Life Insurance FAQ

Proposal (or) Proposal form denotes the application for insurance contains which solicits information from the proposer.

Proposer is the person who submits Proposal form for insurance to the insurance company and who is interested in taking an Insurance Policy.

Underwriting is the process of assessment of risk on a proposal by the Insurance company and arriving at the decision (to accept, reject, rate-up, postpone) and the terms and conditions upon which an insurance contract may be accepted.

Policyholder is the person who is issued an Insurance Policy document by the Insurance company consequentto underwriting and issuance of Insurance Policy to cover the risk stated in the Proposal form on such terms and conditions as mentioned in the Insurance Policy document issued by the Insurer to the Policyholder.

Insurance Policy document (or) Policy document (or) Policy constitutes the contract between the Insurance company and the Policyholder, stating the terms and conditions of the Insurance coverage provided by the Insurance company to the Policyholder.

Subject matter of insurance is the Person or object upon whose loss or upon the loss of which object the insurance
company agrees to pay a specified sum as the compensation to the Policyholder.

Life insured (or) Life assured under a Life insurance Policy is the subject matter of insurance on whose death a specified sum of money is paid by the Life insurance company.

A Policyholder and Life assured may be the same person or different persons. Where a person takes a Policy on his own life, both Policyholder and Life assured constitute the same person. Where a Policyholder takes a Policy on another’s person’s life (on whom the Policyholder has insurable interest), the Policyholder and Life assured can be different persons.

Sum Assured (or) Sum Insured means the amount promised to be paid by the Insurer upon the death of the Life insured.

Nominee is the person appointed, only for Policies taken on one’s own Life, by the Policyholder to receive the Sum Assured or any other policy benefit upon death of the Life assured.

Where Policyholder and Life assured are different persons, upon death of the Life assured, the Policyholder is the person entitled to receive the Sum assured or other Policy benefits.

In general insurance, since the subject matter of insurance can be anything other than one’s life, the Policyholder always receives the benefit upon loss or damage to the subject matter of insurance, subject to establishing the insurable interest at the time of claim.

Counter offer denotes the extra premium proposed by the Insurer upon underwriting the proposal to accommodate for the extra risk taken by the insurance company on a Proposal.

Benefits illustration is the document provided to the Policyholder at the point of sale giving the details of premiums payable by the Policyholder year-wise along with the benefits payable at the end of each Policy year. This is provided to Policyholder before a sale is completed and signed by the Policyholder in confirmation of his/her understanding of the Policy benefits.

Assignment is transfer of Insurance Policies to another person with or without consideration.

Mortality is the rate of death of the population. It is usually calculated for every thousand of population. The Mortality Table of Indian Assured lives is published based on the investigation of mortality of Indian lives and this Table forms the basis for calculation of premiums for Life insurance Policies.

Morbidity measures the rate of contraction of illnesses by the population and serves as the basis for calculation of premiums under Health insurance policies and Critical illness benefits.

Annuity is a series of regular and periodic payment payable in consideration of usually a lump sum. For example, under Pension Policies, upon the attainment of superannuation age, the corpus available is utilised to purchase a Single premium (lump sum) Annuity Policy under which the Policyholder gets a periodic payout on a monthly basis till his survival.

Annuities are also life insurance policies as they cover the risk of living longer and the continuation of benefits payable is contingent upon human life.

Participating products (With profits products) are Life insurance products which are eligible for Policyholder bonus as and when declared.

A bonus is declared to Policyholder if there is a surplus which emerges from the Participating line of business and is decided by the Appointed Actuary.

If a Policyholder takes a Life insurance product which is eligible for bonus, he/she is eligible, along with other such Policyholders, to a share in the surplus – not less than 90% of the Surplus emerging in Participating business shall be distributed as Bonus and the balance 10% goes to the Shareholders as their share in the business.

While such bonuses are declared every year, a Reversionary bonus is payable only upon death or maturity. However, a Life insurer may declare an Interim cash bonus as well.

Under Participating products, share in the surplus mentioned above, are in addition to the guaranteed benefits payable (upon death or maturity, as the case may be).

Non participating products (without profits products) are those Life insurance products which are not eligible for any surplus and are eligible only for the guaranteed benefits payable upon death, survival etc.

Linked Insurance products are those life insurance products which combine a Term insurance policy with investments.

Under Linked insurance products, the benefits payable are a Sum Assured on death plus the markedto-market value of the investments made on behalf of the Policyholder by the Life Insurance company.

The risk on investments portion is borne by the Policyholder and not by the Life Insurance company.

Individual insurance products are Insurance Policy contracts entered into directly by the Individual Policyholder with the Insurance company.

This can be compared for example, with equity shares directly purchased in the
secondary market by an Investor.

Group insurance products are Insurance Policy contracts entered into by an organisation with the Insurance company. The organisation covers the members of the Group under the Group insurance policy by contributing premiums to the Insurance company who in turn provides benefits upon death or other contingencies covered under the Group Policy, to the Nominee or beneficiary.

For example, a Bank, as a Lender, may take a Group insurance policy with a Life insurer for covering all the borrowers to whom it has lent money. Upon death of the borrower, the Sum assured to the extent of outstanding loan is paid to the Bank, and the balance, if any, is paid to the Nominee of the deceased borrower.

A group insurance policy can be compared to a Mutual fund, under which the subscribers contribute to a Mutual fund which pools the contributions and invests on behalf of the unit holders.