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Insurance Terminology Set-6 by Dr. Gaurav Garg

What is 'Switching’?
● Switching is the option provided to the insured by the insurer wherein the insured is entitled to move to a
different policy or transfer from one fund to another within the same policy.
● In switching, a certain stipulated number of switches can be made free of charges, but post that, switching
charges are levied. For switching to take place, the insured has to intimate the insurer in advance.
● After the advent of health portability in India, the insured is entitled to switch from one health insurance policy to
another and his coverage is not impacted.

What is Portability?
● Portability means the right accorded to an individual health insurance policy holder (including family cover) to
transfer the credit gained by the insured for pre-existing conditions and time bound exclusions if the policyholder
chooses to switch from one insurer to another insurer, provided the previous policy has been maintained without
any break.

What is Double Insurance?

● Double insurance is when the customer takes two insurance policies for the same property with or without prior
knowledge.
● Two insurance policies are taken for the same risk and same subject matter from one or more than one insurer.
● There is a difference b/w Life & Non-life insurance wrt double insurance.

What is ‘Reinsurance’?
● It is a process whereby one entity (the reinsurer) takes on all or part of the risk covered under a policy issued by
an insurance company in consideration of a premium payment. In other words, it is a form of an insurance cover
for insurance companies.

● In a typical reinsurance transaction, there are two parties.

○ The insurance company buying the reinsurance policy is called the ceding company or the cedant.
○ The company issuing the reinsurance policy is called the reinsurance agent or simply the reinsurer.
○ The ceding company pays a reinsurance premium to the reinsurer and the latter agrees to pay an agreed
portion of the claims made against the ceding company.

● Types of Reinsurance
○ Proportional reinsurance is one where the reinsurer receives a proportion of the premium received by
the insurance company and when claims are made, the scope of coverage will be up to that agreed
proportion only.
○ In non-proportional reinsurance, the reinsurer’s duty to cover the claim arises only when the loss of the
ceding company exceeds a certain limit.

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 ● Facultative Reinsurance
○ With facultative reinsurance transactions, the ceding company can offer an individual risk or a defined
package of risks to a reinsurer. Under a facultative arrangement, the reinsurer will perform its own
underwriting for some or all of the policies to be reinsured, and each policy is considered a single
transaction.
○ Facultative reinsurance is typically used for high-value or hazardous risks because the policies can be
tailored to specific circumstances.
● Treaty Reinsurance
○ In treaty reinsurance transactions, the ceding company transfers all risks within a book of business to the
reinsurer. For example, a primary insurer might transfer its entire book of commercial auto or all of its
homeowners’ risk. The two parties will enter into an agreement, known as the treaty, in which the
reinsurer is obliged to accept all covered business.

Grace Period Before Policy Lapse

● Insurance providers consider that there may be times when a policyholder cannot pay the premium on time. In
case you are unable to pay the premium on due date due to any reason, it will not automatically result in a lapsed
policy.
● A grace period is activated after the due date to reduce the chances of a lapsed policy. It is usually a period of 30
days within which premium payments are accepted without any extra charges. During the grace period, you and
your family can avail of the insurance benefits as usual.
● Once this grace period expires and your premium still remains unpaid, then the policy lapses. After this, your
insurance provider is no longer under legal obligation to make a death benefit payout.

● It is possible to reinstate a lapsed policy.

○ If your policy lapses, all is not lost. Reinstating a lapsed policy is actively encouraged and your insurance
provider will facilitate the process if you approach them. Depending on your type of policy, provider, and
contract terms and conditions, you will have a window (usually two years) within which you can revive a
lapsed policy by paying all the missed premiums and accumulated interest on them.

Revival Period In Life Insurance

● In case of non-payment of premium on the due date or during the grace period provided, the life insurance policy
will lapse. The policyholder can revive the life insurance policy during the revival period that starts after the
grace period ends.
● Usually the life insurance policy has a revival period of 2 consecutive years since the policy has been lapsed.
Under the revival period the policyholder can revive the life insurance policy by making the due premium
payment along with applicable charges.
● The earlier you reinstate a lapsed policy, the better.
○ Even though you are granted a two-year window to revive a lapsed policy, it’ll be a lot easier and cheaper
the sooner you do it from the date of lapse. Within 30 days to 6 months since the lapse of your policy,
you will require little to no underwriting for reinstatement. You will only need to submit a declaration of
good health, along with the unpaid premiums, penalty interest, and revival fee if any.

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 ○ After six months you will most likely be asked to undergo fresh medical checks and your insurance
provider has the right to change the terms of the contract or increase your premium.
○ Renewing a lapsed policy will likely cost you less than taking out a new one. Even though reviving a
lapsed policy may seem like quite an expense, taking out a new one will, in most circumstances, be even
more expensive.
○ You will have to forfeit the premiums you have already paid on a lapsed policy, which is money down the
drain.
○ There’s a possibility that your premium will remain the same when you reinstate a lapsed policy, but if
you take out a new one, the premium will definitely will be higher than your lapsed policy because
premiums increase as you get older. It is therefore best to reinstate your policy at the earliest.

What is 'Reinsurance Risk’?

● Reinsurance risk refers to the inability of the ceding company or the primary insurer to obtain insurance from a
reinsurer at the right time and at an appropriate cost. The inability may emanate from a variety of reasons like
unfavourable market conditions, etc.
● Default risk by a reinsurer also affects the ceding insurance company in an adverse manner as it may affect their
profitability.
● The ceding company has the onus of meeting the insured's claims in the event of a default by the reinsurer.

What is freelook period in life insurance policies?

● As a policyholder, you can examine the insurance policy and opt out if you are not satisfied with any of the terms
and conditions mentioned in the policy within 'free look' period of 15 days (30 days in case of electronic policies)
from the date of receipt of policy document, by stating the reasons for your objection.
● In case you opt out, the premium paid will be refunded after deductions for expenses like those for a medical
examination, cost of proportionate risk cover, stamp duty, etc.

What is the eligibility to approach insurance ombudsman?

● One can approach Insurance Ombudsman with a written complaint only if the insurance company or insurance
broker have rejected the complaint, not resolved it to the satisfaction of the complainant or not responded to it at
all for a period of one month and where the value of the claim including expenses claimed is not above Rs 30
lakhs.

What is a settlement option under ULIP?

● It is an option to be exercised by the policyholder of a unit linked life insurance policy to receive the maturity
proceeds in installments.
● The installments can be taken over a maximum period of five years. Tenure: 1 to 5 year option should be
available

What is 'Non Standard Life insurance’?

● Non standard life is an individual to whom insurance company sells the policy by charging extra premium over
the normal rate of interest.
● In the event of the insured being exposed to occupational hazards where the nature of the duty exposes the
insured to physical injury and potential disability, the insurer charges an extra premium to cover the extra risk.

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To Buy Gaurav Sir's Current Affairs, Static GK & Banking Awareness (Static) Courses, click on the
below links (गौरव सर के करट अफेयस, े िटक जीके और बिकंग अवेयरनेस ( े िटक) कोसज खरीदने के िलए, नीचे
िदए गए िलंक पर क कर) -
1. Gaurav Sir's Current Affairs
2. Gaurav Sir's Static GK
3. Gaurav Sir’s Banking Awareness (Static)

For any Assistance Please Feel Free to Contact at - 95544 43351

To know more, download Study IQ APP

https://play.google.com/store/apps/details?id=com.studyiq.android

To Download Current Affairs PDFs join this Telegram Group of Dr. Gaurav Garg - https://t.me/StudyIQPremiumUsers