RS-

330
Life,H ealth And Disability
Insurance

By:
...
.
SIR MUHAMMAD UMER

For
MBA(IRM)
_,

5th Semester

HAILEY COLLEGHE OF BANKING & FINANCE

•. II

UNIVERSITY OF THE PUNJAB LAHORE

,.
LIFE & HEALTH INSURANCE

INSURACE DEFINITION
It is a systen1 whereby contributions are received from
the insuring public and pool of money is created from
where the claims are paid to a few unfortunate persons
who died during the insurance period.
WHAT IS LIFE ASSURANCE
Whereby a policy is issued on the life of the person, it is
normally called assurance and where the policy is issued
for any object it is

LIFE ASSURED
A person on whose life assurance policy has been issued is
called life assured. _
ASSURANCE CONTRACT
This is an agreement between the person proposing for
insurance and the life insurer.
'The contract is complete when the following three
conditions are fulfilled;
 Proposal form is submitted
 It is accepted
 Premium is paid.
lt is not necessary that for completion of the contract any
written form of agreement is required. The contract is
complete and enforceable at law immediately the above
three conditions are met.
MORTALITY RATIOS
Rate of deaths per year of the persons within the same age
group are called mortality ratios. Mortality ratios are basic
themes for life insurance. All plans of insurance are based ·on
mortality ratios.
ACTUARY
Actuary is a person who calculate the mortality
ratios and life insurance premium rates based on actual
experience of very vide and larger data with total
professional background. ·
Law in Pakistan requires every life insurance company to
have an appointed actuary. The appointed actuary is
responsible for submitting certain statistical reports
directly to SECP which is regulatory body to monitor the
solvency of the insurance company. Unlike any other
employee and officer of the company the services of an
appointed actuary cannot be terminated without prior
intimation of reason to the SECP.
ASSIGNMENTS
When life assured transfers the rights and liabilities under a
policy to another person in a lawful manner it is called
assignment.
SUBJECT MATTER OF ASSURANCE
Subject matter of assurance is always life of a person for
the purpose of life assurance.
INSURABLE INTEREST
Insurable interest means somebody's pecuniary stake or
interest in the subject matter of insurance. As far as life
assurance is concerned, a person has an unlimited insurable
interest in his/her life or in the life of his/her spouse.
However the sum assured which is the amount of assurance
is regulated and determined by the average yearly income
of the person on whose life the policy is being taken.
PROXIMATE CAUSE
A cause or happening that sets in motion a chain of events
which brings about a result without intervention of a new
and independent cause
INIDEMNITY
To place the insured in the same financial status which he or
she was enjoying prior to the happening of the event which
causes loss?
Normally life insurance contract are not purely contracts of
indemnity
UTMOST GOOD FAITH
Utmost good faith means that both parties to the insurance i.e.
insured and insurer are required to disclose the complete
information about the facts which may influence the decision
of each party for entering or issuing the insurance contract.
Each party places a total reliance from the statements
made by the other party. The prospective insured is
required by the insurer to answer specific questions put
to him/her in entering to extract material information
necessary for the consideration of insurance proposal by
the underwriter. Any concealment of material facts or
misstatement shall cause the contract to be made violable
by the insurers.
PROPOSER
Proposer is the person who puts forward a proposal for
insurance on his/her life or on the life of another person.
LIFE PROPOSED
Life proposed is a person on whose life the policy is
proposed to be issued.
Material information
Material information means the information about the facts
of insurance which may influence the decision of either
party to give or take insurance. For example, if an insurer
or any functionary of insurer gives false information to the
prospective insured which induced him/her to take out the
insurance policy, the insured will be entitled to make the
contract void, and claim the refund of amounts paid along
with appropriate damages, if any to the tune the court may
deem fit. Similarly, if the prospective insured

Misstates his/her health or financial position, the insurer

would be entitled to deny any claim whatsoever made
Under the policy.
OFFER
When a person fills in a proposal form designed by an
insurer and submits that form to the insurer for
underwriting consideration, that form constitutes an offer
from the proposer for insurance

COUNTER OFFER
The offer made by the proposer through the proposal form
is evaluated and judged by the insurer’s Underwriter’s
vis-a-vis its underwriting parameters. If the offer does not
fit into those parameters, the underwriters have two
options;
 To apply special terms such as increased rate of
premium or reduction in sum assured and term of the
policy or both.
 To decline the offer.
In case of underwriters decide to increase the premium or
apply other terms that is called counter offer and it is
accepted by the proposer in writing, the policy is issued on
those modified terms.
ACCEPTANCE
If the original offer falls into the standard parameters of
underwriting, the underwriter accept the proposal as it
is, which is called simple acceptance. If the policy is
issued after acceptance of the counter offer then it is
called acceptance with loading.
CONSIDERATION
Consideration is an insurance term for the amount of
premium which the insured has to pay to the insurer as a
per agreed terms.
NATURAL PREMIUM
The premiums for life assurance are collected and
charged according to the age of the life assured. Higher
the age, higher the premium. Insurers maintain a pool
of fund in which the insuring public contributes
equitably. The younger people have to pay lesser rate
of premium as compared to the older people. With the
progress in age of person year by year, he/she becomes
nearer and nearer to death. The system of natural
premiums is very complicated and as such it is very
difficult for the insurers and insuring public alike to
receive or pay the premiums on increased rates every
year. To overcome this difficulty the actuaries have
developed, on scientific basis, the system of level
premium.
The level premiums means that when a person takes out
a policy say for 20 years' term, he/she will pay the same
amount of premium every year which has been
calculated on average basis.
ACTURIAL PRINCIPLES
Actuarial principles include the following factors in
determining the rate of premium;
 Expenses of the offices
 Margin of profit of the insurance company.
 Provision for commission to the insurance agents of the
insurance company.
 The study of trends in the rate of mortality.
 The expected investment income of the Insurance
company.
ECONOM IC PRINCIPLES
 The life insurance plays a vital but visible role in
the overall economy of a country especially in the
social sectors where there is no financial support
for the widows and orphans on the government
level.
 It reduces the mental tension of an individual
 caused by the future financial Worries like Old-
age or well-being of the family.

 It ensures for the continued education of the

children.
 It also reduce financial stress in case the
breadwinner of the family has hire purchased any
property or goods like house, motor car oor any
household goods.

CHAPTER 2
LIFE ASSURANCE CONTRACT

CLASSIFICATIONS
,
.

1. Term Insurance
2. Whole Life Insurance
3. Endowment Insurance

1-TERM INSURANCE
It is the type of contract in which sum assured is payable
only on death of the life assured within the term of
insurance. There is no maturity valued and surrender and
loan facility available.
2-WHOLE LIFE INSURANCE
In this type of insurance there are two sub division;
Whole life insured by limited payment of premiums
which means that a specific term is selected for payment
of premiums and after the expiry of that term the
premium ceased to be paid but the sum assured shall be
payable on death only.
Whole life insurance where the premium is continues to
be paid till death of the assured. This type of insurance
has further sub class where by the sum assured is
payable either on death or on attaining the age of 85
years.

ENDOWMENT INSURANCE

This type of life insurance whereby a specific terms is

selected and premiums are payable throughout the term
of earlier death. If the life assured survives that terms the
sum assured along with accrued bonuses is paid as
maturity value. This class is insurance carries surrender
and loan values provided the policy has been enforced
for at least two consecutive years.

CLASSIFICATION OF ENDOWMENT
INSURANCE
1- SIMPLE ENDOWMENT
This class of assurance provides for the benefits of
payable at the end of the term of assurance. Or
earlier death equal to the sum assured plus accrued
bonuses.
2- ANTICIPATED ENDOWMENT
In this plan the insurance is issued for a term which
is divided by three periods i.e. 12 years, 15 years,
and 18 years. At the end of 1/3 rd period and 2/3rd
period sum assured is paid proportionately.
Company’s gives second option whereby the sum
assured is paid as 1/4th at the end of the first broken
term and another 1/4th at the end of second broken
term and remaining 50% of the sum assured along
with accrued bonuses is paid at the end of full term
of the assurance. In case of earlier death the full
sum assured along with bonuses is payable. If the
death occurs within the first broken period when the
assured has already received the portion of the sum
assured even then the full sum assured along with
accrued bonuses shall be payable and so will be the
case where second installment had also been
received by the assured.

JOINT LIFE ENDOWMENT ASSURANCE

This type of policy is issued on the join lives of two
persons which are usually husband
and wife wherein one sum assured is involved and
accordingly one annual premium is payable. There
are two types of covers are available.
 SIMPLE
 JEEVAN SATHI
SIMPLE
In simple joint life assurance the sum assured is
payable if both partners survive to the end of the
term of the policy or on earlier death of anyone of
the partner to the contract.

JEEVAN SATHI
In Jeevan Sathi plan the maturity benefits are
similar to joint life simple policy but in case of
death of any one partner full sum assured without
bonuses is paid to the surviving partner. The
subsequent premiums ceased to be paid and the
policy continues till maturity date or earlier death of
the second partner whereby sum assured along with
accrued bonuses shall become payable.

PROGRASSIVE ENDOWMENT
In this type of assurance the policy holder is given
an option to increase the sum assured without
giving health requirement after a certain period say
5 years. However, premium will increase
accordingly.
CHILDREN ENDOWMENT
Child endowment policy can be issued independently
on the life of the child or jointly with the parents.
In child independent policy the premium is paid by
the parents and similar in the case with joint with the
parent policy.
The sum assured is payable along with the accrued
bonuses on completion of the term of the policy that
is maturity date or on earlier death of the child. In
case of child joint life policy an annuity also become
payable at an agreed percentage % of sum assured for
the remaining term of the policy in case of death of
the of the parent. (further no premium is paid).
SINGLE PREMIUM ENDOWMENT
/b
""''"·r:) l''(;fte_cL l)njl! _ pw nli m. · . I

In this case or·pJ·an, poltcy can b_e _ ?bta neo

'r an { number of y c·a r s by pay n1en t of a .sing18
ren1iUH1 aftli·e OUtset. rl'hc Stllll assured is
3 u a IIy greater than the s in g Ic p r e 1niun1 and is

-------------
yable on maturity - -Eltc or earlier-death
alo11g ith accrued bonuses. -

AIVIILY PENSION END()\ViY1.ENT '

'! 'I
In case of d_eath of the tssurecl, surn ." , \ ..
;sured along with accrued bonuses is paid and ··. \ 0,
· nsion is start d at ;lll..fJ ·I:·c-agrcecl ratg as L-
.entionecl he policy docuri1cnt for the
;- -- . . :-:- ·c--·--··..· -•- - . ·. .
. _:
\,-",-..... '' \"
! \- h
l ate·rnay" · \ -:::· ;,.g
:1

tnaining
·....---
per
. ..
od of the policy. This .r ,'(,.
;
.,J·
0
!_!lg fr 1 /o' t 50° > of the StllTI SSt red. ;·)
: -
ens 1on -vv Ill be pay ab I e a n n u a II y or 111 n1 on .t h l y . J, 0 ·.

.stallments if the clain1ant so \vishes; · -:S ) ·:

. -··-·-- - ····-··-··--·-::.=:-.- ·-- ·· ·--·---· -0 O·

I ·._:....._

·"
PTIONAL MATUR11"'V ENDOWME:f\T T
In this typ'e of assurance, the assured is
.ven a·n ' '6ptiO'ri'to get ar1 early Inaturity clain1
. - -· . .·-···-----=·'. ..-"-...- ·.-- -....
·-- .
lStead of;completing the fu I I term. This option
usually exercisable after the policy has
)mpleted_l_O yea;= -. · ··-:i :S'_0rz _ k.fo,e. ·(\nt uc. 'r:J
·---.:::.:-· --- \\..,,6 pJt <j opb o-n.
IORTC;AGE PROTEC TI ()N ENDOvVJVIENT' h\ c. {'tut:Jr}
When a person ayails any an1ount of loar1 po · · 1 ·
·orn any financial institution against the
:cu ri ty of a_!_ ..l!- ilJ.J. P..LQ_(l.C:.rt -11_ e or she is (:..
(' -:·· · tJ·e-l/ 't< C.r'();)l d cf a_ Oooc-\ ,-Yl5 0fci 11Ce.. Cf.1 t1 1 1 j·
·1e- 'n.S uYcrn ce_ ?o.t ' 1 :..J , · f! .....:.J0 L ·· '--·
( or 1-onr;,.iJ:r - ------ yepeY s r l. G o ;(
lo p} r-e_·J I ' I.
:·
:j
.,·
,..
...
i
. , .; ·/
 · i..
, '
I ./
.._ I'- • \

usually required by that financial institution to have a

life insurance pol( y- affec ed_ on his or · her life
fo1;:··a--s-un1-·ass{t rccl--eq u-aT r af -g{eater
th -in fiie amount of loan. That poiiCy-i1as to be
ssianed fo that -fiti--a ;ial institution. sri h.a' ..: ·.
. \b) O'licy iS arr-· - -geO- -l-.-i-n:..·-····
l'PlAOtecti -- ·-.··( . f-:e'. ---·
: -- .... · I··--· l-Y--r-o... rtgage
·. -·.·
···
0

.,!_
h s-
clan, -yvhich
il
been designed
by the insura·nce
.·-. .._.- , .-• I

companies for thi JJ!_ - - - -Q.!!!E_ose. Thi plan

r.. r ov ides for the ·sum.---a--s-s--ured to be reduced
.
g;_ -aauapy as the loan a1nount reduces by
p ayment of
loan instalirnen ts. As the SUll1
irt'3Ured reduC'es"'so Is-the C l-Se with premiuin
a nd at the end uf the icr,·n both ainounts are
zero. ·' .

1 ]- _RSQ r /\.L Plt SION E N DOWlYIENT :.: ' ;

lJnd er Personal Pension Endowtnertt pol_ icy
_ djJferen t insurance cor11Ti1-iifes have their_ ·
pnxivo/·
1Yt'YTt . ... · . · · : ..- .
vaiYClb,Pe- sep arate practice_ -· }Jo,vcvcr., there a1 \ !- - : ,,
COD1lTlO H points. 'fhi__§_JJO}icy !is normally ;is'sued· . .
f2_!: - '1--pei::i4)-a-of.s!f\ years. 'Total ainolfnt .Qf . ·
prcniium for a]Ithosc six .ye- 1rs .is receive_ d.in=..
i'i.iJ:11p sum in advance·· il1cfat the end_of sixth·: ·
yc r , tl--J?_ psi_on amou !1t startSto-be paid t?-
fli( insured at the prcscribccl pre-agreed ra_te· _·_
a-ri(I-it conTinues forp !h_Te ining tim of the·
po licy or earlier death or the insured. In this .
--- · ---------

I
161 F <t sc ·
i
I

!
j.
 . ..

-RIDERS-OR
SUPPI. EIVIEI T ARYCOrrrFACTS.

prvvides !Q. -tl e -P- Y-n:aent of an _ additional sum

asstiie(fin .c£ase the death of the insured is
l.
nnseil1 aJY. an_ J.i1ent. Puso I• nsure( I S
hlde_rn fy _ at a :p:rescribed rate for the expens'es·
vihich he or she rn2..v, incur foi the treatment of
l • f.
}_rrn or ner as a resuH oil. an
0 il ""'.1.

H1. Url :[?S-exve y

.Q tl ... .., -

·----.--· -.
_accident It defines the accident as an injury 9r
d2athcatlS.:£_d by external, violent and visible
r---.-,- ----- ··=-..,,.,.....-.. ----_,.-- -------:--·

rr] _5;xcept for \vhere certain internal injuries

·niay be revealed by 'ill ::1_!! 9psl,.· · ---------.--·-·--
----·· ·--·-·· . • "c= . ·. ... "' 1fL-dr(p.J f:-<.1-tr '
;a •.•
!i] 'i)r P. o· 1! '" J["•
.!l,.-1l'lluelrf_f... lr· ::.J.•n.n_1 J.-A.tlo.IU .

. 'li .
o D tb (2 tin?,e sun1 assured-- Basic poli y +
. ,_..-·······-··....... .. . ··· .....

RH!l-er). ·
'0- - ·----: - ; ------ ·· •

-· .

o L ss oftvFo liirnbs (Full sura assured).

0 LD ss of t YYO : es (Full sum assured)o
1

o Le §.,..5}f 1i mb JRD.Q.l ey (ll'ull sum assured

n T(' "''F r.' I
n .r-i f Jir<.i·l
r,i j :!l"-
I ."I.a.v""'" '1) : 1! p•an}'
'-'.-A. 'J .."/' v.... , _ t_.t . . .... J..o. o:- ..v._,l;..v.,A,'i,...,,,..._

l
t
\
 o Loss of llimb or 1 eye (50°/o of sum
assured or 75°/o of sum assured)
o '( y Total Disablement, if an
insured cannot perform his/her normal
c up tional duties or afly_ other job
for
gain a profit, he/she will be paid (5°/o sum
assured per week). -- -·- - - - ::? _ (."_,:;') /• /' Ji V
.1·"' <> :.4./ 9
" If an insured is par_tial x_ and te]!!por ry
disabled ,which means that he/she cannot
WO rl:Zfull' t!!J.J_ _fqr_bj /ber. QC_ !!patio ll.0r
profession then one fourth of_th lf.ly
·-···. ·.·: ::··-inuemiiiijshall be paid. · . . ·-.-... .. ... ,
. . ---·------------ ·------------ -
• The Jeekly indemnity whether for
p rm. tr_e._ (d ablement or for tem_norary
di; _i?Iemenfsliafibepaid fo!_ a _ !!! ! urn
·
perio-d__ Qf . --W ?
e If after 52 weeks, the insured is _still
.. .. .-. . disabled, he/she shall 'be entitled for an
. annuity -equal to l_Q. o of the sum -assured
. ' . =--- .... ·-·
p·er annum for ·a maximum period of 10
year or
up_ to maiurifY !!ate of policy or
earlier death. _wl!.!ch_ yer_bap_pe:u_ Jir__t
During the period, the annuity is .paid. to
the insured, the premium shall stand
waived and policy will !. m i ..tn. fo [qj
all
p_urpo LQf thuontract.
 li> I ' ... - ..

Exclusion s
$ ]\furder t/

o Taking part in a brawl v

0 Self destruction v
@ Ascending, descending and aerial d vice, or
any water/under water vesserexcept for a
.
...... . -
fare paying passen
r
t) sickness or
disease
Any. jt- Of>

.
Accident } Death Benefits (ADB)
·under ·this supplementary contract an
additional sum assured is paid in c se of d_ !Jt
.. by-;--;c int. For this contrac(_ uJ. j_tiQnid
premiinn will--be ·-c !lrged by the Underwriter .
. ... ---·--·. . .. .
-

Family Income Benefit Rider (FIBR)

· Und er this supplementary contract an .
i an1ount equal to an agreed percentage of the
! sum - r becomes Iiayabi---t-the- family of

il
: tne ·decease insured.Jor the remaining term of
l the policy -Tiie p rcentage may vary b een
10
1

I
I
I
to50°/o.
I
Gu arant ed Insurability Rider
l
Ij
This supplementary contract provides for
I
the insured to avail a further insurance within
I .,. ·· - --- ._ - -
·- -
i
:
given nu1nber of years say 10 years without any
r health ·:re.jfui.re.ments.
' I
3
 Hospital and Surgical Rider (H & SR_l
This type of contract ensures tha in
case the life insured has to be admitted into
the
. t !_fot-treatment of any disease'f r which
.i he is suffering or for any surgical procedure the
iOOance company will piiy the rele.vant ·· -
expens s that is 'room -rent alid treatment cost at
. -··· . . .. .
a rate of sum assu1·ed which is usually pre-
agreed ·

Term Insurance Rider (TIR)

In case of death double of the sum assured
· is paid . even <: eath o_ctt!!S by ahy caus .
. . ··- .:::;: -- ... -->.
·:; . ;

Waiver of Premium Rider (WPR)

Under this supplementary contract if a
person is incap_aCitat on his or lier--
Ilvelihood as a resui't of any disease ·or
accident. Further premiums under his or her
policy are 'vaived and policy continu-es till m-
aturity date or · earlier death.>-------·
. -- ..

LA
;
 --. ---,rfp9U;· --.
e;.,. 20 I F' : :-!, e

fli
Important note: ·
· :: All the supplementary con!!:_l! Cts have no ·
;) maturity value, l l!_value or urrend r ·value.
,.! .---- --....--..--

1' LIFE ASSURANCE . CONTRACT

f.
-· There are two parties in life as_ !!!:: Jl.Ce
contract;
!
j
I e rfhe J.>roposer
\
i·
o The- Insured
( ,..----·· \
I
i:
!: The Pr.o.....:....u o s e r
t r.-..;.· -- " ·"' ... :-'"....,. ..:. . ..
'- . . :. .,

f
-"· .

The Proposer (Applicant) who

'

tr s-u.. b_ s__ _ eq:u:::e--n- tly beconies the i ifthe

r 'proposal is accepted by the insurer. Proposer
f: cari 't' always be- !t_ _lif l! !ll: !l.
t'
f,
' .
tt The insured .
·,rhe Proposer and the life proposed is not
\ always the same person. Fo'i= exam policy is plea
tf being takenout by a parent on the life his/her
I the parent will be the Proposer and the
!'l:
r
c life posed.
r
·.. This process starts with the completion of
(

the proposal form con'taining a number of

tr
r qlJ.estion i designed to have complete
'
I' information about the health____ _condition
_ and _ ,...-_ .
!
- -----
\
f
financial status of . . propose.
. .. .. . ---· --·

I
II
i
!
f!
'
ll /'
·;!JN1vi(
PROPOSAL.FORM --
The proposal form consists of 3 important
portions as ':ll_(l_er
.:- . .- ...··-· ·--- ......-

l.Personal statement; This contains the

. information about the;------ .... ..----
o Na:me-
/
Father's Nan1e
o

/ • Date of bh;th
.• pisease the proposer may have . (f r '
.;it'·I).:e-i iJ.s.·of accidents, if any
; >- . · ·- -· ··- - .•.;!

.--• Treatment details,

·.. - -·Vaccination details
/ • Employment details
__/•.Land ownership
.-• Family. history with ages of family member
s, ..· :. : . -

- -- ·: .ff·an:y - ·.· .;. ·, .. .... ,. .

_.. Family member died with dates and cause of
death
( . · and other details etc.

2. Declaration; Declaration is signed by the

p poser to the effect that the statements
made by him/her are true to every effect
and he/she has not concealed any
material information while answering the
relev ant
--,- r -----_ ---·
·'':·:
·.;'if
\,, 22 I ;J ;, s c

questions. The proposer also declares that if _

any concealment is found after issuance of
the policy, the insurer may ake the
contract d and forfeit the premiums paid
by the p op_ oser. The proposer also
authorizes the insurer to contact any
doctor
c------------·--···- ---- -

or hospi!__ l frgm where he may have taken

r
the treatment and obtain the treatment
u
recor d.
f
f

AGENT'S REPORT
i_ The agent is said to be the_rt Underwrite _
of the COf!_ _um_ r. lie has to report to - the -h-.sur-er :- .
about his knowledge of the proposer's health,
his mQ!!I! Y- ome- a_ ii-aiiie ·-vailie-orili-as
ts . nd agent also reports the P !iod (Qr -
hich proposer is kno"vn to him.

After the proposal form, there are ! s;

.---/6"-Offer ----- - . . .... · - ·
i
1 Acceptanc e
l /e Consideration

I Offer
i.
!
The proposal/ pplicant form constitutes .
an
_ce from the ins·urer by
1 o f fe r fo r ge tti n -. .-- ,r -
l ! _ : _ g p - _e .· · -
rr ....--

g i ! !_
1
--- -,- .
!
!
 Acceptance
When the insurance company/insurer
receives a complete proposal form duly signed
and it ssed, it is examined- by it
··undenvriter. If the offer falls within
··- · ··---- ...-......_.

unde ! -- ters it will be accepted

and then it is called aC"Cep1ance.

Consideration
After acceptance the proposer has to pay
be premium as calculated by the underwriter
and that payment of premium is t;;)lerl;=, -
consideration.

Counter offer
If that proposal does not falls in the
parameter of underwriting, the underwriter
Will make ·a counter offer to thP n& ser which.
rono. .

may contain any one or all of the following

considerations;
o Reduce the term/su1n assured of policy.
• Pay an extra premium. For demanding
extra premiums the underwriter will have
following reasons in view;
1.H a th _ tJP.P:a! -- - J
2.Occupation; on 'th.e basis of hazardou s
· occup ition.
-2'::: .::--·----- -----·- --· .
---
-
-------...,.--,-.-
....

. f:?:-
(
\ j'l\.
"
\ .: _\, "';:. ·_; --
\(:::::
&'-' \s:
t 24 1
.·
!:-;' . .,. -\
. ..

,! -
Cha ging of tra premiu ns Il}Jl Ilranc
1; :_ !m -q) ogy_lS c_aJ edlaa_dl_n ----
This counter offer is made in writing by
the insurer to the propos .--Th·e-prop-ose may
accept this counter offer or may not. If he
accepts he will sign this counter offe! a token . as
of his acceptance and pay _ th_ Pr i · i.e:···---- - <
consideration to <;oll!plete the co t:r £t. In both t_ -- -·"

situation s_ _ ! ·payntent of consideration the

f1 .... ( l \ {/ ..:_ \ --

j
!
Acceptance on ordinary rates/terms
The simple process of the acceptance of
\, • ..

f, offer is called acce tance on ordinary

1: rateS/terms. .--------
)1

L Acceptanc e 'With loading

When the insurer.issues the·c-- ontract
-
-···-·-·--·---
after ,
-.-

DECLINE
In declined cases the underwriter finds extra
ordinary abnormalities in the life proposed l!
lth _cQ QitiQD.§J)f in his/her
o.2cui1at i{; o ·-r;nancial
.----------------- ----- ····--------------
status. Therefore, he
......... .,...... .
vvill de{:lin e the offer treatin g it as uninsurable.
... ............ ....---------------- _ _ _ .., ------------··-- -·-.•...
·"·' ;.;':l'

j 251 Pa g e
\\

: However, certain insurance companies in the

I;;
world including Pakistan insure such declined

li
:•'···· ·

; live-s·o:ifspeciar terms under- their non-decline.

J · laf- : - s emes. sucll.sclieme for example one
.
'that if th·e- insured,----
person dies within the 1st
s
year of insurance no claim what so ever is
payable and if insured dies within 2"d year
of t1Wp0licy the znd year premium will only
b refunded. However, if death occursdue-
·to-an
l ·accident durl g t §. the full claim
ill be J ! - - · The insured will have to pay
- -·--
premium - . ev. ry_ ye -
an extra·
. . .
·-·-:- ·-·-····· ·· --

j
'
i;
I

TYPES OF PREMIUMS

Natural Premium
. Life insurance co111panies basically charge
.the a
--
. .. ·- i premium 'at rate as applicable to different · .
' - ---------------- ---- .. --- .

ag s- as the age of person . increases so the

1

-
-
:·

chances of his death increase accordingly. The

ohier-}ieo-Pie. have to pay the
---·-- --------- ---- · ---------. -----
premium at the
. ···- . ... .

rate gre ter than the younger people. This

'system is called he system of pay_J!lent of
natural pre1nium. Example is; ,-
,·· ::-:--;:-::-.:-·-··.. -· --- -----

(o
 ·--- ··· -- --

,.
·-
· r·
·

t) •
261
f .'J

!) ••• ••
I .,., :;:: ...

2-,
1
:
f AGE PREMIUM@ Rs.lOOO/-
·· .
... .. - :....
1 f 20 years Rs.. l9.10
· 21 Rs. 19.15
years Rs. 19.20
-
;; 22 years Rs. 45.50
-:
· 60 years
1

But it is very difficult from the

administrative point of ·the view:·Jor
insurance con1paji:ie·s to bilr-arid ch-
argetlie preml\iin on
- - ..... "" .

· . lfi nt
rates every year. Due to this difficulty
.. ·. the actuirieson-the basis of study and analysis
of a large ·number of world wide data of de·atfi's··"·.· '·c·.
·.· ·
.·; on various ages, developed a syste-m whet it

i
[ was.made-po sible for t. he insurance .companies.
to charge the same premium frOm allillSlired
· every year throughout the term of.iil'e')_l"olrcy.
. f. This system is called _level prelrz'ium .. This level
. -

actually in average amount per ....: ..... ., ...

premium is ----
------·· -·

year o(the natural premium-: throughout the

_p li- y _t rm.
"tliiSIDean·Sfllat the insured will
have to pay an extra amount in the e·arly years
an- le e:r_ aniount
in.ihe later··-years:·Iri tliis
-- ······

sy tem_i.nsurance com_panies develop -- their

reserv s in the early years which are used to
,-offs !J laims tendency in later.years.
... --- ---······ . . . ······-· -----------

/I
 If .

f: ; 27 1 P <l e

! EXTRA MOR:TAJ-t!TY (EM)

r: ..
EM +50
;
ElVf+lOO . -·· ·-·-· . .;.

EM+20
·

"i;.
0
t1 "EM" the lives proposed or "-- - r "-'4itten
1 : by the insurer according -! eir undervvriting
1
- . principl- - and pa-rameters. If any proposal does
fr not fit iJl those _ pi: iriet _rs especiall'vith
1i regard to· the health condition or on account of
:\ occrip··· -atioii,-·-....e
. 9 ·
or.. she-1s-con-sldered. For
if\ . insuranC'e in consideratl.oli 'of ..payrnent of an

. Jj . extra _ premium the reasons for which the extra

. pre. nium is c.harged come within the hrackef q.( . :' -...-
r , extra mortality.
·'r',.
·· · · ·
.. . ----_ Exfra---mortality is usually charged under
· any or :both of the followi g headings;
" • "ME" Medic a (e.g. if he is suffering
tt "\--
from ertension). l. .

e.·::"OE'1Occupat onal E tra!e.g. he is a

Rickshaw Driver). · - · · ·"' ·
Medical Extra

--------
If the person is already sufferin g from any
.-·
disease, he must have to pay extra P-Pnm-ium:··
.
-·····-4,_..-··
C...-·- ---

:,,l
ur
:
ft

";. it LIFE INSURANCE PROPOSA LS

t
II
!, :-.
m
These fall under two broad catetlo:ries_;_
1. --·--=---------· ---- -·-·- -------

'"
 31
e Non-Medical Proposal form
Iv1edical P:roposaUorm.

on-Medical Proposal Form

In non-medical proposal form the
underwriters - _!y I)t :re.Jy on t tatements
e_
and information given by the p_ro os r. In other
vvords the contract is issued unde J!!.ffi_Q_ t..gQ_Q_Q._
faith.
;

· Medical Proposal :Form

It is abnost similar to t!12t of
no.Q_:_m.edical
but except that the questions in the personal

' appointed by
.· statement are put to the {! -R-()Se-- y e doctor
the insurer. The answers ate
Ii\part from
recorded
f;
by the
the
doctor in his/her handwriting.
physi'-:al medical examination of
the roposer th ill urers gefcertai-
clinical
and l QQrtgxy ! st made a cording t() - sum
J:! <:l- -.- X-pos.ed. Except for occupational
the Jt: exira
p-remium is charged "in respect
_! Wev t ·-- _ses _of m dical. Higher the sum
assured---···m.ore- medical/clinical tes1:s-.:Wi1l be
- - =· --·- . ···- .--
i required.
v.
_;:.·_.'.•_ The tests may include;
1
: @ CBS (Complete Blood Studies)
C) Chest X-Ray
@ ECG (Electrocardiogram)
·

F
 -

r·
 291 r ag t:
'S7- ·
o EX-ECG (Exerc.ise ECG)
o I_jpid Profile//(iJ)1L/)
o HIV (Human Immunodeficiency
Virus)/AIDS (Acquired Immune Deficiency
Syndrome)
o LFTs (Liver Function Tests)
The level of asking these medical requirements
1 differs from insurer to insurer depending on its
financial \Vorth, financial stability and actuarial
surplus.

LOADING
-.-· - -·
.: ·: ,- .. .,._ . .-_ _ . •' -

· In technical terms· the · pt"einium charged

' under extra _JUOr.tality as medical extra or
•· ..-==
occupational extra is called .loading. This means .
that the ordinary rate of premium has been
loaded or increased by the rate applicable to
extra mortality .
. . . ,.

POLICY DOCUMENT
Policy document is an evidence of contract.
The policy document is issued after the
contract. It has four parts as under;
l.Preamble clause; This clause identifies the
·, -
.
parties
,
to the contract and sets forth the
. :

rights and iabilities of the .parties. It also

refers t . the .!'! c.! to
which the 'policy '
r -- . '

pertains.
·,,_:....
;
;
. . ,• ; :., .. ·--." -·--
 2.Schedule ; In schedule all the necessary
particula rs of the insur n- - -are.. mel!
tion.ed.
These oa::Hculars include,· · · .. ·...· 11.;··· ·_· ··· ···
.!', J i()A '" '\
,. t
r

.
Polic'/
o---
--· · number. (,d .

. ·Sun1_}ssured
·"· ·--
"V'tf Plan .Q{ insurance (Table & Term)
'·
vti Date .Qf commencement of policy or risk.
vO Dat _Qf maturity .
·vfi'.N-arne. and address of the assured.
\.A NaJ,Tf..e of guardian (if nominee is minor)

--o .A,m( u.nt of premium.

1.-i·_ ;lV.lod· ·of payment (monthly, r ::.·- :

·quarterly,
/
half.yearly or annually).
' --• /1-\Nl _Qption (Automatic iion forfeiture). '

·/Refe_r nce to endorsements, if any.

3.rferms and conditions;

· ' · ··11te · first ·term . is , Grace Period.
.·. --.. I ,;- .-

Different insurance companies have

I •

theit own practices but they usu_ally

allow the grace period of ys after
the premium has -b·-_ _ ..._ . . cJue. If the
....... .......... . , ,

premium is paid _within grace period

the policy remains in f9rce, otherWise it
--
lapseS. .... ...
-=grace_...-------·
In case deaili occurs within-
P I Qd and the premium is ·still
-
the
.
unpaid, the insurer will pay the claim
- ------
IS
 by deducting that outs ndin g p:re-mium
:' 'from the claim amount. . ' . ' .
I 0
It: -v1 l
rv --REVI /AL
//' ....
A policy can be revived by payment of
outstanding premiums and fulfillment of
necessary health requirements. Companies
usually place restrictions that a policy
remahl.ing lapsed for more than 5 years shall
not be revived.

Cl-lAP'fER- 5
..

RISI( ASSESSMENT & UNDERWRTING

··. .. .
It is the task of every Life
·, :·
.

Insurance Company to assess the risk it

'\'Vishes to accept and on that basis fix a fair
and equitable prc1niun1 payable by the
applicant. This is possible only if the
- urnpany carefully selects and classifies th.e,.,.,, ,_ .., ;...
risk it assu n1cs. Th c p roccss through "·h ich
a Life Insurance c:on1}Janv d ec1des---\-;·l1 ther
an applica-fimi__ _ received ----by r 1__ _ be .
accepted at st a r d _rates of pre n1iu n1 o [
be __ accepted on different ter1ns or be
rej ted is called Ul'JDER\ lRITING;' K t is _
other,vlse . called 'Selection and ·
Classification of l{isks'. \Vhile selection
represents the first part viz., decision to
accept a proposal, the second part viz., the
terms on 'vhich the proposal can be
accepted is called Classification.
 Pu pose of selection
I
I

I\ When lve con sider an y grou

individuals of the satn e age, \Ve find iha t
\I
I
I
great majority of th cn1 are
norn1al. But theP3 \V ill be a fe\v \Vho h ave ...
a n in1p,1i red ·,_

;'/
. .,i
:
,· .·.
 health or who face unusual risks because of
occupation, etc. A knowledge and
understanding of the variou s facts \vh
ich
· influence mortality enables the cotnpany
not only to select applicants bu t also
classify them into differen t groups
depending on the rate of mortality they are
likely to present. !he main Q!!I1 l£e
Qj_tbis
process is to deterrnine the rate of pre nni
tun
..,_ ... .... . paya Propo rior- L: ri k··· ··· ··
r , ··.····· ····E_sented by hiffi mtY· - -a
cc·····
·-.._,._.-----
accepteaby the cotn an ._ Those lives to
whom t 1e company can offer the saane
-premium rates ·as Inentioned in their
· Premium Tables are called STANDAl{D
LIVES. 1\ll other lives are called
SUB-
STANDARD lives. . .. '. ..

As per one estiinate 92 °/o of the

applications are accepted at standard rates,
- are offered rates applicable to .
substandard lives and only 3.--°-1<} are
declined.

Factors of Insurability
The need to treat all policy , O'\vners
equitably and to n1aintain solvency of the .
company as a whole do not require
overempha sis. Life insurance coinpan ies,
 theref ore, give careful consideration to a
nun1ber of significant factorswhen each
application for insuran ce is presented. The
. infor1nation obtained by the
company relating to these
faetors enables the
cornpany to determine the extent of risk
involved. These factors are called 'Factors
of Insurability'. They are;
" Aob-e
e Build
o Physical condition
o Personal history
Fan1ily history
o Occupation
@ Habits
o Residence
® Hobbies
Sex(Female Insurance underwriting is
distinct)
o Moral hazard.

Age is an important because the rate of

preinium depends upon the age of the
a pplicant. The probability of death
ine:reases as persons grows older. If age is

not registered at the time of application ,

con1p any has the discretion in such cases to
modify the terms of 'ilfe policy. If no age
proof is submitted at the time of the
application, it can be submitted later, but
settlement of a claim under the policy \viii
· · be subject to proof of age being submitted.
 Age proof may be as under in order of their
authenticity;
0 Birth certificate

" School/College Certificate

- e Certified ex.tract .from . service · record in
respect of an applicant ·,vho IS an
employee of government.
e National Identity Card (NIC).

BUILD
Build includes the applicant's height, weight
and distribution ot weight. This is one of the
essential determinants of the .
applicant's mortality expectation. As per recent
investigations conducted in USA at younger
ages, underweight is a definite impairment.
Tuberculosis is frequently
· associated at younger · ages with
J
underweight. Moreover young
hundred"veights are more sitbject to
.I debilitating conditions like anemia and
l iack resistance to acute infections.
..
.A.t younger . ages, o reweigh of
moderate degree is not a serious
ilnpairment. l'he highest Inortality · rate
because of over,Neight is experiencedat ·
the middle and older age and can cause
diseases of heart, bloodvessels and
kidneys.
To rate the build of an applicant, it is
usual to take into account the di£tribution
of 'veight, i.e.
. 0 Chesi girth in relation to height ·

e Chest expansion, and

e Girth of abdon1en in relation to chest
girth.
The first two assume special importance
when the applicant is underweight and
the third if he overweight.
lViobiiity of chest is of greater ·
importance than its mere size because
. 'good expansion indicates better vitality' ..'·._ ·, ,
r In under expansion, it is necessary to ·
I ascertain whether it is unilateral or / · ·
I 1 general in regions and whether it causes, ··
})J .A•'Jr Pleurisy, Fibrosis, Shrinking of
j ()

Consolidation from Pneumonia or

j
Phthisis.-
Physical condition
Physical condition rr f>U1S he
condition of health etc. of he i.·::rospect at
. the time of proposing life insu :·r, nce . The
. • company should satisfy itself that the
 ,
• applicant · is in good physical rt-rndition.
Predicted future mortality of an .
applicant depends upci·n the
abnormalitiespresent in one '-)f Knore
jmportant systerns of the body
lligestive,. Respiratory, Cardio· 'Vasctthir-. · ·
. Renal, Genito-Urinary, etc. system.
When there · are indication:. of any
·: ...
. abnormalities, further examhLition 1nay be
necessary before the applk.ation can be
accepted.
.. '··.

Personal History
The applicant's backg uJu nd of health
'·
'\1Vill have a bearin f; on his expected
mortality. History r·. f chronic
' , diseases is necessary because h c:y do not
··'. completely leave he systetn :t nd have .
; permanent or long after-eff e :· s. Ac ute
d'iseases, on the other hand ha ( generally
,
·.. . .
.,
· · , no after-effects except making " h e systetn
..weak for a short · perio d . A. art fro1n
···· · · . i fhese, there could be history rr.· su rge ric
..;- .
:
 91
or accidents. All these have ·an effect on
the longevity of an individual.

F·amily history
Family history is about the parents,
brothers, sisters, spouse and children of
the prospect. In · underwriting, this has a
great bearing · and is considered fro1n
three angles;
/.

e Average longevity of the fatnily,

c Hereditary susceptibility to disease..'
i
0 Exposure to infection. Family
l histories are better than
' average 'vhen both parents reach
age 70. They are 'vorse than average
I when both parents have died before
l
l
age 50 or if the family history
I discloses two cases of alcoholism - ·
I
I
diabetes, epilepsy, heart disease,
insanity or suicide before age 60.
Family history of tuberculosis \Viii
have to be · considered taking into
account the followin g factors ;
o Extent of trait in the fan1il y
stock (no. of 1'.B. CASES)
0 Immunity d ue to age of th
e applicant.

o Resistance arising froin 'Weig h t

of o Period since exposure
a e Intimacy of contact; The
p risk is greater when the
pl contact is likely .to be
ic
intimate as between
a
nt mother and child.
. e Type of Tuberculosis; There is
· less risk from tuberculo sis of
non-pulmonary . . . _ e.g.
types,_
tube rcu I os1.s of. b· on es,, J.:D t}U+;S ,
......
01 - ··
glands.)

Occupation
Occupational hazards may increase
risk in different ways;
o Risk of Accident to profession. als as
- . ·.. . .

pilots, auto-racers, electrical high-

tension line men, and those vv orkin
g
at great heights.
• Risk of health to · workers ,
in chemical factories, who
are exp osed totoxic, gases,
fumes etc. underground
drainage \v orkers in
mines, workers in
textile/cotton b ills, '\-Vho are
exposed to cotton dust.
 GRisk of both accident and health to
vvorkers in underground mines (exposed
to the hazards of flooding and also health
problems due to tack of sufficient oxygen
in the 111ines).
o Risk of environmental hazard to
workers in entertainment and liquor
trades (affecting mode of living).
Occupational risk have declined in
'·importance as a factor affecting life
·insurance underwriting because of
increased attention to job safety and
working conditions. Ratings have either
been eliminated or reduced in many
occupations.

Habits
The applicant's use of habit-forming
drugs and intoxicating beverages has a
bearing on the underwriting. If the applicant
is reported to be . consuming alcoholic
beverages in large amounts, the application
tnay be declined. So is the case 'vith
consumption of drugs