INSURANCE PRACTICE

CHAPTER-3 PART-II

How insurance policies are bought and written

• Source of preliminary information

Insurance companies spread awareness of, and generate interest in, their products through mass media advertisements.

Purpose of buying insurance

Insurance should be bought by a person based on their needs.

How life insurance is written

• Most policies are written on what is known as a single life basis, with only one life insured. Usually, but not Always.

• the person taking out the policy and the life insured are one and the same person. This is known as an own life policy.

• Policies can also be taken out jointly by two insureds – for example a husband and wife can take out one policy, with both being the policyholder and the life insured. This is known as a joint life policy.

Proposal form

• Advertisements and the prospectus are the means by which insurance companies invite proposals. The person seeking insurance is called the proposer – they are proposing themselves for life (or indeed any kind of) insurance.

Quotations

• A quotation is simply that – a quotation as to how much the policy will cost and on what terms. It will often be held open for a set period, during which the proposer can choose to take the policy or decide that it is not for them.

Insurance contract

• An insurance contract commences from the date on which the insurance company issues the first premium receipt (see section G3A). The policy document can be sent later (see section G4). If a person dies before the issue of the policy document, but after the issue of first premium receipt, the insurance company is liable to pay the death claim.

Key documents

• PROPOSAL FORM• PROOF OF AGE• PERSONAL STATEMENT• MEDICAL REPORT & OTHER SPECIAL

REPORTS IF NECESSARY• AGENTS CONFIDENTIAL REPORT /

MORAL HAZARD REPORT• FIRST PREMIUM RECEIPT• POLICY DOCUMENT• RENEWAL PREMIUM RECEIPT.• ENDORSEMENTS• RENEWAL AND BONUS NOTICES.

Proposal Form:• To be completed by the person in his own

handwriting & signed in the presence of a witness.

• If filled up by a person other than proposer, he has to give a declaration of explaining the contents of the proposal form.

• If the proposer has answered the questions in a different language, a declaration has to be given.

• If the proposer is illiterate, left hand impression has to be attested by a third party who has to give a declaration.

• In the proposal form, the proposer gives a declarationdeclaration that all information furnished by him is true to the best of his knowledge.

• If later at claim stage, the information is found to be incorrect, no claim will be payable by the insurer.

• Insurance is based on Utmost Good FaithUtmost Good Faith between both parties.

• The proposer should give all true & correct information, whether it is material or not material in deciding the proposal.

• The insurers should state clearly all the terms and conditions on which the proposal is to be accepted.

Proposal Form contains the following information:

• The name & address of the proposerThe name & address of the proposer• The name of the person to be insured, if The name of the person to be insured, if

different.different.• Details of the person to be insured like his Details of the person to be insured like his

occupation, date of birth etc.occupation, date of birth etc.• Details about insurance required like plan, term Details about insurance required like plan, term

and sum assured.and sum assured.• Riders to be addedRiders to be added• Details about earlier proposals for insuranceDetails about earlier proposals for insurance• Preferred mode of payment of premiumPreferred mode of payment of premium• Employment particularsEmployment particulars• NominationNomination11

PERSONAL STATEMENTPERSONAL STATEMENTIt contains the following particulars:

• State of health• Personal Habits• Family History• Medical consultations & illnesses• Details about absence from work due to

medical grounds• Particulars about employer• Additional details about female proposers

PERSONAL STATEMENT - contd

• State of health is important to find out whether the life is a standard or a substandard one.

• Personal habits like smoking, drink etc. affect the longevity of the life to be assured.

• Family history reveals the physical characteristics which may be inherited from the parents of the life to be assured. A family history of tuberculosis, heart disease, insanity, diabetes etc. requires special consideration.

• If the life to be assured has been suffering from any serious illness and medical consultations have been taken, additional medical reports may be called to assess the risk.

• A person who has not been away from work on sick grounds is normally considered as a first class life.

• If the life to be assured is working for a reputed organisation who maintain proper leave records, he may be granted cover on non-medical basis.

As per Insurance Regulatory Development Insurance Regulatory Development Authority (IRDA) Regulations, 2002Authority (IRDA) Regulations, 2002, copy of the proposal is to be supplied to the policyholder

within 30 days of the completion of the contract.

The medical report and the agents report are The medical report and the agents report are confidential & are useful to the underwriter. confidential & are useful to the underwriter. The proposer is not responsible for & is not The proposer is not responsible for & is not bound by the data in those documents.bound by the data in those documents.

Age• Proof of age is required to be submitted with the

proposal for insurance.• This is because –

– Calculation of premium depends upon age at entry of the life assured.

– Underwriting of risk depends upon age at entry of the life assured.

• Therefore, life assured has to submit proof of his age to the satisfaction of the insurer.

• If false proof of age is given by the life assured, the insurer can declare the policy ab initio (from the beginning itself) void on the ground of suppression of material facts.

Age - continued

If age of the life assured proves to be higher than the stated age in the proposal form on subsequent production of age proof then – – Premium at the higher rate will have to be paid by

the policyholder from the date of commencement, with interest.

– Medical report to be called for, if age of the policyholder exceeds the maximum permissible age at entry, in non-medical cases.

– Written consent to be obtained from the policyholder for acceptance of modified terms of the policy, if required and pass endorsement both for modified terms and age admission.

Age - continued

If age proves to be lower than the stated age in the proposal form on subsequent production of age proof then – – If found minor at the time of proposal but major now,

Life assured has to ratify the statements made by him in proposal and/or Personal statement form.

– Excess of premium already paid is to be refunded and necessary endorsement is to be passed.

– If minor even at the time of production of age proof, the policy will have to be cancelled.

Documents accepted as proof of age

• Certified extract from the municipal records• Certificate of baptism• Certified extract from family Bible if it contains date of birth• Certified extract from school or college records• Certified extract from service register of employer• Passport• Identity cards, issued by Defence department in case of Defence

personnel• Marriage certificate issued by a Roman Catholic Church.• In absence of above, horoscopes, self-declaration by way of

affidavit, elder’s declaration, or certificate by village panchayat, may be accepted as proof of age.

Payment of Premium• Premiums are required to be paid on the dates mentioned in the

policy. These dates are called ‘due dates’.• Premiums may be paid by cash, cheque, demand draft, postal

order, money order, bankers’ order, credit card, debit card.• Insurer allows payment of premium by monthly, quarterly, half-

yearly and yearly modes.• In case of Salary Saving Scheme (SSS), the premiums are

deducted by the employer from the salary of the policyholder and remitted to the insurer.

• Due to limited number of offices of the insurer, arrangements are made with the banks by the insurer for collection of premiums from the policyholders. Such collecting branches send a cheque for the consolidated amount collected, alongwith the list of policies to the insurer at specified intervals.

• Insurer has the option to decide whether the collection charges should be collected from the policyholder.

free look-in period or the cooling-off period

• The issuing of the FPR signifies the conclusion of the contract and is binding on both the parties. However,

IRDA regulations provide the proposer with the option to withdraw from the contract within a period of 15 days from the date of receipt of the policy document if they disagree with the terms and conditions of the policy. This period is known as the ‘free look-in period’ or ’cooling-off period’. If the proposer withdraws from the contract, then the insurance company will have to return the premium paid minus some deductions,such as the cost of covering the risk for the short period during which cover was provided, medical examination expenses and stamp duty.

Days of Grace• Insurer allow a ‘grace period’ for payment of premium. • Grace period is the additional time given to the policyholder

over and above the due date mentioned in the policy for payment of the premium.

• Payment made within the grace period is considered to be payment on time.

• The grace period is one month, but not less than 30 days for yearly, half-yearly or quarterly modes of premium and 15 days for monthly modes of premium.

• If the premium is not paid within the grace period, it is considered a default and the policy lapses.

• If the insured dies within the days of grace and the premium has not been paid, the claim will be admitted in full and the premium for the current year will be deducted from the claim amount.

Receipt of premium• Premium is deemed to be paid when the cheque or

demand draft is received by the insurer. Renewal premium receipt is issued ‘subject to clearance’.

• In case of Salary Saving Scheme (SSS), if there is delay in remitting the premium amount by the employer to the insurer, the delay is usually condoned. If the delay happens frequently, the Salary saving scheme arrangement may be terminated.

• In case of arrangements made with banks for collection of premium, date of collection by the collecting bank is considered the actual date of payment of premium.

Receipt of premium - continued

• In case of death claims where the death has occurred before the premium is received by the insurer, it may consider that the premium has been paid, if there is proof that the policyholder had sent the money. Such proof may be available in case of Money Orders or bank drafts.

• The benefit is given to the policyholder because the premium had left his hand and was in transit.

FIRST PREMIUM RECEIPT (FPR)

• On underwriting if it is found that the life is standard On underwriting if it is found that the life is standard or first class (not attracting any extra premium) then or first class (not attracting any extra premium) then it is accepted at Ordinary Rate (OR). it is accepted at Ordinary Rate (OR).

• If not, appropriate extra premium will be charged If not, appropriate extra premium will be charged and/or terms of acceptance may be modified. and/or terms of acceptance may be modified.

• If proposer does not agree to the revised terms, the If proposer does not agree to the revised terms, the premium is refunded. premium is refunded.

• If he accepts, he has to submit the balance premium If he accepts, he has to submit the balance premium and submit the requirements and then the FPR is and submit the requirements and then the FPR is issued.issued.

• IRDA requires that the insurer takes the decision IRDA requires that the insurer takes the decision within 15 days.within 15 days.

• Once FPR is issued, the insurer becomes liable to pay what is agreed upon.

• The policy document can be issued only after FPR is issued.

• Sometimes it may so happen that claim arises after FPR is issued but before policy document is issued. In such cases, the insurer has to pay the claim since the contract begins on issuing the FPR.

An FPR contains particulars of the policy such as :-• policy number,• date of commencement of risk,• date of maturity, • date of last payment of premium,• premium amount,• mode of payment• name & address of the life assured• due date of the next premium due.

• Back-dating of policies is allowed Back-dating of policies is allowed within the same financial year.within the same financial year.

• The premium due dates will be on the The premium due dates will be on the basis of such a back-dated date. basis of such a back-dated date.

• However, this Date Of Commencement However, this Date Of Commencement is only notional as risk cover is only notional as risk cover commences only from the date of issue commences only from the date of issue of FPR.of FPR.

– The contract begins with the issue of FPR and both the parties have to fulfill the obligations.

– Obligation of insurer - to pay claim whenever it arises.

– Obligation of life assured - to pay the premiums as & when they fall due.

– However, IRDA has given an option to the proposer to withdraw from the contract within 15 days of the issue of the policy subject to deduction of expenses incurred by the insurer towards placing the policy in his books.

RENEWAL PREMIUM RECEIPT (RPR) :

• AAfter payment of the First fter payment of the First Premium, every year whenever the Premium, every year whenever the premium falls due, the life assured has premium falls due, the life assured has to pay the Renewal Premium for which to pay the Renewal Premium for which RPR will be issued. RPR will be issued.

• Nowadays premium can be paid at any Nowadays premium can be paid at any branch or through internet.branch or through internet.

• In Policies under Salary Savings Schemes, In Policies under Salary Savings Schemes, since premium is deducted from the salary, since premium is deducted from the salary, RPRs are not issued.RPRs are not issued.

• The premium deducted is shown on the The premium deducted is shown on the salary slip. So the policyholder is supposed salary slip. So the policyholder is supposed to check the salary slip whether deductions to check the salary slip whether deductions are promptly made.are promptly made.

• If deductions could not be done due to If deductions could not be done due to reasons beyond his control like leave without reasons beyond his control like leave without pay etc, he has to arrange separately for pay etc, he has to arrange separately for payment.payment.

POLICY DOCUMENT :

• IT IS THE MOST IMPORTANT DOCUMENT WHICH IS THE PROOF OF CONTRACT.

• A POLICY DOCUMENT CONTAINS:

• HEADING• PREAMBLE CLAUSE• OPERATIVE CLAUSE• PROVISO• SCHEDULE• ATTESTATION AND• PRIVILEGES AND CONDITIONS

HEADING:HEADING:The top of the front page contains the name and other particulars of the insurer.

It thus enables to know at the first sight as to which insurer has issued the policy.

PREAMBLE:PREAMBLE:It makes the proposal and the declaration as the basis of the contract. Hence the information furnished by the proposer must be strictly and literally true and correct.

It also certifies that the First Premium has been received at the terms stated in the schedule.

OPERATIVE CLAUSE:OPERATIVE CLAUSE:This clause deals with the mutual obligations of the parties to the contract. The life assured has the obligation to pay the premiums as and when it falls due. The insurer has to pay the claim when it arises as agreed upon in the contract.

PROVISO :PROVISO :The conditions and privileges printed at the back of the policy, the schedule of the policy and the endorsements made thereon are all part of the policy contract.

SCHEDULE:SCHEDULE:

It contains the details of the individual policy. A glance at the schedule only is sufficient to know about the full particulars of the policy.ATTESTATION:ATTESTATION:

The date and signatures of the authorised official of the insurer are put on the policy. It confirms and certifies that the insurer has entered into the contract.PRIVILEGES AND CONDITIONS:PRIVILEGES AND CONDITIONS:

These are printed at the back of the policy bond and also become a part of the policy contract.

ENDORSEMENTS• IN CASE ANY CHANGES ARE NEEDED TO BE DONE IN THE

POLICY DOCUMENT, ENDORSEMENTS ARE DONE AND IT IS PASTED TO THE POLICY, KEEPING IN MIND THE TERMS OF ACCEPTANCE.

• THE ENDORSEMENTS FORM A PART OF THE POLICY DOCUMENT.

• DURING THE CURRENCY OF THE POLICY, ALTERATIONS MAY BE EFFECTED IN AGE, PLAN/TERM, SUM ASSURED, MODE ETC.

• NOMINATIONS CAN BE CHANGED AFTER THE ISSUE OF POLICY BY ENDORSEMENTS.ASSIGNMENTS ARE ALSO MADE AT THE BACK OF THE POLICY AS ENDORSEMENTS.

RENEWAL & BONUS NOTICESRENEWAL & BONUS NOTICES

• REMINDERS TO POLICYHOLDERS REGARDING PREMIUMS DUE, ARE NOT IMPORTANT DOCUMENTS.

• RECEIPT OF THE NOTICE IS ALSO NOT ESSENTIAL FOR PAYMENT OF PREMIUM.

• BONUS INTIMATION NOTICES ARE NOT IMPORTANT. THE BONUS DATA IS UPDDATED IN THE INSURER’S FILES AUTOMATICALLY. THE POLICYHOLDER WILL KNOW ABOUT THE BONUS DECLARATIONS THROUGH NEWS ITEMS AND ADVERTISEMENTS IN THE MEDIA MUCH EARLIER.

PROSPECTUSPROSPECTUS

THE IRDA (PROTECTION OF THE IRDA (PROTECTION OF POLICYHOLDERS INTERESTS) POLICYHOLDERS INTERESTS) REGULATIONS,2002REGULATIONS,2002 STATES THAT STATES THAT THE PROSPECTUS ISSUED BY THE THE PROSPECTUS ISSUED BY THE INSURER SHOULD STATE THE SCOPE INSURER SHOULD STATE THE SCOPE OF BENEFITS, CONDITIONS, OF BENEFITS, CONDITIONS, WARRANTIES, ENTITLEMENTS, WARRANTIES, ENTITLEMENTS, EXCEPTIONS, RIGHT FOR EXCEPTIONS, RIGHT FOR PARTICIPATION IN BONUS, ETC PARTICIPATION IN BONUS, ETC UNDER EACH PLAN OF INSURANCE.UNDER EACH PLAN OF INSURANCE.

Key insurance terms

• terms associated with the continued existence of the policy: terms such as lapse, paid up value and surrender value. We will also look at revival and renewal in this context;

• terms associated with who receives the policy monies: nomination and assignment; and

• terms associated with borrowing against a policy: loan and foreclosure.

A policyholder has three choices if they cannot afford to continue making the

premium payments. These are:

Policyholder cannotcontinue to make thepremium payments

Stop making paymentsand allow the policy

to lapse

Turn the policy into apaid up policy

Surrender the policy

Lapse

• Policyholder has to pay the premium within the days of grace to keep the policy in force.

• If premium is not paid within the days of grace, there is a default on the part of the policyholder.

• The insurer is entitled to say that the policy comes to an end. Such termination is called a ‘Lapse’.

• No claims arise on the policy after a lapse, and all premiums are forfeited.

Lapse - continued

• In practice, however, insurers do not forfeit all the premiums paid when the policy lapses.

• The Insurance Act does not allow such forfeiture.

• This is because, every policy acquires a reserve as –

- Premiums in the early years of the policy are more than what is justified and

- Savings element in the premium.

- It would not be fair to forfeit this reserve.

Non-Forfeiture optionsThe policy conditions provide various safeguards to

policyholders, when there is a premium default. These provisions are called Non-forfeiture provisions. The options are as under:

1. Payment of ‘Surrender Value’ or ‘Cash Value’.2. Making the policy Paid-up.3. Keeping policy in force through premiums advanced

from the surrender value.4. Providing term insurance cover from the surrender

value.Life Insurance Corporation of India allows only the paid up value option. The policy becomes automatically paid up, unless the policyholder surrenders the policy.

Surrender Value

• It is the payment of an amount that represents the reserve under the policy, on voluntary termination of the insurance contract by the policyholder.

• The Insurance Act (Section 113) requires that every policy shall have a guaranteed surrender value, if at least 3 years premiums have been paid. This is the minimum that has to be paid to the policyholder.

• Insurers actually pay more than the guaranteed amount.

• Surrender value is payable when the policy has been in force for at least 3 years, because – in the first year, most of the premium goes out in

expenses. – There is little left for accumulation.

Surrenders - continued

• Surrender value increases with the increase in the number of premiums paid under the policy.

• Surrender value will be less on a policy with a longer term as compared to a policy with a shorter term, – sum assured and – the number of years for which the policies

have been in force being the same.

Paid Up ValuePaid up value = Number of premiums paid X Sum Assured Number of premiums payable

• Only the Sum Assured is reduced proportionately.

• Bonus vested already is unaffected.• Paid Up policy will

– not participate in bonuses and – will also not be entitled to any interim bonus.

• Premiums are not paid on a policy which has become paid up.

Paid Up Value - continued

• If other benefits related to the Sum Assured are payable, the benefits will be related to the reduced paid up value.

• Policy remains in force for reduced sum assured for the entire policy period.

• If the paid up value is less than the minimum amount provided for by the insurer, then this non-forfeiture benefit would not apply.

Loans

• In most of the life insurance policies, insurers provide the facility of loans.

• Loans are given upto 80% or 90% of the surrender value of the policy.

• Interest is charged on the loans.• Loans may be repaid,

– in full or in part, during the currency of the policy or

– may remain as a debt on the policy monies until the claim arises.

Loans - continued

• Payment of interest is also not compulsory.• The period between the date of loan and either –

– The policy anniversary following or– Six months prior to policy anniversary, if the

anniversary is more than six months away, is called the broken period.• Interest is charged separately for the broken

period.• Interest on loan is payable at half-yearly

intervals to coincide with the due dates of premium.

Loans - continued

• Policy must be assigned absolutely to the insurer.

• Policies which do not acquire adequate surrender value (temporary term insurance, annuity policies) and policies where there is provision for payment of Sum Assured at periodical intervals (Money back policies) are not usually eligible for loan facility.

• No loan is granted during the deferment period in Children’s Deferred Assurance policies.

Foreclosure

• It means closure or writing off the policy before its actual maturity.

• When a loan is granted under a policy, the life assured has a choice to pay the interest or allow it to accumulate and remain as a debt on the policy monies to be adjusted against the claim.

• Foreclosure becomes necessary if the principal loan and accumulated interest become more than the surrender value.

Foreclosure - continued

• This may happen if –– the premiums are not paid regularly and

the policy lapses.– In case of paid-up policies, the

surrender value will not grow as fast as the accumulated interest.

• Notice may be issued to the policyholder calling for the payment of arrears of loan interest.

Foreclosure - continued

• If interest is not paid, the policy is foreclosed, which means surrendered to loan.

• The balance surrender value, if any, after adjusting the principal loan and outstanding loan interest, is paid to the policyholder, after obtaining the discharge voucher.

• A foreclosed policy can be reinstated before the policyholder has returned the discharge voucher and collected the balance surrender value.

Foreclosure - continued• Procedure for reinstatement of a foreclosed

policy is similar to revival. Life Assured has to – submit evidence of good health and – pay the arrears of loan interest.

• On foreclosure, nomination if any, becomes inoperative.

• If life assured dies before payment of the balance surrender value, the amount is payable only to the legal heirs of the deceased assured.

Alterations• Alterations are changes desired by a policyholder in

the terms of the policy contract to suit his changed circumstances.

• While considering the request for alteration, the insurer tries to ensure that there is no adverse selection against the insurer.

• That is, the risk should not increase after alteration.

• Increase in Sum Assured, increasing the term of the policy are alterations that increase risk.

Alterations - continued• It may be for change in address/mode of payment of

premium/nomination/participating to non-participating, break one policy into two or more policies of smaller sum assured.

• These may affect the premiums due, but do not affect the risk of the insurer.

• Change in term or plan or both, change in Sum Assured, etc. may be allowed in existing policies if the risk does not increase.

• If the risk is likely to increase, a proposal for a fresh policy of insurance will have to be made for the consideration of the underwriter.

Indisputabilty of the policy• As per Section 45 of the Insurance Act, 1938,

a policy which has been in force for two years – cannot be disputed on the ground of

incorrect or false statements in the proposal and other documents, unless

– it is shown to be on a material matter and– was fraudulently made.

• After expiry of a period of two years from the date of acceptance of risk, the burden of proof rests with the insurer.

Restrictions

• Changes, if any, in the factors affecting risk after the acceptance of risk by the insurer, do not affect the insurance contract, unless there are specific exclusion clauses.

• However, certain benefits are conditional and are affected by life styles and hobbies. Examples –– Accident benefit will be denied if an accident

can be traced to intoxication. – Death by suicide will not affect the claim,

unless it happens within one year. But suicide will affect the accident benefit.

Keeping policy in force• Premium due under the policy is notionally

advanced as a loan from the surrender value.• This can continue as long as the total

premiums advanced, is not more than the surrender value.

• Insurance cover is fully safeguarded and not reduced.

• Policyholder can pay the premium whenever he is in a position to do so and policy will continue to be in force.

• The interim failure to pay the premium will have no effect.

Keeping policy in force - continued

• It the policy is ‘With profits’, it will be entitled to bonus additions.

• If the surrender value is not sufficient to advance a full instalment of premium, the policy is finally determined and any surrender value left over is paid to the policyholder.

• Insurers prefer to offer the paid up option as the sense of loss to the insured is much more, if the arrears are not paid and the surrender value is exhausted.

Extended Term Insurance• Insurer converts the policy into a single premium

term insurance for the full Sum Assured of the policy for such a period as the net surrender value will purchase, at the insured’s age at the time of lapse of the policy.

• Premium advanced from the Surrender value is the premium necessary to provide a term insurance cover, equal to the Sum Assured.

• Policy remains in full force for the full sum assured for a limited period.

• Surrender value would not increase as the savings element of the premium is not being advanced.

• Even if the life assured survives till the original date of maturity, the amount payable at maturity will not be the sum assured.

Revival• It is a decision to underwrite a risk, the risk

being equal to the original Sum Assured under the policy less the paid up value (not including vested bonus) on the date of lapse.

• Insurer allows revival of policy because lapsation affects both the insurer and the insured.

• Insured loses the insurance risk cover for the full amount and exposes himself to possible adverse circumstances.

• It also suggests that the agent had not fully convinced the policyholder about the usefulness of the insurance plan.

Revival - continued• If the policy lapses and is not revived, insurer may

not be able to recover the heavy initial expenses like medical fees, stamp duty, agents commission incurred on proposals.

• Insurer charges level premium on the assumption that, barring death claims, the policy will run for the full term.

• People enjoying good health may not continue the policy for the full term as compared to people enjoying bad health who are more likely to keep the policies in force. In such a case, there is a risk of ‘selection against the insurer’.

• The insurer’s liability will be greater than what was assumed while fixing the cost of insurance.

Revival - continued• Insurer allows revival of lapsed policy because -

– lapsation affects both the insurer and the insured adversely.

– lapsation may occur due to just neglect to pay or because of temporary financial difficulties of the policyholder.

• Requirements for revival – – payment of outstanding premiums with interest.– Proof of continued good health.

• Life Insurance Corporation of India does not allow revival if the policy has remained in lapsed condition for more than 5 years. This is because –– outstanding premiums on such a policy would be too

heavy – it would be better to take out a fresh policy.

Revival - continued Requirement of proof of good health varies

according to the duration of lapse and also according to the Sum Assured.

• Upto six months from the date of lapse, no proof is necessary. This period is extended upto 12 months, if the policy has been in force for at least 5 years.

• If the policy is due to mature within a year, then also no proof is necessary.

• Nature of good proof can be a simple declaration or an elaborate medical examination with special reports.

Revival - continued• The underwriter may agree to revive

the policy as per the original policy terms or on modified terms or even decline to revive.

• Decision is made after examining the risk factors at the time of revival, which may have changed since the original policy was taken.

Revival schemes

• If the policy can be revived, following alternatives are offered by Life Insurance Corporation of India to suit the convenience of the policyholder.

1.Special Revival scheme.

2.Instalment Revival scheme.

3.Loan-cum-revival scheme.

Special revival scheme

• Requirements for revival

– Policy has not acquired any surrender value on the date of lapse.

– Period expired after lapse is not less than 6 months and not more than 3 years.

– Policy has not been revived under this scheme before.

• Amount required to be paid for reviving the policy is quite low as premiums outstanding for the entire period of lapse are not paid.

Special revival scheme - continued• On revival, there will be a new policy with the same

plan and term as the original policy but with the following changes – The date of commencement will be advanced by a

period equal to the duration of the lapse, but not more than 2 years.

– Premium will be recalculated for the age corresponding to the date of commencement after revival.

– The difference between the old premium and new premium with interest thereon and the endorsement fee will have to be paid by the policyholder.

Instalment revival scheme• Policyholder is not required to pay the full

arrears of premium in one lump sum.• Policyholder pays only 6 monthly premium, two

quarterly premiums, one half yearly premium or half of the yearly premium.

• Balance of the arrears is spread over the remaining due dates in the policy year current on the date of revival, and two full policy years thereafter.

• Suitable for policyholders who cannot pay the full arrears of premium in one lump sum.

Instalment revival scheme - continued

Requirements for revival - – Policy cannot be revived under the special

revival scheme– Premium is outstanding for more than 1

year – No loan is outstanding under the policy at

the time of revival.– Policy should have acquired surrender

value as on date of revival.

Loan-cum-revival scheme• It covers granting of loan and considering revival of the

policy simultaneously when the policyholder desires to avail loan for the purpose of revival of the policy.

• Allowed to policies which have acquired the requisite surrender value or Paid up value as on the date of loan-cum-revival, premium position being taken as upto date.

• Loan available under the policy is calculated assuming that the premiums are paid upto date.

• Arrears of premium required for revival are advanced out of the surrender value of the policy, as a loan under the policy.

• If the loan available under the policy is more than the amount required for revival, the excess may be paid to the policyholder, on request.

• If the loan available under the policy is less than the amount required for revival, the shortfall is called for from the policyholder.

Assignment• It is the transfer of rights, title and interest of the

assignor to the assignee.• The person who transfers such rights is called the

“Assignor” and the person to whom the property is transferred is called the “Assignee”.

• Assignor should have – the right or title to the property and – must be major and competent to contract.

• It must be supported by a consideration.• Guardian is to be appointed, if assignee is a minor.• In case of Children’s Deferred Assurance plans, the

life assured can assign the policy after the vesting date.

Assignment - continued• Assured loses control over the policy.• An assignment involving a part of the policy

moneys is considered to be bad in law.• An assignment once made cannot be cancelled or

even altered in form, by the assignor unless the assignee reassigns the policy.

• The assignee is legally entitled to receive the policy moneys.

• Absolute assignee is the owner of the policy and can deal with it.

• Assignee has a right to sue under the policy.

Assignment – continued• It can be done by an endorsement on

the policy or by a separate deed. Separate deeds have to be stamped.

• It must be signed by the transferor or his duly authorised agent.

• The signature must be attested by a witness otherwise it will be invalidated.

• It is effective as soon as it is executed.• It must be sent to the insurer along with

a notice.

Types of assignment

1. Absolute • The assignee becomes the title holder and can deal

with the policy in any manner he likes. • If the assignee dies before the life assured, the right

transfers upon his/her heirs.

2. ConditionalThe interest in the policy automatically reverts to the life assured on the occurrence of the specified condition mentioned in the assignment. Example. A conditional assignment can provide for reversion when the assignee predeceases the policyholder or the policyholder survives till the date of maturity.

Assignment – continued

• If the assignee dies after the life assured and before settlement, the policy moneys would be payable to the heirs of the assignee.

• Creditors of the life assured cannot attach the policy moneys unless the assignment is done with an intention to cheat the creditors.

Nomination• It is a facility given to policyholder so that the claim under

the policy can be settled quickly in the event of death of the life assured during the term of the policy.

• The holder of a policy on his own life alone, may nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death.

• It can be made – at the time of proposal or – at any time during the currency of the policy by an

endorsement on the policy.• It can be altered by the life assured during the currency of

the policy and have to be intimated to the insurer to be effective.

• A person having a policy on the life of another, cannot effect a nomination.

Nomination - continued• Appointee should be appointed when a nominee is a

minor. Appointee loses his status when the nominee becomes a major.

• When nominee is a minor and there is no appointee, claim under the policy can be paid only to legal heirs of the deceased life assured.

• Life assured retains full control and can deal with the policy without the consent of the nominee.

• Nominee has only the right to receive the policy moneys in the event of death of the life assured.

• Creditors of the life assured can attach the policy moneys.

Nomination – continued• An assignment automatically cancels a nomination, but,

– an assignment made in favour of the insurer, in consideration for a loan granted against the security of the policy,

does not cancel nomination. • Nomination does not become inoperative on the maturity

of the policy, in respect of policies where the maturity amount is payable in installments after the date of maturity. example Educational annuity policies.

• When the nominees are more than one, the policy moneys are payable to them – jointly or – to the survivor or survivors of them. – No specific share for each nominee can be made.

Nomination – continued• Nominee has no right to sue under the policy.• If the nominee dies after the death of the life

assured, but before the payment of the death claim, the policy moneys would form part of the estate of the life assured.

• In respect of a policy issued on the lives of two persons, nomination can be effected jointly by both the lives assured, to receive the policy moneys in case – both the lives assured die simultaneously in

a common calamity and – there is no proof to establish who died first.

Married Women Property Act Policies

• As per Section 6 of the Married Women Property Act, 1874 a married man, which includes a widower or a divorced man, can make a financial arrangement for – The benefit of his wife and children, which includes

his sons and daughters, both natural and adopted.• The policy must be on his own life.• A trust is created for -

– the benefit of his wife, – his wife and children, or – any of them,

according to the interests expressed.

Married Women Property Act Policies - continued

• To effect assurance under Married Women Property Act, addendum is to be completed stating the beneficiaries and trustees.

• Mohammedan proposers cannot – take out policies for the benefit of the wife and

children as a class. – The beneficiaries must be existing on the date of

the policy and must be named.– If two or more beneficiaries are named, the

respective shares of the different beneficiaries should be stated.

Married Women Property Act Policies - continued

• Non-Mohammedan proposers can – specify the beneficiaries as a class and – provide that the benefit should go to them

jointly or – to the survivors or survivor of them.

• He can also specify equal shares or specify unequal shares for them.

• If any beneficiary dies before the policy becomes a claim, his share would go to his legal representatives.

Married Women Property Act Policies – continued

• The life assured does not have any right to deal with the policy. –Alterations cannot be made. –It cannot be surrendered. –No loan is granted.

• Claim is paid to the trustees.• Claim cannot form part of his estate,

nor, can it be attached by his creditors.

Relevance of premium payment and valid cover

• The payment of the premium is consideration of the insurance contract ,and so without its payment the contract cannot exist and there will be no cover