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comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. What Is a Contract Provision?A contract provision is a stipulation within a contract, legal document, or a law. A contract provision often requires action by a specific date or within a specified period of time. Contract provisions are intended to protect the interests of one or both parties in a contract. Key Takeaways
How a Contract Provision WorksContract provisions can be found in a country's laws, in loan documents, and in contract agreements. They also can be found in the fine print accompanying purchases of some stocks. For example, an anti-greenmail provision is a type of contract provision that is contained in some companies' charters that prevents the board of directors from paying a premium to a corporate raider to drop a hostile takeover bid. In loan documents, a loan loss provision is a type of contract provision that details an expense set aside to allow for uncollected loans or loan payments. This provision is used to cover a number of factors associated with potential loan losses. Special ConsiderationsMany laws are written with a sunset provision that automatically repeals them on a specific date unless legislators reenact them. A sunset provision provides for a repeal of the entire law—or sections of the law—once a specific date is reached. Sunset clauses can help the general public in a few ways. What may be the most common is when a government body writes a provision into law that benefits the public during a certain period of time, usually during a period of specific party power. When the power dynamic shifts, the clause may not be in the best interest of the public anymore, and will be triggered and may free the public from unwanted repercussions from a power shift, such as a tax increase or regulation. For example, the National Security Agency’s (NSA) authority to collect bulk telephone metadata under the USA PATRIOT Act expired at midnight on June 1, 2015. Any investigations started before the sunset date was allowed to be completed. Many sunsetted portions of the Patriot Act were extended through 2019 with the USA Freedom Act. However, the provision allowing the collection of massive phone data by government agencies was replaced with a new provision that this data must be held by phone providers. This practice of sunsetting has its parallel in business. For example, a sunset provision in an insurance policy limits a claimant’s time to submit a claim for a covered risk. If the claimant does not act within the defined period, the right to make the claim is forfeited. Example of a Contract ProvisionOne of the most familiar uses of a contract provision is a bond’s call provision. A bond's call provision refers to a specific date; after this date, the company may recall and retire the bond. The bond investor can turn it in for payment of the face amount (or the face amount plus a premium). For example, a 12-year bond issue can be called after five years. That first five-year period has a hard call protection. Investors are guaranteed to earn interest until at least the first call date. When an investor buys a bond, the broker typically provides the yield to call as well as the yield to maturity. These two yields show the bond’s investment potential. If a bond has a soft call provision, the procedure will go into effect after the hard call provision period passes. Soft call protection is typically a premium to face value that the issuer pays for calling the bond before maturity. For example, after the call date is reached, the issuer might pay a 3% premium for calling the bonds for the next year, a 2% premium the following year, and a 1% premium for calling the bonds more than two years after the hard call expires. What Are Some Typical Contract Provisions?While all contracts will vary depending on the particular circumstance around what the contract is for and who is involved, nearly all will have at least some of the following basic provisions:
What Is the Difference Between a Contract Provision and Clause?A provision in a contract stipulates a condition or requirement. A clause is a section or subsection written into a contract, which may contain one or more provisions within it. What Are Sunrise and Sunset Provisions?A sunset provision automatically allows for a contract or parts of it to be phased out or automatically terminated at some point in the future. A sunrise provision extends coverage to events occurring before the contract was signed, allowing the insured to keep a level of affordable coverage. What is included in the entire contract provision?Entire Contract Clause — a standard insurance contract provision that limits the agreement between the insured and the insurer to the provisions contained in the contract. The clause functions primarily for the protection of the insured.
What is part of the entire contract?A clause in a contract which states that the document as executed by the relevant parties constitutes the entirety of their agreements.
Which of the following is not part of the entire contract provision in a life insurance policy?The correct answer is: The policy has not been expired for more than 1 year. The entire contract clause of a life policy provides all of the following, EXCEPT: The entire contract clause prevents the producer and the policyholder from amending the policy.
What constitutes the entire contract quizlet?The entire contract provision stipulates that the policy and a copy of the application, along with any riders or amendments, constitute the entire contract. No statements made before the contract was written can be used to alter the contract.
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