Chapter 16

Policy Condition

Slide prepared
prepared by:
by:Abdullah
AbdullahAl
AlYousuf
Yousuf Khan
Khan
Slide
Assistant Professor
Professor
Assistant
IUBAT
IUBAT

McGraw-Hill/Irwin

Copyright 2006 by The McGraw-Hill Companies, Inc. All

rights reserved.

Policy conditions are studied

in five forms
1.
2.
3.
4.
5.

Commencement of risk
Premium
Continuation of policy
Lapse condition
Claims settlement

1. Conditions relating to
Commencement of Risks
Commencement of risk;
The date of letter of acceptance will be
the date of commencement of risk.
Only when the first premium is offered to
and accepted by the insurer.
Policy is issued after acceptance of risk.
The policy contains terms and conditions
of the insurance and is a document
which can be used a proof of insurance.

Conditions relating to
Commencement of Risks
Proof of Age;
The proof of age must be produced at the time of proposal
or immediately after the proposal.
Because the rate of premium depends upon the age of the
life assured.
The insurer does not withhold the issue of the policy for
requiring the proof of age, but does not admit any claim
unless the age is proved.
If it is subsequently found that the age at entry at entry
was mentioned lower than the correct age, the
assured sum is reduced to such amount as would have
been purchased at the true age.
If the actual age comes out to be lower than the stated
age, the difference is either refunded or adjusted towards
future premium or policy amount.

2. Conditions of Premiums
Payment of Premiums;
The rates are calculated annually, but for the
convenience of the assured, it can be paid halfyearly, quarterly, or monthly.
In case installments, the insurer will loose the
interest on the unpaid premium and further costs
are involved for frequent calculation of premium.
If death takes place before all the premiums have
fallen due for the current policy year, the
corporation deducts the unpaid installments from
the policy year, and deducts the unpaid assured
sum at the time of settlement.

Conditions of Premiums
Grace Period;
Additional period is allowed as grace
period (days of grace) in case premiums
are not paid within the certain date to
valid reason.
Generally 30 days for over monthly
installments, 15 days for monthly.
The due must be paid within the grace
period, if unpaid than it will be a lapsed
policy.

Conditions of Premiums
Premium Notice;
Notice for due premiums will be regularly
sent to the policy holder so that the
policy holder does not forfeit the benefit
of the policy.

3. Conditions Relating to
Continuation of Policies

Indisputable Clause
Alterations In Policies
Exclusions
Lost Policy
Loans
Nomination
Assignment
Suicide
Double Accident Benefit
Disable Benefit
Extended Disability Benefit

Conditions Relating to
Continuation of Policies
Indisputable clause;
The policy will not be disputed/contested on the
ground of;
unintentional misstatement,
Misrepresentation, or
Non-disclosure of a material fact after two
years of the issue of the policy.
However, on the ground of fraud it can be
disputed at any time during the term of the
policy.
This clause is included to protect the interest of
the assured.

Conditions Relating to
Continuation of Policies
Alteration in policies;
The insurer permits certain alterations in
terms and conditions of the policies at
the request of the policyholder.
The insurer reserves the right to decline
such request without assigning any
reason.
Alteration may be for change in;
Term, sum assured, mode of premium
payment, number of policies into more than
one or two etc.

Conditions Relating to
Continuation of Policies
Exclusions;
Some occupations or professions are
excluded due to the nature of the risk which
is greater (hazardous) than the standard risk.
E.g.;
Student is it really an occupation?
Solders have more risk of dyeing if the are at
war.
So standard rates of premium are not sufficient to
cover the risk.
Sum assured will not be paid in case of death at
war.

Conditions Relating to
Continuation of Policies
Lost policy;
In case of lost or destruction of the
policy, the insured must duly inform the
insurer to issue a duplicate copy.
A charge will apply.
WHAT IS DULY ?

Conditions Relating to
Continuation of Policies
Loans;
Loans can be issued against the
surrender value as security.

Nomination;
Nominee is the person named by the
policyholder to whom the policy amount
may be paid in the event of his death.
(nominee must be alive to receive the
money)
Notice of nomination;

Conditions Relating to
Continuation of Policies
Assignment;
A transfer of policy ownership to another
person or business organization.
Must be duly;
Signed by both the parties (assignor and transferor)
Attested by at least one witness
Notified to the insurer by delivering a copy of
assignment or transfer.
All the rights and privileges will be transferred to the
new owner.
Absolute assignment and
Conditional assignment

Conditions Relating to
Continuation of Policies
Suicide;
In the event of suicide committed by the
assured within one year from the date of
commencement, will be void and all
claims to any;
Benefit
Advantage or
Interest in the funds of the corporation by
virtue of this policy shall cease.

Conditions Relating to
Continuation of Policies
Double accident benefit;
Provides for payment of double of the
sum assured on;
death by accident.
death within 90 days after surviving from the
accident

Conditions Relating to
Continuation of Policies
Disability benefit;
Exempted from premiums payment
because of disability caused by accident
to earn.
Except;

Pure endowment
Term insurance
Childrens differed endowment and
Retirement annuities

Conditions Relating to
Continuation of Policies
Extended Disability Benefit;
Provides waiver of premiums
Payment of an amount equal to the sum
assured due to
Permanent total disability as a result of an
accident.

4. Lapse Conditions

Lapse of Policies
Revival of Lapsed Policies
Special Revival Scheme
Surrender Value
Extended Term Insurance
Automatic Premium Loan
Reduced Paid-up Insurance

Lapse Conditions
Lapse of Policies;
If the policyholder fails to pay any of the
due premiums within the days of grace,
the insurance liability ordinarily ceases
and the contract comes to an end.
All the benefits related to the policy are
terminated.

Lapse Conditions
Revival of Lapsed Policies;
A lapsed policy can be revived to the full policy
amount at any time during the life time of the life
assured.
But within a period of five years from the due date of
the first unpaid premium and before the date of
maturity.
Revival is possible within six months from the date of
the first unpaid premium without evidence of health on
payment of premiums in arrears with interest.
In case after six months of revival, a satisfactory
production of evidence of health and habits is required
without no adverse change in personal and family
history and occupation.

Lapse Conditions
Special Revival Scheme;
As revival of lapsed policy becomes expensive
due to the payment of arrears with interest.
Special revival scheme is beneficial to gain the cover
of interest.

The date of commencement of policy will be

fixed by dating back the policy by issuing a new
policy.
Conditions for special revival scheme;
The policy must not have acquired surrender value.
Period from the date of lapse must not be less than six
months and not over two years.
Revival is not allowed more than once for same policy.

Lapse Conditions
Surrender Value;
When the assured is unable to revive his policy, he can
surrender his policy and can get cash surrender value.
The contract comes to an end with this payment.
Surrender value is only payable if;
If the premiums paid for at least two years
Or equals to 1/10th of the total premium stipulated and the
1/10th exceeds one full years of premium.
The minimum surrender value is equal to 30 percent of the
total amount of premium paid exceeding the premiums paid
first year.

Lapse Conditions
Extended Term Insurance;
If a premium remains unpaid at the end of the
days of grace and the policy has been in force
for at least three years;
The insurance will continue as paid up for the full sum
up to a period called term.
The term depends upon the amount of premium paid.
If the assured dies during this period, payment will be
made up to the full amount.
If the assured survives, no payment will be made.

Lapse Conditions
Automatic Premium Loan;
If assured is unable to pay the
premiums,
The insurer will not allow the policy to
lapse but will automatically pay the
premiums out of the net surrender value.

Lapse Conditions
Reduced Paid-up Insurance;
If the policyholder is unable to pay
further premiums and does not want
cash immediately, he can paid-up the
policy.

5. Settlement of Claims
Settlement of claims;
The policy amount becomes payable either on
the assureds death during the term of the
insurance or on his surviving till the end of the
term i.e. on maturity.
In case of death claims;
Proof of death
Proof of title and age are essential

In case of maturity;
Proof of title and
Proof of age are required.

Settlement of Claims
Settlement options;
The claim amount may be paid in;
Cash or installment

The installment may be for;

Payment of interest annually for a particular period,

Up to a survived and
Sum assured at a time
Annuity may be purchased for life
Or for a period and life thereafter.

End of Chapter