man stated his age as 45 but was actually 50. He paid the premium for a 45-year-old. At death the insurer pays the smaller face amount that his actual premium would have purchased for a 50-year-old. The claim is not denied; only the benefit is recalculated.

Unfair Discrimination

The Unfair Insurance Practices Act (40 P.S. Section 1171) bars unfair discrimination between individuals of the same class and equal life expectancy in rates, dividends, or benefits.

• Prohibited: rating or refusing coverage based on race, religion, national origin, or (with statutory protections) blindness/physical disability unrelated to actuarial risk.
• Permitted: classifications backed by sound actuarial data - age, tobacco use, occupation, avocation, and bona fide health conditions.

Common trap: 'Sex-distinct' rating is permitted only where actuarially justified; charging different rates to two applicants in the same actuarial class is illegal unfair discrimination.