UNIT –II

LIFE INSURANCE

2.1 LIFE INSURANCE

Life insurance is a contract between a life insurance company and a policy owner. A life
insurance policy guarantees the insurer pays a sum of money to one or more named
beneficiaries when the insured person dies in exchange for premiums paid by the policyholder
during their lifetime.

2.1.1 DEFINITION

Life Insurance is defined as a contract between the policy holder and the insurance company,
where the life insurance company pays a specific sum to the insured family upon his death.
The life insurance sum is paid in exchange for a specific amount of premium.

According to Section 2(11) of Insurance Act 1938, Life Insurance is the business of effecting
contracts of insurance upon human life, including any contract whereby the payment of money
is assured on death or the happening of any contingency dependent on human life and any
contract which is subject to the payment of premiums for a term dependent on human life.

2.1.2 LIFE INSURANCE IN INDIA

Oriental Life Insurance Company started by Europeans in Calcutta was the first life insurance
company on Indian Soil. All the insurance companies established during that period were
brought up with the purpose of looking after the needs of European community and Indian
natives were not being insured by these companies.

Human life is perhaps the most important and invaluable asset. This asset is subject to risks of
death and disability due to natural and accidental causes. When human life is lost or a person
is disabled permanently or temporarily, there is a loss of income to the household.

Though human life cannot be valued, it is possible to estimate the loss of income that would
be suffered in future years in the event of a risk like death or disability. Life insurers try to
place a monetary value on such loss and provide insurance cover for such loss. Life insurance
is a financial cover for a contingency linked with human life, like death, disability, accident
and retirement. Life insurance products provide a definite amount of money in case the life
insured dies during the term of the policy or becomes disabled on account of an accident.

2.1.3 BENEFITS OF LIFE INSURANCE

1. Risk Coverage: Insurance provides risk coverage to the insured family in form of monetary
compensation in lieu of premium paid.

2. Difference plans for different uses: Insurance companies offer a different type of plan to
the insured depending on his need for insurance. More benefits come with the more premium.

3. Cover for Health Expenses: These policies also cover hospitalization expenses and critical
illness treatment.

4. Promotes Savings/ Helps in Wealth creation: Insurance policies also come with the saving
plan i.e. they invest your money in profitable ventures.

5. Guaranteed Income: Insurance policies come with the guaranteed sum assured amount
which is payable on happening of the event.

6. Loan Facility: Insurance companies provide the option to the insured that they can borrow
a certain sum of amount. This option is available on selected policies only.

7. Tax Benefits: Insurance premium is tax deductible under section 80C of the income tax Act,
1961.

2.1.4 WHO NEEDS LIFE INSURANCE?

i. Primarily, anyone who has a family to support and is an income earner needs life insurance.

ii. In view of the economic value of their contribution to the family, housewives too need risk
cover.

iii. Even children can be considered for life insurance in view of their future income potential
that is at risk.
2.1.5 BASIC TYPES OF LIFE INSURANCE POLICIES

i. Term insurance:

Under this plan, the sum assured is paid only on the death of the insured during the period
specified. There is no maturity value in term insurance.

ii. Endowment assurance:

Under this type of plans, the sum assured is paid at the end of the term as maturity or on the
death of the insured during the term of the policy. This is available as With Profits (Bonus) or
Without Profits type. Money-back plans are endowment policies with the provision for return
of a part of the sum assured in periodic installments during the term and balance of sum assured
at the end of the term.

iii. Whole life insurance:

It offers to pay the sum assured when the life assured dies, no matter when the death occurs.
There is no fixed term for cover of death. The premiums can be paid throughout one’s life or
for a specified limited period.

iv. Unit Linked Insurance Plans:

These are essentially life insurance plans where the premiums are invested in the capital
markets and the returns are therefore linked to the performance of the specific fund and the
overall market. The fund choice is made by the customer and therefore the investment risk is
borne by the customer. There is also specified life insurance risk cover available for which
premium will be deducted before investment. There are also various charges applicable in this
type of policies.

iv. There are other varieties among life insurance policies such as Variable Insurance Policies,
Joint Life Policies and children’s policies.

2.1.6 ESSENTIALS OF LIFE INSURANCE

Life insurance is crucial for families to feel security and a sense of confidence to continue their
lives without losing their everyday stability. The below points helps to understand the key
features and advantages of life insurance

1. Policyholder

Policyholder is the individual who pays the premium for the life insurance policy and signs a
life insurance contract with a life insurance company.

2. Premium
Premium is the amount paid by the policyholder to the insurer to transfer risk and buy coverage.
Insurance premiums can be paid one time in a lump sum or through regularized payments on a
monthly, quarterly, or annual basis. The premium amount is dependent on the sum assured and
insurance benefits availed of by the insured.

3. Maturity

Maturity is the stage at which the policy term is completed and the life insurance contract ends.

4. Insurance:

Insurance is a contract between an individual or entity and an insurance company through

which they receive financial protection or reimbursement in the event of predefined losses.

5. Insured

Insured is the individual whose life is secured via the life insurance. After his/her death the
insurance company is accountable to provide a financial amount to the dependents.

6. Insurer:

The insurance company liable to provide financial protection or monetary reimbursement to

the insured in the event of losses is called an insurer.

7. Sum Assured

The amount the insurance company pays the dependents of the insured if those events occur
which are specified in the life insurance contract.

8. Life Insurance

Life insurance is a type of insurance wherein the insurer is legally bound to pay a defined sum
of money to the insured on completing a predefined period or to the insured person’s nominee
in the event of his/her death.

9. Life Assured:

An insured person for whom the life insurance offers financial coverage is called life assured.

10. Term Insurance:

Term insurance or term policy is a type of life insurance that provides life coverage for a
limited period or a predefined ‘term’ in years. If the insured person dies while the term
insurance coverage is active, a death benefit is paid by the insurer.

11. Policy Term

Policy term is the specified duration (listed in the life insurance contract) for which the
insurance company provides a life cover and the time period during which the contract is active
(listed in the life insurance contract).

12. Nominee

A nominee is an individual listed in the life insurance contract who is entitled to receive the
predetermined compensation, as a part of the policy.

13. Claim

On the insured's demise, the nominees can file a claim with the insurance provider in order to
receive the predetermined pay-out amount.

14. Coverage:

Insurance coverage is the amount payable by the insurance company to the insured in the event
of a predetermined loss to self or property. To avail of a certain amount of financial coverage,
the insured or the policyholder has to pay the established amount in premium(s) to the insurer.

15. Nominee or Beneficiary:

A nominee or beneficiary is the person specified in the life insurance policy to receive the death
benefit if the insured person expires during the active policy term. A beneficiary may be a
relative, dependent, or any person or entity specified by the policyholder.

16. Free Look Period:

Free look period is the time frame during which the policyholder can review the policy
document. If the policyholder has objections to the terms and conditions of the policy, he/she
can return the issued policy to the insurer. The insurer, in turn, has to refund the premium paid
by the policyholder after deducting operational expenses.

17. Age Limit:

This is the upper and lower limit of age within which a policyholder can purchase life
insurance. An insurance company can deny the sale of an insurance policy if the policyholder
is above or below the specified age limit. For term insurance coverage, the standard age limit
is between 18 and 65 years.

18. Grace Period:

If the policyholder is unable to pay the insurance premium on time due to any reason, the
insurer offers a grace period of 15-30 days for payment while keeping the policy active. If the
premium is still not paid after the grace period, the policy is considered lapsed and does not
offer life coverage.

19. Maturity Date:

This is the date on which the policy completes its term and is terminated. Life coverage is not
provided by the insurer beyond this date.

20. CO Life Insurance:

When a life insurance policy is bought by a company for its employees, it is called Company
Owned Life Insurance or COLI. For a COLI, the policyholder is the company, while the insured
is the employee. The death benefit for a COLI can be payable to the company or the nominees
defined by the insured employee.

21. Maturity Claim/Survival Benefit:

For certain life insurance policies, the insurance company can offer a maturity claim or survival
benefit to a policyholder. This is the amount that the insured will receive in the event of
surviving the policy term. Although this amount is usually equal to the premium invested, it
can also include certain bonuses or perks.

22. Rider:

A term insurance rider1 is an additional paid feature that increases the scope of a standard term
policy. Different types of insurance riders can be bought by the policyholder, either when
buying the policy or later during the term. Riders can cover accidental death, critical illnesses,
total and permanent disability, income loss, or life cover of a dependent.

23. Surrender Value:

If the policyholder discontinues the policy mid-term, he/she may receive an amount from the
insurer called the surrender value. However, it depends on the terms and conditions defined
when buying the policy, whether the policyholder is eligible for receiving the surrender value.

24. Exclusions:

Any event or type of loss not covered under a life insurance policy is called an exclusion. It
may include death by suicide or death early in the term.

2.1.8 ADVANTAGES OF LIFE INSURANCE POLICY

1. Death Benefits

Life insurance enables individuals to protect themselves and their families, in case of any
unfortunate happening in the life of the insurer. The insurer pays an amount equivalent to the
sum assured as specified in the contract along with applicable bonuses. This is known as the
death benefit.

2. Wealth Creation through Investment Components

A few life insurance policies offer wealth creation benefits as well. In such life insurance plans,
we can invest our premiums in different funds based on your risk appetite. These life insurance
plans are excellent wealth builders in the long run.
Invest 4G offered by Canara HSBC gives you the option of choosing from a range of seven
funds. The fund options include both equity and debt investments and 4 different portfolio
management strategies to help you maximise your gains.

3. Financial Security

The primary importance of a life insurance policy is that it provides your family with long-
term financial security. Life insurance policies provide a lump sum money to financially
support your family in the case of your early demise. Plans like iSelect Smart360 Term Plan
term can look after the family’s regular expenses, future goals and any ongoing debts after your
death.

4. Loan Option

A cheaper loan facility is one of the important benefits of life insurance plans. You can use
your life insurance policy with the investment part for a loan as well. Life insurance plans like
guaranteed savings plans, money back plans and whole life insurance policies acquire a cash
value over time. You can borrow at a low rate of interest against this cash value.

5. Life Stage Planning

The importance of life insurance grows as you progress through your life stages. Life stages
refer to the multiple major stepping stones like marriage, childbirth, home purchase, retirement,
etc. We can use life insurance plans to prepare for each of these life stages. For example, term
insurance for protection, child plan for child’s marriage and education, ULIP for building
wealth, the pension plan for retirement, etc.

6. Assured Income Benefit

Assured Income benefit is another important benefit of life insurance plans. iSelect Smart360
Term Plan offer a regular income pay-out option for our family after our early demise.
Similarly, life insurance pension plans can offer a long-term guaranteed income to insured and
their spouse.

2.1.9 DIFFERENT TYPES OF LIFE INSURANCE POLICIES IN INDIA

Listed below are the various types of life insurance policies in India:
TYPES OF LIFE INSURANCE POLICIES

Here is a list of all the types of life insurance policies available in India:

1. Term life insurance

Term insurance is a life insurance product, which offers financial coverage to the
policyholder for a specific time period. In case of death of the insured individual during
the policy term, the death benefit is paid by the company to the beneficiary.

2. Term return of premium plans

Under a term plan with return of premium (TROP), you will be eligible for a return of
the premiums at the end of the policy term, if you survive that period. Like a pure term
plan, a TROP also offers death benefits to the policyholder's family in the event of
death.

3. Whole life insurance policy

Whole life insurance is a type of permanent life insurance, which means the insured
person is covered for the duration of their life as long as premiums are paid on time.

4. Endowment plans

Endowment plans refer to the life insurance policies that offer risk cover to the
policyholder under the unfortunate event and a maturity benefit at the end of the
policy term. The policyholders are paid a lump sum after a specific period called the
maturity period. The insurance company will pay the assured amount to the
policyholder’s nominees in case of the holder’s death or the holder themselves on a
fixed date.

5. Money back plans

In a money back plan, the insured person gets a percentage of sum assured at regular
intervals, instead of getting the lump sum amount at the end of the term. It is an
endowment plan with the benefit of liquidity.

6. Retirement plans

Retirement plans are a mixture of insurance and investment. A portion from the
premiums is directed towards retirement corpus, which is paid as a lump-sum or
monthly payment after the retirement of the insured. Under this policy, the amount
collected in the form of a premium is accumulated and distributed to the policyholder
in form of income as annuity or lump sum depending on the instruction of insured.

7. Child insurance plans

A child insurance policy is a saving cum investment plan that is designed to meet our
child’s future financial needs. In case of an unforeseen death where the life assured’s
 parent passes away during the policy tenure, child insurance plans can provide instant
payout to cover the expenses of a child.

8. Unit linked insurance plans

ULIP plans provide the dual benefits of investment and insurance. It provides a life
cover that offers financial security for the family members, as well as builds wealth
through market-linked returns from systematic investments. With this, we get the
opportunity to invest our amount in different options of funds depending on the risk
appetite.

9. Group life insurance plans

Group Life Insurance policy is one of the types of life insurance policy that is provided
to a group of individuals, generally as an employment benefit. The main purpose of
group life insurance plans is to offer financial freedom, support, and protection to the
family of the concerned employee in case of any possibilities.

HOW TO CHOOSE LIFE INSURANCE POLICY

The idea of the right policy differs from person to person. What will be a good option for
someone else, may not be as attractive for you. Thus, it becomes important to choose the policy
that suits you the best.

Here is how you can choose the right type of life insurance policy:

a) Choose According to the Goal

Different life insurance policies can help fulfil different goals. You should be clear about the
goal that you want to achieve with your life insurance policy.

b) Consider the Sum Assured

Ascertain the needs and wants of your family members as well as the daily expenses and choose
a cover that can fulfil all these. The general rule that goes is that you should select a sum assured
which is at least 10 times your annual income.

c) Policy Term

While some policies are made to achieve long-term goals and have a longer time frame, some
policies have shorter terms as well. Select a policy that has multiple time frames.

d) Riders

Riders can enhance your sum assured and can cover those occurrences which the basic policy
doesn’t. Choose a policy with maximum riders.

e) Check Information of the Company

Apart from the policy, research about the company that provided the policy as well. Check out
for the following:

o Claim Settlement Ratio

o Solvency Ratio
o Exclusions

ANNUITY

The term "annuity" refers to an insurance contract issued and distributed by financial
institutions with the intention of paying out invested funds in a fixed income stream in the
future. Investors invest in or purchase annuities with monthly premiums or lump-sum
payments. The holding institution issues a stream of payments in the future for a specified
period of time or for the remainder of the annuitant's life. Annuities are mainly used
for retirement purposes and help individuals address the risk of outliving their savings.

DEFINITION:

According to D.S. Hansell, “Annuity is a form of pension, whereby in return for a certain
sum of money the insurer agrees to pay the annuitant an annual amount for a specified period
or for the reminder of the annuitant’s life”.

DIFFERENCE BETWEEN ANNUITY AND LIFE INSURANCE

The life annuity differs from life insurance on the following counts:

i) Protection: Annuity is a protection against living too long. Insurance is a protection against
living too short.

ii) Premium Calculation: Premium is calculated on the basis of longevity for annuity, but on
the basis of mortality tables for insurance

iii) Funds: A life policy creates the funds gradually. Annuity gradually liquidates the
accumulation of the funds created by the insurer.

iv) Purpose: Annuity is taken mostly for self-benefit. Life insurance is made for self-benefit
as well as for dependents.

v) Benefit: the annuity payments are usually made in instalments up to the date of death of
the beneficiary. The insured sum is paid in lump sum to the beneficiary on the date of the
assured or on the maturity date.

vi) Premium payment: The payment of premium is usually made in one lump sum in annuity,
nut usually in instalments in insurance.

vii) Medical Examination: Most of the life insurances require medical examination of the
proposer but it is not necessary in case of annuity.
TYPES OF ANNUITIES:

There are three main types of annuities:

1. Deferred Annuity

It is one of the unique types of annuity, which includes a specific interval between the premium
payments and annuity payouts. The tenure for which a subscriber pays the premium is referred
to as the accumulation phase of these types of annuity.

2. Immediate Annuity

This type of annuity requires an individual to pay a lump sum amount as a premium to become
a subscriber. Once this payment is mad, the payouts under these annuity plans start immediately
as per the pre-defined payout criteria.

3. Fixed Annuity

A fixed annuity is one of the most popular types of annuity chosen by people in India. Under
this annuity plan, the payouts will remain constant over the entire tenure. It is considered a
conservative option, with the money being invested into fixed income instruments mostly.

4. Variable Annuity

In these types of annuity plans, there occur variations in the payouts between one instances to
the next. The variations are major linked to the performance of the benchmark or the index to
which the underlying investment is mapped.
BENEFITS OF ANNUITY PLANS

Here are some of the key benefits of Annuity Plans.

 Guaranteed Income

Annuity Plans offer a guaranteed income stream, providing financial stability during
the person retirement years. This ensures that the person can continue to live a
comfortable lifestyle without worrying about running out of money.

 Flexibility

Annuity Plans offer flexibility in terms of pay-out options, allowing you to choose
the frequency and duration of payments that suit the person needs. The person can also
choose to receive payouts for a fixed period or for their entire lifetime.

 Tax Benefits

Annuity Plans offer tax benefits, with premiums paid towards Annuity Plans eligible
for tax deductions under section 80CCC of the Income Tax Act. Additionally, annuity
payouts are taxed as income, but the tax liability is spread over a longer period of time,
reducing the overall tax burden.

 Death Benefit

Annuity Plans also offer death benefits, ensuring that our loved ones are financially
protected in case of our untimely demise. The nominee receives the remaining annuity
payments, or the sum assured, depending on the type of plan chosen.

 Hassle-Free Investment

Annuity Plans are easy to invest in, with minimal paperwork and hassle-free claim
settlement processes.

ELIGIBILITY CRITERIA FOR ANNUITY PLANS IN INDIA

Annuity Plans are a popular retirement savings option in India that provides a steady stream of
income after retirement. Here are the common eligibility criteria for Annuity Plans in India.

1. Age: The minimum age for investing in an annuity plan is 30 years, while the maximum
age is 85 years. The age limit may vary depending on the type of annuity plan chosen.

2. Source of Income: Individuals investing in Annuity Plans must have a regular source
of income, such as salary, pension, or business income.

3. KYC: Individuals must complete the KYC (Know Your Customer) process to invest
in an annuity plan. This involves providing identity and address proofs, as well as other
relevant documents.
 4. Health status: Some Annuity Plans may require individuals to undergo a medical
examination to determine their health status. This is usually required for plans that offer
higher payouts or longer payment durations.

5. Nationality: Indian citizens and non-resident Indians (NRIs) are eligible to invest in
annuity plans. However, the rules and regulations may vary for NRIs depending on
their country of residence.

FORMATION OF LIFE INSURANCE CONTRACTS

1. Application

The first step in forming a life insurance contract is for the prospective policyholder to submit
an application to the insurance company. The application typically includes personal
information about the applicant, such as age, health condition, occupation, lifestyle habits, and
financial details. The accuracy and completeness of the information provided are essential for
the underwriting process.

2. Underwriting

After receiving the application, the insurance company initiates the underwriting process. This
involves assessing the risk associated with insuring the applicant. The insurer evaluates the
applicant’s health records, may require a medical examination, and considers other factors such
as occupation, hobbies, and lifestyle choices. Based on this evaluation, the insurer determines
the premium amount and whether to accept the application.

3. Offer and Acceptance

Once the underwriting process is complete, the insurance company makes an offer by issuing
a policy proposal to the applicant. The proposal outlines the terms and conditions of the life
insurance policy, including the coverage, premium amount, policy duration, riders (if any), and
any exclusions or limitations. The applicant reviews the proposal and, if satisfied, accepts the
offer by signing the policy document.

4. Consideration

Consideration refers to the premium payment made by the policyholder in exchange for the
insurance coverage. The policyholder agrees to pay the premiums as specified in the policy
document. The premium amount is usually determined based on factors such as the insured’s
age, health condition, sum assured, policy duration, and type of policy.

5. Policy Issuance

Once the policyholder accepts the offer and pays the initial premium, the insurance company
issues the life insurance policy. The policy document contains the terms and conditions of the
contract, including the coverage details, premium payment schedule, policy exclusions,
beneficiaries’ information, and other relevant provisions.

6. Policy Delivery and Review

The insurance company delivers the policy document to the policyholder. It is important for
the policyholder to carefully review the policy terms and conditions to ensure they align with
their expectations and needs. Any discrepancies or questions should be addressed with the
insurance company for clarification or changes, if required.

7. Contractual Obligations

Both the policyholder and the insurance company have certain obligations under the life
insurance contract. The policyholder is obligated to pay the premiums as scheduled and provide
accurate information throughout the policy term. The insurance company is obligated to
provide the agreed-upon coverage and pay the death benefit to the beneficiaries upon the
insured’s death, subject to the terms and conditions of the policy.

ASSIGNMENT IN INSURANCE

According to Section 38 of the Insurance Act, an assignment means the complete transfer of
rights, title and benefits under the policy. The insured making an assignment is called ‘assignor’
and the person to whom the policy is assigned is called the ‘assignee’. The assignment may be
done:

a) For valuable consideration – loan on the security of life policy;

b) As a gift out of love and affection;

c) To the government for the purpose of paying estate duty provided the policy is on
life of the policyholder.

ASSIGNMENT MAY TAKE TWO FORMS:

a) Conditional Assignment:

The assignment is made with a provision that in the event of the assignee predeceasing the
assignor or the assignor surviving the date of maturity, the policy may revert to the assignor.

b) Absolute Assignment:

The assignment is made by transferring all the rights, titles and interests in the policy to the
assignee without any reversion. The policy becomes the property of the assignee who alone
can deal with the policy, in any manner he likes and may assign to another person.

NOMINATION IN INSURANCE

To nominate means to name or to mention by name. The holder of a policy of life insurance on
his own life may nominate a person to whom the amount of the policy is to be paid in the event
of his death. Nomination may be done at the time of taking out the policy or at time before its
maturity. The person who is so nominated in the policy is called the “Nominee”. The
nomination is governed under Section 39 of the Insurance Act, 1938.

TYPES OF NOMINEES
In a life insurance policy, the policyholder names someone who will receive the benefits in the
event of the life assured's death. Here are a few types of nominees:

1. Beneficial Nominees

In accordance with the law, the beneficiary of the claimed benefits will be any immediate
family member nominated by the policyholder. Beneficiary nominees are limited to immediate
family members of the beneficiary.

2. Minor Nominees

It is common for individuals to name their children as beneficiaries of their life insurance
policies. Minor nominees (under the age of 18) are not allowed to handle claim amounts.
Hence, the policyholder needs to designate a custodian or appointee. Payments are made to the
appointee until the minor reaches the age of 18.

3. Non-family Nominees

Nominees can include distant relatives or even friends as beneficiaries of a life insurance
policy.

4. Changing Nominees

It is okay for policyholders to change their nominees as often as they wish, but the latest
nominee should take priority over all previous ones.

DIFFERENCE BETWEEN NOMINATION AND ASSIGNMENT

Defining
Assignment Nomination
parameters
The endorsement is made on the contract The nominees' names are
Source
policy. mentioned.
It involves transferring rights/ownership Policy ownership does not change
Policy Ownership from the assignor (policyholder) to the under nomination, it continues with
assignee (person/entity). the policyholder.
The life assured will transfer all his/her It offers the nominee to avail claim
Purpose right/ownership of the policy to another benefits in case of death of the life
person/institution. assured.
The assignment might/might not support Nomination does not support
Consideration
consideration. consideration.
Without a witness, the assignment will be
Witness It is not required in the nomination.
considered invalid.
Assignee has the right to sue the assignor The nominee cannot sue the
Right to sue
of the policy. policyholder of the policy.
The nominee is entitled to avail the
Assignee is entitled to receive the policy
Policy Amount claim benefits in case of death of
money.
the life assured
REVIVAL OF LAPSED POLICIES:

When the assured fails to pay the premium amount within the days of grace, his policy is said
to be ‘lapsed’. Such a lapsed policy may, however, be revived during the life time of the assured
under the following schemes:

a) Ordinary Revival Scheme:

The arrear premiums are paid with interest along with other medical requirements, if any.

b) Special Revival Scheme:

It is meant for those policyholders who cannot pay all the arrear premiums, but are interested
to revive the policy. In this scheme, the date of commencement of the policy is shifted to the
date of survival. A necessary condition for this revival is that the policy should not have lapsed
for more than two years and it must not have acquired a paid up value.

c) Revival by paying arrear premium in instalment:

This scheme is useful for those who cannot pay arrear premium in one lump sum and who do
not satisfy the basic condition of special revival scheme. For example, the policy might have
already acquired a paid up value. It is very much like ordinary revival scheme except that in
this case, the arrear premium with interest is paid in instalments along with the current premium
say within two year. After having paid the increased premium for the stipulated period, the
instalment shall be reinstated to its original amount.

d) Revival with loan scheme:

As is clear from the name, this scheme involves two steps – one, reviving the policy, two,
granting a loan. Loan is calculated assuming that the premium has been paid up to the date of
revival and thereafter this amount is adjusted towards the arrear premium. However, if loan
amount falls short of the required arrear premium with interest, the balance is payable by the
policyholder. Thus while the policy gets revived, it gets loaded with a loan which needs to be
repaid with interest or else this is deductible from the claim as and when it arises.

SURRENDER VALUE

Surrender value is the amount that a policyholder receives from the life insurer when he or she
decides to terminate a policy before its maturity period. Suppose the policyholder decides on a
mid-term surrender; in that case, the sum allocated towards the earnings and savings would be
provided to him. A surrender charge is deducted from this depending on the policy.

TYPES OF SURRENDER VALUE

There are two types of surrender value - guaranteed surrender value and special surrender value

1. Guaranteed surrender value

The guaranteed surrender value is payable to the policyholder only after the completion of three
years. This value makes up to only 30% of the premiums paid towards the plan. Moreover, it
excludes the premium paid for the first year, additional costs paid towards riders and bonuses.

2. Special surrender value

To understand this, one needs to first know what paid-up value is. Suppose the policyholder
stops paying premium after a specific period, the policy would continue, but at a lower sum
assured, which is termed as paid-up value. The paid-up value is calculated as original sum
assured multiplied by the quotient of the number of paid premiums and number of payable
premiums.

PAID UP VALUE

If, instead of surrendering the policy for its cash value and cancelling the contract completely,
the policyholder merely wishes to discontinue the payment of further premiums, the policy is
converted into a paid-up-policy for a reduced sum assured. The paid up value is determined as
given below:
No. of Premiums paid
Paid up Value = -------------------------------- X Sum assured
No. of Premiums payable

The paid up value is payable only on the date of maturity of the original policy i.e. at the expiry
of the full term of the policy or at the death of the assured, whichever is earlier. On the date of
the assured, the amount becomes payable to legal representative.

LOAN ON POLICIES

The insurer grants the facility of loan to the policyholders on the security of the policy. Loans
are generally granted up to 90% of the surrender value and 85% for reduced paid up policies.
Sometimes higher percentage is also given. The interest is charged on the loan and rate of
interest varies time to time. Such loans may be repaid during the current year provided interest
is paid regularly as stipulated.

CLAIM

Claim settlement is one of the most important services that an insurance company can provide
to its customers. Insurance companies have an obligation to settle claims promptly. You will
need to fill a claim form and contact the financial advisor from whom you bought your policy.
Submit all relevant documents such as original death certificate and policy bond to your insurer
to support your claim. Most claims are settled by issuing a cheque within 7 days from the time
they receive the documents. However, if your insurer is unable to deal with all or any part of
your claim, you will be notified in writing.

TYPES OF CLAIMS

1. Maturity Claim- On the date of maturity life insured is required to send maturity claim /
discharge form and original policy bond well before maturity date to enable timely settlement
of claim on or before due dates. Most companies offer/issue post-dated cheques and/ or make
payment through ECS credit on the maturity date. In case of delay in settlement kindly refer
to grievance redressal.

2. Death Claim (including rider claim) - In case of death claim or rider claim the following
procedure should be followed.

STEPS TO FILE A CLAIM:

1. Claim intimation/notification

The claimant must submit the written intimation as soon as possible to enable the insurance
company to initiate the claim processing. The claim intimation should consist of basic
information such as policy number, name of the insured, date of death, cause of death, place of
death, name of the claimant. The claimant can also get a claim intimation/notification form
from the nearest local branch office of the insurance company or their insurance advisor/agent.
Alternatively, some insurance companies also provide the facility of downloading the form
from their website.

2. Documents required for claim processing

The claimant will be required to provide a claimant's statement, original policy document, death
certificate, police FIR and post mortem exam report (for accidental death), certificate and
records from the treating doctor/hospital (for death due to illness) and advance discharge form
for claim processing. Based on the sum at risk, cause of death and policy duration, insurance
companies may also request some additional documents.

3. Submission of required documents for claim processing

For faster claim processing, it is essential that the claimant submits complete documentation
as early as possible. A life insurer will not be able to take a decision until all the requirements
are complete. Once all relevant documents, records and forms have been submitted, the life
insurer can take a decision about the claim.

4. Settlement of claim

As per the regulation 14 (2) (i) of the IRDAI (Policy holder's Interest) Regulations, 2017, the
insurer is required to settle a claim within 30 days of receipt of all documents including
clarification sought by the insurer. However, the insurance company can set a practice of
settling the claim even earlier. If the claim requires further investigation, the insurer has to
complete its procedures expeditiously, in any case not later than 90 days from the date of receipt
of claim intimation and claim shall be settled within 30 days thereafter.

LIFE INSURANCE CLAIM PROCESS

Life insurance claims can be divided into three categories i.e. Maturity claims, Death
claims, and Rider claims. Below we have mentioned all the claim processes in detail to give
you a better understanding of the life insurance policy claim processes:
1. Maturity Claim

Maturity claim is directly related to the maturity benefit of the policy. This means that when
the policy term ends, the life insurance company has to pay the sum assured to the policyholder
which is known as a maturity claim.

Under this claim process, the life insurance company pays a predetermined sum assured to the
policyholder at the end of the policy term or maturity date. This amount includes the total sum
insured along with incentives/bonuses.

For filing a maturity claim, the life insurance company sends the bank discharge form to the
policyholder. The policyholder has to complete the form and send it to the bank along with all
the required documents.

2. Death Claim

A death claim is a request made by the nominee to the life insurance company. The nominee
file a death claim in case of an assured death in between the policy tenure. The death benefit
can be used by the nominee to ease the financial burden. For your better understanding, we
have mentioned the death claim process in detail:

a) Claim Intimation

The nominee must inform the insurance company in writing about the claim. The nominee
can obtain the claim intimation form by visiting the nearest branch of the life insurance
company or through the official website of the life insurance company. The nominee should
enter the details like policy number, name, date of death, place of death, name of the
claimant, etc in the claim information form.

b) Document Submission

To file a death claim, it is necessary to submit the required documents properly. The life
insurance company may ask for the following documents from the nominee:

 Death Certificate of the assured

 Birth Certificate of the Insured
 Policy Document (Original)
 Any other documents asked by the insurance company

c) Claim Settlement

After receiving all the documents from the assured, the insurer needs to settle the claim
within 30 days. In some cases, the life insurance company may need to do an investigation.
 In this case, the insurer must complete the whole procedure within six months of receiving
the written claim notification.

d) Rider Claim

Add-on riders can be defined as an additional benefit provided by the insurer by paying an
additional premium along with the base plan. Various riders such as Accidental Rider,
Critical Illness Rider, Hospital Cash Rider, Waiver of Premium Rider, etc. can be added to
a life insurance policy. Different riders require different claim processes. Generally, you
need to submit a duly filled claim form along with other required documents, and a copy
of the policy document to file a rider claim.

REQUIRED DOCUMENTS FOR LIFE INSURANCE CLAIM PROCESS

Following are some of the documents that a life insurance company may ask you to submit for
settlement of a life insurance claim:

 Duly and signed claim form

 Original policy document
 First Investigation Report (FIR), if required
 Post-mortem reports, if required
 Panchnama
 Hospital discharge summary
 KYC documents of a beneficiary
 Xerox of Canceled cheque and bank statement
 Death certificate issued by the authority

THE PROCEDURE OF CLAIM SETTLEMENT

While the exact procedure may vary from company to company, some steps are common to all
insurance providers. These are:

a. Intimating or notifying the insurance company:

Whether it is life, health, or car insurance, the moment the loss or the need for a claim arises,
you must intimate the insurance company. Give a written application with all necessary details
such as the name of the policyholder, policy number, and mishap/event details depending on
the type of insurance.

b. Submitting the necessary documents:

Next, as a claimant, you must submit your statement, the original policy document, health
certificate or declaration in case of health insurance, death certificate in case of life insurance,
FIR in case of loss of property or vehicle, and likewise. Contact your insurance provider in
case they need any additional documents.
c. Verification of the submitted documents:

Once you have submitted all the necessary documents, the insurance provider will corroborate
your claim with the policy outline. This is to ensure that you are raising a legitimate claim and
it is not outside the range of your insurance policy coverage.