If policy proceeds are paid out in a lump sum, which clause will not apply?

The spendthrift clause is designed to protect life insurance proceeds from creditors and prevent beneficiaries from squandering their inheritance by restricting the use of benefits through direct access. When policy proceeds are paid out in a lump sum, the spendthrift clause becomes irrelevant since the beneficiary receives the full amount immediately, and there is no ongoing trust or installment structure to manage. This means the protections that a spendthrift clause would offer are not needed in a lump-sum distribution scenario, as the beneficiary can freely manage their payout.

In contrast, the other clauses serve significant purposes regardless of whether the payout is a lump sum. The incontestability clause ensures that after a certain period, the insurer cannot dispute the validity of the policy based on misrepresentation, and it applies since this is related to the policy's validity rather than the payment method. The suicide clause typically allows for a policy to be contested if the insured takes their own life within a specified time frame, which also remains relevant regardless of how proceeds are distributed. Similarly, the grace period clause allows policyholders to pay their premiums within a certain timeframe after they are due to avoid policy lapsation, applicable irrespective of payment form.