What is a term assurance?

Term assurances are the purest and cheapest form of insurance. Term assurances are plans where benefits are payable only on the death of the policy holder within the term.

What is whole life plan?

Whole life plans are a special type of term assurance wherein the term of the policy is whole of the life. So it follows that benfits under the policy are payable only on death of the policy holder.

However for administrative purposes some companies pay benefits, on policy holder attaining a certain age Eg: while the LIC pays on policy holder attaining the age of 85, Max New York life has fixed the payment age as 100.

What is an endowment assurance plan?

Endowment plans are among the most popular forms of insurance as they provide both insurance coverage and also act as a savings instrument. These are the plans wherein benfits are payable on death within the term or survival to maturity which ever is earlier.

What is money back plan?

Money back plans are a special type of endowment plans and are also called as anticipated endowment assurance plans. Under money back plans, survival benefits are spread over the term of the policy i.e., certain percentage of sum assured is paid at regular intervals. Apart from the above death benefit continues like an endowment plan i.e., full sum assured shall be payable on death within the term irrespective of earlier survival benfits.

What is an assignment?

Assignment is a means whereby the beneficial interest,right and title under a policy gets transferred from the assignor to the assignee. 'Assignor' is the policy holder who transfers the title and 'Assignee' is the person who derives the title from the assignor.

When to assign a policy

Assignment can be made only after acquiring the policy. Assignment can be done only for consideration- for money or money's worth or good, moral and meritorious consideration like, love and affection.

Procedure to assign a policy

Assignment can be done by mere endorsement on the policy or by a separate duly stamped deed. Assignment can be done by the proposer, policy holder, or the absolute assignee.

Pre-requisites for a valid assignment

Assignor must be a major. Assignor must have an absolute right over the policy. Assignment must be in writing. Assignor's signature along with a witness is a must. Notice of assignment is to be submitted to the insurer.

Types of assignments

There are 2 kinds of assignments.

1. Conditional Assignment

2. Absolute Assignment

Conditional assignment is usually effected for consideration of natural love and affection. Absolute assignment is usually affected for valuable consideration.

The rights of an assignor and assignee

1. On assigning the policy, the assignor (life assured/policy holder) loses his right over the policy and the assignee gets the right and becomes the owner of the policy. The assignee can further re-assign the policy and he also has a right to sue under the policy.

2. A valid Assignment once made cannot be cancelled. It is only an another valid assignment the earlier assignment gets cancelled. In all the cases, Assignment automatically cancels the nomination. However, when the policy is assigned to the insurer, nomination gets affected and it does not get cancelled.

3. Under conditional assignment, if the conditional assignee dies,the benefit under the policy goes back to the life assured if surviving. otherwise, the benefit goes to policyholders nominee.Under absolute assignment, if the absolute assignee dies, the benefits under the policy goes to the legal heirs of the assignee.

What is nomination?

Nomination is the process of identifying a person to receive the policy money in the event of the death of the Policyholder.

When to nominate

Nomination can be done at the inception of the Policy by providing details of nominee in the proposal form. However, if the nomination is not done at the inception of the policy, the policyholder can nominate at a later date. This nomination has to be effected by giving notice in a prescribed form to the insurer and getting it endorsed on Policy Bond.

Change of Nomination

Change of Nomination can be done by the Policyholder any time during the term of the Policy and any number of times. For this, the policy holder has to give a notice in a prescribed form to the insurer and getting it endorsed at the back of the Policy. Further, Nomination can be removed any time by the Policyholder without giving prior notice to the Nominee.

Procedure for Nomination

Nomination can be done only by a policyholder who is a major holding Policy Bond in his own name. In the case of Children's Policies, Nomination is not done until the Child becomes major.

Rights of a nominee

Under Nomination, the Nominee gets only the right to receive the policy money in the event of the death of the Policyholder. Nomination does not pass on the property in the Policy. If Nominee dies when the Policyholder is still surviving then the nomination would be ineffective. Nomination has no effect if the Policyholder is surviving. If Nominee dies after the death of the policyholder but before receiving policy money, then also Nomination becomes ineffective and money can be claimed only by the Legal Heirs of the Policyholder.

Can I take a loan on my policy ?

Policy holders are eligible to take loans on their policies subject to certain rules. The policyholder has to apply for a loan in a prescribed form and submit the Policy Bond with the form duly completed. The loan amount is calculated depending on the Surrender Value (SV) that the policy would have acquired, and approximately 85% of the Surrender Value is given as loan.

Rate of interest charged varies from company to company and time to time. A policy holder can repay the loan amount either in part or in full any time during the term of the Policy. If the loan amount is not repaid during the term of the Policy or early claim, the amount of loan plus interest, if any, will be deducted from the claim money and the balance amount will be paid to the claimant.

LIC is currently charging 10.5% interest payable half-yearly on Policy Loans. For LIC, the minimum repayment should be Rs. 50 and thereafter in multiples of Rs. 10. If the interest is not paid regularly every half year, then the interest is calculated on compound interest basis.

If the interest is not paid regularly every half year, then the interest is calculated on compound interest basis.

How can I revive a policy?

A policy gets lapsed if the premiums are not paid within the due date or the period of grace permitted by the insurance company. However, a lapsed policy can be revived and procedure varies from company to company.

In case of LIC a lapsed policy can be revived within 5 years from the date of first unpaid premium. There are five different schemes under which a policy can be revived.

1. Ordinary Revival Scheme : Under this scheme, all the arrears of unpaid premiums with interest have to be paid. Along with this, 'Declaration of Good Health' in Form No. 680 and medical certificate, if necessary, are required.

2. Special Revival Scheme : If a person is not in a position to pay all the arrears, then, he can choose this scheme. Under this scheme, the date of commencement will be shifted so that the policy is not lapsed just prior to the date of revival, i.e, the date of commencement is advanced approximately by the period of lapse. Other requirements like 'Declaration of Good Health' and Medical certificate wherever necessary are required as in Ordinary Revival.

   
   

   Special Revival is allowed under the following conditions :

   
   

   • The policy should not have acquired any surrender value.

   • Revival should be within 3 years of lapse.

   • Special Revival is allowed only once during policy term.

3. Revival by Instalment method: If a policy holder cannot pay arrears in one lumpsum and if the policy cannot be revived under Special Revival Scheme, he can make use of Instalment Revival Scheme. In this scheme, on the date of revival he has to pay immediately:

   
   

   • 6 months premiums, if mode is Monthly

   • 2 quarterly premiums, if mode is Quarterly

   • 1 Half year premium, if mode is Halfyearly

   • Half of the yearly premium, if mode is Yearly

   The balance of revival amount is paid in instalments spread over two years along with normal premium instalments. Other requirements regarding health are, as required in Ordinary Revival Scheme.

4. Loan-cum-Revival Scheme : If a policy acquires surrender value on the date of revival, the policy can be revived taking a policy loan. Loan amount will be calculated treating the premiums as paid upto the date of revival. Short fall, if any, in revival amount is called for. If loan amount is more than required for revival, the excess will be paid to the policy holder.

5. Survival Benefit-cum-Revival Scheme : The Survival Benefit which falls due in a money-back type of policy can be used for revival of the policy, if date of revival is later than the Survival Benefit due date. Here, if the SB amount is less than the revival amount, the short fall will be called for. If the SB is more than the revival amount, the excess is paid back to the policy holder. The other requirements for normal SB settlement and revival requirement are to be fulfilled.

What is the procedure in case of a lost policy?

The policy issued by the insurer is a valuable document and should be stored in a safe place till its maturity. In case the policy gets lost, destroyed or mutilated, then the policy holder must immediately procure a duplicate policy

The need to possess a duplicate policy arises on the following occasions:

• At the time of receiving Maturity Amount or Death claim.

• To obtain Surrender Value/Loan.

• To obtain a Duplicate Policy in other cases.

In case of LIC, the procedure involved to obtain the duplicate Policy under the above circumstances is as follows:

At the time of receiving Maturity Amount or Death claim :

• Loss of Policy questionnaire must be duly filled by the policyholder.

• Indemnity Letter in Form No. 3815 A (unstamped) if the claim amount does not exceed Rs. 5,000 and no surety is required.

• Discharge Form is to be submitted.

• Form of Declaration of 'No Assignment' is to be submitted.

• A declaration by Surety having sound financial status, acceptable to LIC in appropriate Form is required, if the claim amount exceeds Rs. 5,000.

To Obtain Surrender Value:

• Indemnity Bond in Form No. 3815 duly stamped and executed by the Policyholder along with Surety is to be submitted.

• Stamp Duty charges - which depends on the Surrender Value of the Policy are to be paid.

• A declaration by the Surety having sound financial status acceptable to LIC is required.

• Discharge form is to be submitted.

• Form of Declaration of 'No Assignment' is to be submitted.

To Obtain a Duplicate Policy in other cases :

• The Policy Document should have been really lost.

• If Assigned or Mortgaged the duplicate policy shall bear the latest Assignment that is in force as on the date of issue.

• Where the Policy is due for maturity or survival benefit within 3 years and if the sum assured is more than Rs. 25,000, on advertisement in a Local Daily /newspaper having wide calculation is to be given.

• Indemnity Bond in Form No. 3756 duly stamped and executed by the policy holder on a stamp paper of appropriate value is to be submitted.

• If sum assured exceeds Rs. 50,000, declaration by Surety having sound financial status acceptable to LIC in Form No. 3807 is required.

• Duplicate Policy charges of Rs. 5 are to be paid.

• Stamp Duty charges at prevailing rates are to be paid.

What are the Tax benefits available?

Important Income Tax provisions applicable to Policyholders are :

• An individual can claim rebate on premium paid on his/her life, his/her spouse, his/her children including adult children and married daughter.

• Under section 88 of the Income Tax Act, certain percentage of rebate is allowed on investment in the form of insurance premium with any of the insurance company approved by IRDA. Percentage of rebate can be up to a maximum of 20% and varies depending upon the tax bracket one falls. This rebate is deductible from the tax payable by the individual. The total amount of investment in the form of insurance premium and other specified investments like PPF, NSC, etc. is restricted to Rs. 60,000 per annum.

• Under Section 80 DDA a deduction upto Rs. 40,000 p.a is allowed from gross total income, when a contribution or deposit is made with the LIC for the maintenance of a handicapped dependent.

• Under Section 80 CCC a deduction up to a maximum of Rs. 10,000 per annum is allowed from gross total income, when a contribution or deposit is made towards any of the following policies :

  1. New Jeevan Suraksha 1 of LIC

  2. ICICI Pru Forever ICICI Pru life

  3. Personal Pension Plan of HDFC Standard Life

• Any sum received under insurance policy including maturity bonus etc., is non-taxable. The exceptions to this are Keyman Insurance, Jeevan Aadhar, Jeevan Dhara, Jeevan Akshay policies, ICICI Pru Forever and Dhanaraksha scheme of LIC Mutual Fund.

What is surrender value?

The cash value payable by the insurance company on termination of the policy contract at the desire of Policyholder but before the expiry term is known as Surrender Value. A policy can be surrendered, provided the policy is kept in force atleast three years. The bonus will be added, provided the policy was in force for atleast 5 years, i.e., premiums should have been paid for 5 years and five years should have been completed from the date of commencement of the Policy (this condition is not applicable in respect to claims by death.)

How much life insurance should an individual own?

It is very difficult to place a monetary value on human life. Theoretically therefore an individual can have life policies for any amount. However, in practice, it is determined based on the needs for insurance and the capacity to pay premiums regularly. Though there is no thumb rule to arrive at the exact amount of insurance, it is determined by taking 6 times of the annual income of the person, if such income is not fluctuating. If the income is fluctuating it is desirable to work his average annual income and then determine the amount of insurance.From an individuals stand point one should be able to save atleast 10% of his annual income.

When does a policy acquire paid up value?

After payment of three years of premiums if subsequent premiums have not been paid under a policy, such a policy is said to have acquired a paid up value, though literally it is a lapsed policy. The paid up value is calculated by multiplying the sum assured by the ratio of number of premiums paid under the policy and the number of premiums payable under the policy. The value so arrived at, should not be less than Rs.250 excluding the accumulated bonus under such a policy. Such a reduced paid up policy will not be entitled to participate in future bonuses.

What is meant by "mortgage redemption policy"?

This life policy is designed to meet the requirements of individual borrowers to ensure that the outstanding loan is extinguished automatically in the event of the borrowers death. The annual premiums depend on the schedule of outstanding loan amounts at the beginning of each year. On death of the borrower the loan is liquidated straightaway by admittance of claim under the policy. Benefits are fixed and death benefit decreases with every year. Premium under the plan can also be paid in a lumpsum as single premium.

What is the benefit of opting riders/add ons??

Riders/add ons are the additional benefits which can be added to the basic policy by paying marginal additional premium. Each company has got their own set of rider and most common riders offers by insurers are:

1. Term rider.

2. Critical illness rider.

3. Accidental death and dismemberment rider.

4. Waiver of premium rider.

What is permanent total disablement?

Permanent total disablement means that the life assured is incapacitated to work or follow an occupation and obtain wages, compensation or profit.

The following are considered to constitute such disability:

• irrecoverable loss of entire sight of both of the eyes

• amputation of both hands

• amputation of both feet

• amputation of one hand and one foot

Is there any maximum limit in sum assured for grant of accident benefits?

Maximum accident benefit one can avail under all the policies which he holds is fixed and varies from company to company In case of LIC it is Rs. 5 lakhs sum assured.

Can an individual have accident benefit alone?

No, The benefit is available only along with a plan of assurance wherein it is permissible.

What is meant by a 'with profit plan'?

A policy issued under a with profit scheme is eligible to participate for bonus addition arising out of surplus revealed on conducting an actuarial valuation. Premium under a with profit plan is always greater than the rate for a with out profit plan. that is while computing the structure of a premium table a bonus loading is made to the rate determined by the other three factors viz., Mortality, Interest and expenses.

At what intervals are actuarial valuations conducted?

Every year the policies that are in force are valued and the present value is arrived at. The assets are also valued as on that date and a comparison is made to ascertain the valuation surplus. 95% of the valuation surplus is distributed among with profit policy holders.

What is the system of bonus calculation?

LIC follows a system of reversionary addition to the sum assured at the rate per thousand of sum assured declared every year. Bonus vests with the policy if it is in force. Paid up policies are not eligible for bonus.