Slide 1

Policy Condition

Slide prepared by: Abdullah Al Yousuf KhanAssistant ProfessorIUBAT16

ChapterMcGraw-Hill/IrwinCopyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.Policy conditions are studied in five formsCommencement of riskPremiumContinuation of policyLapse conditionClaims settlement

1.Conditions relating to Commencement of RisksCommencement of risk; The date of letter of acceptance will be the date of commencement of risk. Only when the first premium is offered to and accepted by the insurer.Policy is issued after acceptance of risk.The policy contains terms and conditions of the insurance and is a document which can be used a proof of insurance. Conditions relating to Commencement of RisksProof of Age; The proof of age must be produced at the time of proposal or immediately after the proposal.Because the rate of premium depends upon the age of the life assured.The insurer does not withhold the issue of the policy for requiring the proof of age, but does not admit any claim unless the age is proved.If it is subsequently found that the age at entry at entry was mentioned lower than the correct age, the assured sum is reduced to such amount as would have been purchased at the true age. If the actual age comes out to be lower than the stated age, the difference is either refunded or adjusted towards future premium or policy amount.

2.Conditions of PremiumsPayment of Premiums; The rates are calculated annually, but for the convenience of the assured, it can be paid half-yearly, quarterly, or monthly. In case installments, the insurer will loose the interest on the unpaid premium and further costs are involved for frequent calculation of premium. If death takes place before all the premiums have fallen due for the current policy year, the corporation deducts the unpaid installments from the policy year, and deducts the unpaid assured sum at the time of settlement. Conditions of PremiumsGrace Period; Additional period is allowed as grace period (days of grace) in case premiums are not paid within the certain date to valid reason. Generally 30 days for over monthly installments, 15 days for monthly.The due must be paid within the grace period, if unpaid than it will be a lapsed policy. Conditions of PremiumsPremium Notice;Notice for due premiums will be regularly sent to the policy holder so that the policy holder does not forfeit the benefit of the policy. 3.Conditions Relating to Continuation of PoliciesIndisputable ClauseAlterations In PoliciesExclusionsLost PolicyLoans Nomination Assignment Suicide Double Accident BenefitDisable BenefitExtended Disability BenefitConditions Relating to Continuation of PoliciesIndisputable clause;The policy will not be disputed/contested on the ground of;unintentional misstatement, Misrepresentation, or Non-disclosure of a material fact after two years of the issue of the policy.However, on the ground of fraud it can be disputed at any time during the term of the policy. This clause is included to protect the interest of the assured. Conditions Relating to Continuation of PoliciesAlteration in policies;The insurer permits certain alterations in terms and conditions of the policies at the request of the policyholder.The insurer reserves the right to decline such request without assigning any reason.Alteration may be for change in;Term, sum assured, mode of premium payment, number of policies into more than one or two etc. Conditions Relating to Continuation of PoliciesExclusions; Some occupations or professions are excluded due to the nature of the risk which is greater (hazardous) than the standard risk.E.g.;Student is it really an occupation? Solders have more risk of dyeing if the are at war. So standard rates of premium are not sufficient to cover the risk. Sum assured will not be paid in case of death at war.

Conditions Relating to Continuation of PoliciesLost policy; In case of lost or destruction of the policy, the insured must duly inform the insurer to issue a duplicate copy. A charge will apply.

WHAT IS DULY ?Conditions Relating to Continuation of PoliciesLoans;Loans can be issued against the surrender value as security.Nomination;Nominee is the person named by the policyholder to whom the policy amount may be paid in the event of his death. (nominee must be alive to receive the money)Notice of nomination;

Conditions Relating to Continuation of PoliciesAssignment;A transfer of policy ownership to another person or business organization.Must be duly;Signed by both the parties (assignor and transferor)Attested by at least one witnessNotified to the insurer by delivering a copy of assignment or transfer. All the rights and privileges will be transferred to the new owner.Absolute assignment andConditional assignment Conditions Relating to Continuation of PoliciesSuicide; In the event of suicide committed by the assured within one year from the date of commencement, will be void and all claims to any; BenefitAdvantage orInterest in the funds of the corporation by virtue of this policy shall cease. Conditions Relating to Continuation of PoliciesDouble accident benefit; Provides for payment of double of the sum assured on;death by accident. death within 90 days after surviving from the accident Conditions Relating to Continuation of PoliciesDisability benefit;Exempted from premiums payment because of disability caused by accident to earn. Except; Pure endowmentTerm insuranceChildrens differed endowment and Retirement annuitiesConditions Relating to Continuation of PoliciesExtended Disability Benefit; Provides waiver of premiums Payment of an amount equal to the sum assured due to Permanent total disability as a result of an accident. 4.Lapse ConditionsLapse of PoliciesRevival of Lapsed PoliciesSpecial Revival SchemeSurrender ValueExtended Term InsuranceAutomatic Premium LoanReduced Paid-up Insurance

Lapse ConditionsLapse of Policies;If the policyholder fails to pay any of the due premiums within the days of grace, the insurance liability ordinarily ceases and the contract comes to an end.All the benefits related to the policy are terminated.

Lapse ConditionsRevival of Lapsed Policies;A lapsed policy can be revived to the full policy amount at any time during the life time of the life assured.But within a period of five years from the due date of the first unpaid premium and before the date of maturity.Revival is possible within six months from the date of the first unpaid premium without evidence of health on payment of premiums in arrears with interest.In case after six months of revival, a satisfactory production of evidence of health and habits is required without no adverse change in personal and family history and occupation.

Lapse ConditionsSpecial Revival Scheme;As revival of lapsed policy becomes expensive due to the payment of arrears with interest.Special revival scheme is beneficial to gain the cover of interest. The date of commencement of policy will be fixed by dating back the policy by issuing a new policy.Conditions for special revival scheme;The policy must not have acquired surrender value.Period from the date of lapse must not be less than six months and not over two years.Revival is not allowed more than once for same policy.

Lapse ConditionsSurrender Value;When the assured is unable to revive his policy, he can surrender his policy and can get cash surrender value. The contract comes to an end with this payment. Surrender value is only payable if;If the premiums paid for at least two years Or equals to 1/10th of the total premium stipulated and the 1/10th exceeds one full years of premium.The minimum surrender value is equal to 30 percent of the total amount of premium paid exceeding the premiums paid first year.

Lapse ConditionsExtended Term Insurance;If a premium remains unpaid at the end of the days of grace and the policy has been in force for at least three years;The insurance will continue as paid up for the full sum up to a period called term.The term depends upon the amount of premium paid. If the assured dies during this period, payment will be made up to the full amount.If the assured survives, no payment will be made.

Lapse ConditionsAutomatic Premium Loan;If assured is unable to pay the premiums,The insurer will not allow the policy to lapse but will automatically pay the premiums out of the net surrender value.

Lapse ConditionsReduced Paid-up Insurance;If the policyholder is unable to pay further premiums and does not want cash immediately, he can paid-up the policy.

5.Settlement of ClaimsSettlement of claims;The policy amount becomes payable either on the assureds death during the term of the insurance or on his surviving till the end of the term i.e. on maturity.In case of death claims;Proof of deathProof of title and age are essentialIn case of maturity;Proof of title and Proof of age are required.

Settlement of ClaimsSettlement options;The claim amount may be paid in;Cash or installmentThe installment may be for;Payment of interest annually for a particular period,Up to a survived and Sum assured at a timeAnnuity may be purchased for life Or for a period and life thereafter. End of Chapter ?