Vermont Life Study Guide

Almost everything Vermont has to say about life policy provisions sits in one statutory section — 8 V.S.A. § 3731, the standard provisions — and the state-specific half of your exam comes largely from it. Learn the section and you have learned the syllabus. Two of its twelve subdivisions carry a carve-out for industrial life, and those carve-outs are where candidates lose marks.

The two-year pair, and the one that isn’t statutory

Incontestability runs two years from the date of issue, during the insured’s lifetime, except for nonpayment of premium (§ 3731(4)). Note that is the individual life rule; group life has its own section at § 3814 with the same two-year period.

Now the one that goes wrong by reflex. Vermont has no suicide statute for life insurance. Chapter 103 contains no suicide provision at all. A suicide limitation is a permissible policy provision, and what the statute does is protect it — § 3733 says an incontestability clause “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.”

So the clause survives the contestable period, but its length and its remedy are contractual. If a question asks whether a Vermont policy must contain a two-year suicide exclusion, the answer is no.

Grace, reinstatement, and the industrial carve-outs

The grace period is 30 days, or at the insurer’s option one month of not less than 30 days — and four weeks for industrial life policies whose premiums are payable more often than monthly (§ 3731(2)). The same subdivision adds a practical rule worth knowing: if a claim arises during the grace period, “the amount of any premium due or overdue may be deducted from the policy proceeds.”

Reinstatement runs three years from the date of premium default — but two years for industrial life (§ 3731(9)). That is the second industrial carve-out, in the same section as the first.

Three things bar reinstatement outright, and candidates usually remember only the first: the policy has been surrendered for its cash surrender value, its cash surrender value has been exhausted, or the paid-up term insurance has expired.

And the interest rule, which is precise. Arrears are paid “with interest at a rate not exceeding six percent per annum.” Note that ceiling attaches to overdue premiums. Other indebtedness — a policy loan — is reinstated “with interest compounded annually at the rate set forth in the policy for policy loan interest.” Two different rules in one sentence, and only one of them is capped by statute.

Nonforfeiture — read what the statute actually requires

Standard prep teaches three nonforfeiture options: cash surrender value, reduced paid-up insurance, extended term insurance. Vermont’s § 3762 does not put it that way, and the difference is testable.

What the statute requires is that on default the company grant, on request no later than 60 days after the due date, a paid-up nonforfeiture benefit “on a plan stipulated in the policy” — or, on surrender within 60 days, pay a cash surrender value, available after premiums have been paid for three full years for ordinary insurance or five for industrial.

So the statutory pair is paid-up nonforfeiture benefit and cash surrender value. Reduced paid-up and extended term are the industry names for whatever plan the policy stipulates. And § 3762(a)(3) adds the default rule: the specified paid-up benefit takes effect automatically “unless the person entitled to make the election elects another available option not later than 60 days after the due date of the premium in default.”

The secondary market

Vermont regulates life settlements under Chapter 103, Subchapter 5B (§§ 3835–3849) — the older viatical subchapter is repealed. Providers and brokers must be licensed by the Commissioner (§ 3836).

The tested number is the rescission window: § 3843(c) gives the policy owner “an absolute right to rescind the contract before 30 calendar days after the date upon which the life settlement contract is executed by all parties.” Note the trigger — execution by all parties, not receipt of the proceeds. A formula measured from payment is a different rule, and not Vermont’s. If the insured dies within the rescission period the contract is deemed rescinded, subject to repayment within 60 days of death.