Accidental Death Benefit - In a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident. There can be certain exclusions as well as time and age limits.
Actuary - A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics.
Agent - The intermediaries between the insurer and the people who meet , explain and persuade. There are two type of agents- individuals and corporate. They have to obtain licences from the IRDA. Licences are issued for three years at a time after the agent goes through a prescribed training course and passes a prescribed examination.
Agents are remunerated by way of commissions which are regulated by the IRDA.
Annual Administrative Fee - Charge for expenses associated with administering a group employee benefit plan.
Annuity - An agreement by an insurer to make periodic payments that continue during the survival of the annuitant(s) or for a specified period.
Assignment - A transfer of rights,title and interest of policy of life insurance by the policyholder is known as Assignment.
i) Assignment are of two types- absolute and conditional. In an absolute assignment, the assignor losses all his rights, title and interest in the policy. In conditional assignment , the rights, title and interest in the policy automatically revert back to the assignor on the occurrence of the specified condition.
ii) It can be sold,mortgaged,gifted or bequeathed;
iii) It can be made with or without consideration;
iv) It can be made by an endorsement on the policy itself or by a separate instrument;
v) The endorsement or separate deed must set forth the fact of transfer or assignment;
vi) The signature of the assignor must be attested by at least one witness;
vii) The transfer or assignment shall be complete and effectual upon the execution of such endorsement or instrument duly attested and it will be operative against the insurer only if a notice of assignment is delivered to the insurer, along with the endorsement or instrument;
viii) No stamp duty is required if the assignment is made by an endorsement on the policy itself;
ix) Life Insurance policy can be assigneed in favour of two or more persons. On death of one of the tenants, his interest does not pass on to his co-tenants, but to his legal heirs.
x) In case of Children's Deferred Assurance Policies, the life assured can assign the policy after the vesting date.
Assignee - Receiver of rights, title and interest of life insurance policy from assignor.
Assignor - Who transfer rights,title and interest of life insurance policy to assignee.
Attained Age - Insured's age at a particular time. For example, many term life insurance policies allow an insured to convert to permanent insurance without a physical examination at the insured's then attained age. Upon conversion, the premium usually rises substantially to reflect the insured's age and diminished life expectancy.
Bankassurance - Insurance products selling through banks.
Benefit Period - In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents.
Bonus - Distribution of the valuation of surplus to policyholder is known as 'Bonus'. Policyholders who opt for 'participating' or 'with profit' policies are entitled for bonus. Policyholders who have 'non-participating' or 'without profit' policies will get lesser amount. Bonus is declared in many ways.
1. Simple Reversionary Bonus : This bonus is also known as vested bonus.
2. Compound Reversionary Bonus : It will be added to the policy value i.e. in (Sum Assured + Vested Bonuses).
3. Terminal Bonus : Final Bonus or Terminal Bonus is added in addition to the other bonuses.
4. Interim Bonus : If the number of years for which premium is paid is greater than the number of years for which bonus is vested then insurers may grant Interim Bonus.
Broker - Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies. A broker is an individual, a company, a society or a firm. A broker is not appointed by any insurer. He is an independent professional and has to obtain a licence from the IRDA.
Application for insurance broker’s licence shall be made for any one or more categories, namely: (i) direct broker(life), (ii) direct broker(general) ,(iii) direct broker(life & general) ,(iv) reinsurance broker ,(v) composite broker.
Any applicant seeking to become an insurance broker under these regulations shall have a minimum paid up capital/contribution as mentioned below:
Category Minimum Capital/Contribution (Rupees)
Direct broker Fifty lakhs
Reinsurance broker Two hundred lakhs
Composite broker Two hundred and fifty lakhs.
Broker-Agent - Independent insurance salesperson who represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicant's coverage to maximize protection and minimize cost. This person is licensed as an agent and a broker.
Casualty - Liability or loss resulting from an accident.
Children Policies - Insurance taken on the lives of children who are minors. Besides proposer, gurdian is require for these type of policies. There is no insurnace cover during the deferment period.
Claim - A demand made by the insured, or the insured's beneficiary, for payment of the benefits as provided by the policy.
Claimant - In life insurance policy, who makes the claim in the event of the death of the policyholder is called the claimant.
Commission - Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer and the marketing methods.
Coinsurance - In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20% health insurance coinsurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of losses.
Consideration - is the premium paid by the proposer and sum assured payable by the insurer on the happening of the event(s) insured against.
Convertible - Term life insurance coverage that can be converted into permanent insurance regardless of an insured's physical condition and without a medical examination. The individual cannot be denied coverage or charged an additional premium for any health problems.
Copayment - A predetermined, flat fee an individual pays for health-care services, in addition to what insurance covers.
Coverage - The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.
Critical Illness Benefit - Critical Illness Benefit products provide a lumpsum amount on the diagnosis of a crittcal illnessor on undergoing of certain procedures. It is available as standalone product or as riders to life and non-life policies or as a component of a pacakaged health insurance product. A disease specific products are also available which protects from only the dread of cancer. Disease specific products are indemnity basis. There are also Critical Illness Indemnity products which reimburse costs due to critical illness, rather than providing a lumpsum payout.
Daily Hospital Cash Benefit - It is a fixed daily allowance which could be used to cover the incidental costs associated with hospitalization such as attendant cost.This type of products are available as standalone basis and also as an optional component of some packaged health insurance policies. These products are very useful for people whose health insurance may not bear of the incidental costs associated with hospitalization.
Death Benefit - The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.
Deferred Date - This date generally used in Child and Annutity policies. In case of Child Policies. If the risk cover does not start on the commencement date then the date on which it begins, is called Deferrd Date. In case of Annutiy policies, date on which annuity begins is called Deferred Date.
Deferment Period - The period between the date of commencement of the policy and the deferred date is called the Deferment Period.
Endowment Policy - Death cover plus survival benefit are privided in these type of policies.
Foreclosure - It means clousre or writing off the policy before its actual maturity. When a loan is granted under a policy, the life assured has a choice to pay the interest or allow it to accumulate to be adjusted from the policy moneys payable when the claim arises. This is possible only if the premiums are paid regularly and the policy remains in full force. If there is a default i nthe payment of premium, the policy status would have to be checked to make sure that the surrender values are adequate to meet the arrears of loan and interest. If the principal loan and accumulate interest is likely to become more than the surrender value, foreclosure become necessary.
If party desired to reinstate a foreclosed policy, it can be done, provided
i) Outstanding loan interest with accumulated interest thereon is paid upto date; and
ii) There is satisfactory evidence of continued good health.
Free Look Period - The free-look period option of a life insurance plan allows the customer to cancel the policy after purchasing it if he or she disagrees with or is not comfortable with its terms and conditons. The option has to be exercised within 15 days of receipt of the policy. If a person cancels an insurance policy during the free-look period, the insurance company refunds the premium paid after the following deductions :
i. cost pertaining to medical tests, if any;
ii. stamp duty; and
iii. the risk premium in case the customer is provided cover in the free-look period.
Fund Management Charges - These are charges levied for managing of the fund(s) and are deducted as a percentage of the value of fund of investor before arriving the Net Asset Value (NAV). Maximum 1.35% can be charged by insurance companies.
Grace Period - The length of time (usually 30 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time. If death occurs within this period and before the payment of the premium then due, the policy will still be valid for the full sum assured subject for deduction of the said premium, as also unpaid premium falling due before the next anniversary of the policy. If the premium is not paid before the expiry of the days of grace, the policy lapses w.e.f. midnight of the last day of grace.
Hazard - A circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.
Hazardous Activity - Bungee jumping, scuba diving, horse riding and other activities not generally covered by standard insurance policies. For insurers that do provide cover for such activities, it is unlikely they will cover liability and personal accident, which should be provided by the company hosting the activity.
Indemnity - Restoration to the victim of a loss by payment, repair or replacement.
Insurable Interest - Interest in property such that loss or destruction of the property could cause a financial loss.
Insurance - It is a contract whereby one party (the insurer) agrees, in consideration of money, called the premium, paid to him by another party (the insured or the policyholder) to indemnify the latter against loss resulting to him in the event of a certain happening or to pay a specified sum of money in the event of a certain happening
Insurer - Insurance company, which grants insurnace cover,is called Insurer.
IRDA - Insurance Regulatory and Development Authority
Joint Life Policies - Two or mre lives can be covered under this policies. Generally under these poicies, married couples or partners are covered.
Liability - Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense.
Limited Premium - It is payable for a period shorter than the term of the policy.
Living Benefits - This feature allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Also known as "accelerated death benefits".
Malus - When the claim is exceeds a specific limit, the premium is raised. This increase or 'loading' is known as Malus.
Micro Insurance - Insurance for lower income famalies. Premiums mostly collected weekly.
Money Back Policy - Suvival benefits paid at pre-fixed intervals during the term, without affecting the Sum Assured payable on death. They are also called Anticipated Endowment policy.
Mortality Charges - These are charges for the cost of insurance coverage under the policy. It depends on age, amount of coverage, state of health etc. This charge may be levied at the begining of each policy month from the fund.The mortality charge table shall invariably form part of the policy doucment.
Net Asset Value(NAV) - NAV is the value of each unit of the fund on a given day. The NAV of eache fund is displayed on the website of the respective insurers.
No-Claim Bonus - It is given by way of discount in premium in respect of non-life policies which are being revewed and under which there has been no claim during the previous year. Some insurers do not decrease the premium but increase the benefits like Sum Assured increased in Mediclaim policies.
Nomination - Nomination is the process of naming of a person or persons to give a valid discharge to the insurance company and receive policy moneys in case of death of the life assured during the period of the policy. In case of survival of the life assured till the date of maturity, nomination will be ineffective.
i) Nomination can be done by making suitable entries in the proposal to the policy. It must be either incorporated in the text of the policy or will be done endorsing in the back of the policy by the life assured.
ii) For effecting nomination, it must be communicated to the insurance company and registered in their records.
iii) It can be done only by a policyholder under policy on his own life and not otherwise. In Assigned policy, nomination cannot be done. If a parent taken a policy on the life of a child , the child cannot nominate any one till he attains majority.
iv) If nomination done in favour of a minor, the life assured can appoint an appointee to receive policy moneys on behalf of the minor nominee in case of death of the life assured during the minority of the nominee and before the date of maturity of the policy.
v) Nomination once made can be changed several times before the maturity of the policy.
vi) Nomination will be automatically cancelled if it changed/cancelled/assigned/or in case a will made.
vii) If the nominee dies after the life assured and before the settlement of the claim, policy money would be payable to the heirs of the life assured.
viii) No vested interest in favour of nominee is created.
Offer - is an intimation of the proposer's intention to buy insurance.
Own Occupation - Insurance contract provision that allows policyholders to collect benefits if they can no longer work in their own occupation.
Paid up Policy - When a policy lapses under certain conditions it may be converted into a Paid up policy. It will secure the benefits of the original policy but with smaller Sum Assured. No further premiums are required to be paid in a paid up policy.
Partial Withdrawals - This is one of the flexible feature of ULIP policies offered by insurance companies like money back policy of traditional products. After 5 years of policy years , one can withdraw partially leaving a minimum amount in the fund as mentioned in the terms and conditions of the policy.
Peril - The cause of a possible loss.
Personal Injury Protection - Pays basic expenses for an insured and his or her family in states with no-fault auto insurance. No-fault laws generally require drivers to carry both liability insurance and personal injury protection coverage to pay for basic needs of the insured, such as medical expenses, in the event of an accident.
Policy - The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clause, riders, endorsements, and papers attached thereto and made a part thereof.
Policy Bond - It is a legal document setting out the terms and conditions of the contract. It is given after the proposal for insurance is accepted by the insurer. The risk coverage commences after acceptances of proposal and the conditions and privileges of the policy are mentioned in the policy bond. I would clearly bring out the risks involved for the policyholder and the obligations or commitments required of him or her. It will be required at the time of settlement of claims/ change of nomination/assignment.
Policy Administration Charges - These are the charges for administration of the policy and levied by cancellation of units. It is the cost for paperwork, the premium intimation, and so on and so forth. This could be flat throughout the policy term or vary at a pre-determined rate.
Policy Holder - When Proposer gets insurance cover he/she becomes the Policy Holder.
Pre-Existing Condition - A coverage limitation included in many health policies which states that certain physical or mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.
Premium - The price of insurance protection for a specified risk for a specified period of time to be paid for the benefit of insurance.
Premium Allocation Charges - This is a percentage of the premium amount appropriated towards charges before allocating the units . This charge normally includes initial and renewal expenses apart from commission expenses such as under writing charges.
Proposer - Person who wants to purchase insurance is called a Proposer.
Proposal Form - It is a quetionnaire format prepared by the insurer to obtain all necessary information for a proper evaluation of the risk./
Pure Endowment - These type of products provide only survival benefits.
Qualifying Event - An occurrence that triggers an insured's protection.
Re-Entry - Re-entry, which is the allowance for level-premium term policyowners to qualify for another level-premium period, generally with new evidence of insurability.
Reinsurance - In effect, insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn't fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.
Renewal - The automatic re-establishment of in-force status effected by the payment of another premium.
Residual Benefit - In disability insurance, a benefit paid when you suffer a loss of income due to a covered disability or if loss of income persists. This benefit is based on a formula specified in your policy and it is generally a percentage of the full benefit. It may be paid up to the maximum benefit period.
Rider - Riders are additional add-on benefits that one could opt to include in his/her policy, over and above what the policy may provide. These additions come at an extra premium charges depending upon the rider choosed. Some riders available in the insurance policies are -
1. Accodental Death Benefit Rider : It provides for payment of upto 10% of the sum assured over and above the basic sum assured in case of death taking place as a result of an accident.
2. Term Rider : It allows an additional amount payment due to death of insured person.
3. Accidental Disability Benefit Rider : It provides partial and total disablement due to accident or injury. The percentage of sum assured payable in case of situations like loss of one limb/two limbs/one eye/total eyesight are fixed as per the policy conditions.
4. Income Benefit Rider : In case of life assured’s death, claim proceeds are paid in installments. This helps family in securing income during the period of adjustment after death of breadwinner.
5. Critical Illness Rider : Critical illness riders usually provide for a sum equal to the baisc sum assured in case an insured is diagnosed with certain dreaded disease like cancer, heart surgery and storke etc.
6. Investment Guarantee Rider : If market returns are negative, then claim value is guaranteed to the extent of total premiums paid also know as Guaranteed Return Rider.
7. Waiver of Premium Rider : In case the life insured becomes totally disabled because of an injury or sickne, this rider ensures that the comapany waives the specified Premiums due for the life insured till he is able agian. Basically, it will provide the family with security and peace of mind.
Revival of Policy - Any lapsed life policy can be brought back to the original status through Revival process.
Sum Assured - Amount, which is agreed to be paid by the insurance company, is called Sum Assured. It is always stated in the policy document.The insurer's liability under the policy is limited to the Sum Assured.
Surrender Charge - Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This charges may be deducted for partial or full encashment of the policy before certain period of time.
Surrender Period - A set amount of time during which you have to keep the majority of your money in an annuity contract. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10%.
Surrender Value - Surrender is a voluntary termination of the contract by the policyholder and the amout which is payable to the policyholder is called Surrender value. A life insurance policy can be surrendered at any time before its maturity. If premiums of a policy have been paid for at least three consecutive years, the policy shall acquire a guaranteed surrender value.
Every policy issued by an insurer has to show the guaranteed surrender value of policy.Guaranteed surrender value is 30% of the premiums paid excluding first year premium and any extra premiums paid. The insurance companies are at liberty to offer a better surrender value.
Switching Charges - This charges is levied to change fund(s) and it is generally deducted after giving certain number of free switching.
Term Insurance - Life insurance that provides protection for a specified period of time. Common policy periods are one year, five years, 10 years or until the insured reaches age 65 or 70. The policy doesn't build up any of the nonforfeiture values associated with whole life policies.
Top Up Premiums - It is one of the beneficial feature of ULIP policies. For policyholder who opt for top up will not only enable him or her to increase annual contributions but also give chance to mitigate the initial allocation charges. A policyholder can invest upto 25% of the total premiums paid under a ULIP policy. All top up premiums come with life insurance coverage in the same proportion as an regular premium.
ULIP - ULIP or Unit Linked Insurance Plan is capital market linked policies.
Vesting - The condition under which the title of policy will automatically pass to the insured child, on his attaining the age of majority i.e. 18 years.
Vesting Date - It is the policy anniversary date after attaining the age of majority i.e. 18 years after which policy becomes contact between the insurer and the insured person.
Waiver of Premium - A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury. The waiver of premium for disability remains in effect as long as the insured is disabled.
Whole Life Insurance - Life insurance which might be kept in force for a person's whole life and which pays a benefit upon the person's death, whenever that might be.