GLOSSARY – LIFE INSURANCE TERMS
ABSOLUTE
ASSIGNMENT:
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If absolute
assignment is done then there can be no reversion of the
assignment to the assignor or his estate.
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ACCIDENT BENEFIT:
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If you pay a small
additional premium, your nominee will receive twice the
sum assured upon your death by accident. If you suffer a
permanent disability due to the accident, then the amount
is paid to you in installments, and subsequent premiums
under the policy are waived.
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AGENT:
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Is the person
authorised by Insurance Regulatory & Development
Authority (IRDA) to sell its policies.
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ANNUITY: (RETIREMENT
BENEFIT)
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Is a periodic payment
(usually monthly) payable by the insurer to the life
assured. Generally, it is used in context of retirement
benefits. Under this type of insurance contracts, the
life assured pays a fixed premium (which could be a
lumpsum or a staggered payment) and the insurer, in
return, provides the life assured a fixed amount of
income throughout his/her lifetime.
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ANNUITY CERTAIN:
(Annual Payments)
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These annuities are
payable for a certain minimum period and if the
policyholder dies during this period, the remaining
instalments are paid to the beneficiary of the policy.
These annuities operate as any normal annuity after the
end of the certain period, i.e. payments will be made
throughout the life of the life assured. No payments are
made to the beneficiary after the death of the life
assured, if he outlives the certain period.
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ASSIGNMENT:
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Is the transfer of
the rights, titles and interest of the policy by the
assignor to the assignee. The assignor is the absolute
owner of the policy. He/She could be the proposer, the
life assured or the absolute assignee. Nomination is
automatically cancelled by Assignment .
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BANKERS ORDERS:
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Bank is instructed to
pay premium on due date on behalf of the insured.
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BENEFIT POLICY:
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In some cases the
extent of loss cannot be quantified in monetary terms (in
life insurance for instance), and hence the amount
payable under a life policy is a benefit and not an
indemnity. It also means that the extent of compensation
need not be restricted to the sum assured under one
specific policy and that payment under other policies if
they exist can be collected too.
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BONUS:
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The insurance company
periodically values its assets and liabilities. The
premium payments that it receives from you are used for
three purposes: to settle claims, to make investments,
and to pay expenses. If the insurance company makes
profits, it declares a bonus for a certain period for its
policyholders. It can disburse this bonus to you in three
ways: the bonus is added to the value of the policy;the
bonus is distributed to you physically; or your future
premium payments are reduced. In India,
generally the first method is adopted for with profit
policies, and is paid to you upon maturity of the policy.
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CHILDRENS DEFERRED
ASSURANCE PLANS:
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Are schemes under
which a minor child is the beneficiary. The parent
proposes for insurance on the life of the minor and pays
premiums. The risk on life of child begins at a specified
age. The period before the specified age is attained is
called Deferment Period.
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CLAIM:
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An insurance contract
is a promise to pay certain sums under certain
conditions. Making a claim is invoking that promise and
if it is in accordance with what is set out in the
contract then it is admissible and can be payable if all
other terms and conditions of the contract are met.
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CLAIM AMOUNT:
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It is the amount
payable by the insurer under a policy on a claim arising.
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DEATH BENEFIT:
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is the benefit
payable in the event of death during the term of the
policy.
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DEATH CLAIM:
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is the claim that
arises if the life assured dies during the term of the
policy.
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DEATH RISK COVER:
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Is the person
authorised by Insurance Regulatory & Development
Authority (IRDA) to sell its policies.
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DEBIT TO PROVIDENT FUND
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Rules permit payment
of premium by withdrawal from Provident Fund
PF authority sends cheque to policyholder Policyholder
forwards the premium and sends the receipt to Provident
Fund.
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DECREASING (SUM
ASSURED) TERM POLICY/ MORTGAGE REDEMPTION POLICY:
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The Sum Assured
decreases during the term of the policy to match the
outstanding principal.
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DEFERMENT DATE:
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is the date on which
the risk cover commences after the deferment period has
elapsed.
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DEFERMENT PERIOD:
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is the period between
the date the policy is bought and the risk cover
commences.
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DEFERRED ANNUITY
(ANNUAL PAYMENTS) :
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plans are recommended
for young persons. The premium is paid during the
deferment period and annuities start at the end of the
deferment period. The premiums are returned to the
nominee/heirs if the policyholder dies during the
deferment period along with interest. These policies come
with an option to convert the policy for a reduced paid
up amount or receive cash based on the Surrender Value,
in case insured is unable to meet future premium
payments.
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DISABILITY PLANS:
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These come as add-ons
to basic insurance covers. Higher premiums are charged to
cover the risks associated with sickness, death caused by
accident and permanent disability caused by accident. The
benefits include payment of an extra amount (equal to Sum
Assured but not exceeding Rs 5 lakh in most cases) along
with compensation for loss of employment due to
sickness/disability and reimbursement of medical expenses
among others.
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DOUBLE ACCIDENT
BENEFIT:
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If an individual has
bought double accident benefit he is entitled to double
the Sum Assured in case of death due to accident. The
death should occur within 120 days of the accident and
due to injuries sustained in the accident. The maximum
benefit payable is Rs 5 lakh. The insured must not be
over 70.
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EDUCATION ANNUITY PLANS
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pay the sum assured
in installments spread over a specified period to match
the estimated financial expenses on higher education.
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ENDOWMENT POLICIES:
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are a combination of
risk cover and savings instrument. The Sum Assured is
payable on death of the life assured or at the end of the
term whichever is earlier.
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EXCEPTION/EXCLUSION:
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A peril that is
specifically excluded under an insurance policy.
Exclusions can be general, or applicable across all
insurance policies or applicable to a specific policy.
Loss due to war or warlike conditions, or due to nuclear
weapons is a general exclusion. No policy covers these
losses. If you have heart disease your health insurance
policy could exclude hospitalisation for that condition
and those arising out of it. This is a specific exclusion
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EXCESS:
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The amount of loss
agreed under an insurance policy, to be borne by the
insured himself.
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FORECLOSURE:
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is the action taken
by the insurer when the policyholder fails to pay up the
interest on his loan. The insurer writes off the policy
before its maturity date and the surrender value is
adjusted against the loan.
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FORFEITURE OF PREMIUM:
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The laws and
principles of insurance do not allow forfeiture of
premium if the insured is unable to pay future premium
leading to lapse of policy.
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GENERAL INSURANCE COMPANIES:
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Insurance
companies which offer risk (insurance) cover on non-life
entities, such as Crop insurance, Fire Insurance, etc are known
as General Insurance Companies. They cover human life only for
Mediclaim Policies.
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GRACE PERIOD:
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is the
period during which the policyholder can renew his policy. The
policy remains in force, i.e. the risk continues to be covered
during this period and claims will be serviced in case of death
during this period.
For yearly, half yearly and quarterly premium payments the grace
period is 30 days.
For monthly mode of payment- 15 days.
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GROUP GRATUITY SCHEME:
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The Payment
of Gratuity Act 1972 makes it compulsory for employers, who have
10 or more employees, to set up a Gratuity Scheme. The Group
Gratuity Scheme operates as follows:
- Employer sets up
Gratuity fund as an irrevocable trust fund
- Trustees enter into
a contract with an insurance company to manage funds
- Insurance company
manages fund by diversifying risk
The MAIN BENEFIT is to the families of employees who die
at an early age since the gratuity is paid on the basis of
completed service.
GROUP INSURANCE provides cover for a group of people who
satisfy the following conditions:
- The group must be
formed for reasons other than to take a policy
- Members enter and
exit a group for reasons other than to take a policy
- Should consist of
more than 25 members
The Master policy covers all group members and there is no
mandatory requirement for all members have to apply for
equal cover. At inception of the policy, all members have an
option to join, but members who join later cannot be covered
immediately. Members appoint a specified authority to
represent the group and premiums vary depending on
performance of the group. The surplus if any may be shared
among members in case of good performance (PROFIT SHARING
SYSTEM).
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GROUP INSURANCE SCHEME:
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This is a
term insurance type of contract, simple and cheap. The specified
amount is payable by the insurer on death of a member.
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GROUP SAVINGS LINKED INSURANCE
SCHEME:
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this
provides both death and savings benefit. It normally requires the
group to consist of at least 50 members. The scheme is
administered through the employer, with the first charge on
salary for life insurance cover. The balance in this account is
utilized for earning interest. The premium for providing risk
cover is based on the age distribution of members of the group
and balance amount of the premium after deducting for risk cover
is used for savings (endowment).
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GROUP SUPERANNUATION SCHEME:
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This
operates like a Pension scheme where the payments made at the end
of each period
- Employers set up
trust fund.
- Trustees enter into
a Superannuating scheme.
- Fund managed by
insurer.
- Insurer provides
actuarial, legal and tax assistance to trustees.
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GUARANTEED SURRENDER VALUE:
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You can
obtain this minimum amount in case you decide to foreclose the
policy, after payment of premium for a stipulated minimum period.
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GUARANTEED ADDITION:
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In case
of certain policies, the insurance company adds a certain sum
every year to the sum assured of a policy (guaranteed additions).
This sum is calculated at a rate per every thousand of sum
assured. It is payable upon the maturity of the policy or when
the claim is made. The guaranteed addition take place only for
every year the premium is paid.
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IMMEDIATE ANNUITY/STRAIGHT LIFE
ANNUITY:
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are
single-premium policies. The life assured pays a lump sum and the
insurer pays him/her a specified amount throughout his/her
lifetime. The word immediate denotes that the annuities start
from the day on which the single premium is paid, providing
immediate income to the insured.
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INCREASING (SUM ASSURED) TERM
POLICY:
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In some
money-back plans, a fixed percentage of the Sum Assured is paid
to the insured at the end of specified periods during the term of
the policy. However, notwithstanding the periodical payouts, the
sum assured at risk (payable on death) continues to be same
during the term of the policy; that is if the life assured dies
during the policy term the entire sum assured will be paid to
him. These policies are called increasing term policies.
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INCREASING TERM INSURANCE:
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Under
certain policies, you death benefit increases periodically over
the term of the policy.
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INDEMNITY:
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is a
reimbursement or compensation for the actual monetary loss
suffered and is made by the insurer to the insured. It has to
match the extent of the loss. Indemnity policies make good the
monetary loss due to the occurrence of an insured risk due to
operation of an insured peril to the extent of such monetary
loss.
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INSTALMENT REVIVAL SCHEME:
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is a
facility for defaulting policyholders, who cannot to settle their
arrears in one lump sum and avail the Special Revival Scheme. The
Policyholder can revive his lapsed policy by paying the arrears
in installments.
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INSURABLE INTEREST:
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The
person who is buying the insurance must have an insurable
interest in the thing being insured. If the purchaser will lose
monetarily if the object being insured is lost or damaged then he
is said to have insurable interest. The main insurable interest
is ownership in the case of property insurance. Someone who has
lent against that property also has an insurable interest in that
property to the extent of his loan. In the case of life insurance,
any person is said to have an insurable interest over his or her
own life to in indefinite extent. A wife has insurable interest
over the life of her husband and a husband over that of his wife.
- Insurable interest
also exists in some business arrangements like between
creditor and debtor or between business partners.
- A parent has NO
insurable interest in the life of his child in the capacity
of a child and vice versa, and similarly neither do siblings
have insurable interest in each other's lives.
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INSURANCE:
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A method
of managing risk by spreading it. Specifically it is done by
transferring the responsibility for bearing the monetary loss due
to the risk to another entity (an insurance company) for a
consideration. This transfer is called subrogation and includes
the transfer of allied rights to the insurer.
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INSURABILITY:
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All
conditions pertaining to individuals that affect their health,
life expectancy, susceptibility to injuries and diseases.
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INSURER:
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The
company that provides insurance cover by issuing contract
(policy) of insurance.
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JOINT LIFE ANNUITY PLANS:
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are
Annuity plans available for 2 or more persons, normally couples
and the annuity is payable till the death of the both.
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JOINT LIFE INURANCE PLANS:
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As the
name suggests these policies provide insurance on two lives under
one contract. The Sum Assured is payable at the end of the term
or on death of either life whichever is earlier. These policies
are recommended for working.
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LAST BIRTH DAY:
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The age
as on the last birthday of the Policyholder (used for calculating
premium).
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LIFE ASSURED:
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is the
individual on whose life the policy is taken.
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LIFE INSURANCE:
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is the
risk cover an individual can take to mitigate the financial
problems that may arise if he/she dies too young or lives too
long.
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LIMITED PAYMENT WHOLE LIFE
PLAN:
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provide
for a fixed premium paying term. The benefit, however, is payable
only on death of the life assured. The policy remains in force
during the entire lifetime of the life assured.
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LOAN-CUM-REVIVAL SCHEME:
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can be
used by policyholders to pay off premium arrears by taking a loan
against the policy.
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LOAN:
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against
insurance policies gives liquidity to the policyholder.
Generally, insurance policies offer the facility of loan being
availed against the premium payments made. It may happen that
some products may not offer loan facility.
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LOYALTY ADDITIONS:
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In case
of some life policies, the Policyholder will be eligible for
Additional Bonus alongwith the Sum assured at the time of
Maturity of the policy, for having continued the policy till the
end successfully.
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MARRIAGE ENDOWMENT
PLAN:
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The term of these
plans is fixed in relation to the likely time of the child's marriage. The
sum assured is payable only at the end of term. Even if the life assured dies
during the term of the policy, the sum assured will be paid only at end of
term. Premium payment, however, ceases on death of life assured.
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MATERIAL FACT:
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Facts that may have a
bearing on the decision by the insurer to give or not to give insurance in a
particular case, and what premium to charge.
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MATURITY BENEFIT:
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is the benefit amount
payable to policyholder if he survives until the policy matures, in other
words, if he survives till the end of the term of the policy.
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MATURITY CLAIM:
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is the amount payable
at the end of the term of the policy.
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MONEY-BACK PLANS:
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are a type of
endowment plan where a part of the sum assured is payable during the term of
the policy. Generally there are 4-6 payouts during the term of the policy.
However, notwithstanding the periodical payouts, the sum assured at risk
(payable on death) continues to be same during the term of the policy; that
is if the life assured dies during the policy term the entire sum assured
will be paid to him. No deductions will be made for a payout that might have
been made.
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MORAL HAZARD:
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A situation where
insurance is being taken with the ulterior motive of staking a (false) claim.
This could be where the loss has already taken place, or where there is a
pre-existing condition that is left undisclosed, or a situation where the
insured is facing heavy losses from other activities and is seeking to buy
insurance with a view to collecting a claim and offsetting his losses.
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MORTALITY:
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The probability of
death of a typical person at various ages in a given group of people.
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NATIONAL INSURANCE COMPANY LIMITED:
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This GIC subsidiary
was set up in and is headquartered in Calcutta.
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NEAR BIRTH DAY:
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The age on the
nearest birthday (used for calculating premium).
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NEW INDIA ASSURANCE COMPANY LIMITED:
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A subsidiary of GIC,
the company was set up in and is headquartered in Mumbai.
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NOMINEE:
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is the person
nominated by the life assured to receive the policy money in case of the
death of the life assured. However, nomination does not indicate any transfer
of rights, titles and interest of the policy during the lifetime of the life
assured. Nomination can be changed either through a will or by an endorsement
on the policy. Nomination is normally not required in the case of a Joint Life
Policy. However to protect their interests in case of a natural calamity
where it is hard to establish the proof of the earlier death, it is
recommended that the joint policy holders appoint a common nominee
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NON-MEDICAL:
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Policies issued
without a medical examination, normally permitted to persons below a certain
age, employed in certain institutions and for sums assured below a certain
amount.
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NON-PARTICIPATING / WITHOUT PROFIT POLICIES
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In these plans the
policyholder is only paid the Sum Assured. He has no claim over the surplus
generated by the insurer.
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NON-STANDARD LIFE:
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Any individual, who
cannot be granted a policy under normal rates of premiums but can be granted
with an extra premium over normal rates of premium, is considered as a
Non-Standard Life.
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ORDINARY REVIVAL REQUIRING DECLARATION OF
GOOD HEALTH IN A SIMPLE FORM
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can be effected if:
- Premium
arrears are cleared within seven months from the date of lapse( policy
issued at ordinary rates)
- The
policy is an endowment scheme and the premium arrears have been cleared
in the 12 - 24 months prior to maturity date
- The
new proposal can be considered under non-medical scheme
- In
arrears are cleared in the 12 months prior to the date of maturity in
case of high-risk plans like money-back scheme.
- The
arrears are paid after 12 months but before 18 months from the date of
lapse and the policy has been in force for greater of at least 10 years
or half the total term of the policy, whichever is more.
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ORDINARY REVIVAL WITHOUT PRODUCING EVIDENCE
OF GOOD HEALTH:
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can be effected if
premium is paid within six months of due date of first unpaid premium. This
facility, however, is extended only to pure survival benefit policies.
Schemes that carry a death cover cannot be revived this way.
- If
the policy has been in force for at least five years, ordinary revival
can be effected if arrears are paid within 12 months of the date of
first unpaid premium.
- In
the case of endowment type policies, ordinary revival can be effected if
the arrears are paid during the last 12 months prior to the date of
maturity.
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PAID UP POLICY:
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Generally, a policy
under which the premiums have been paid for the full paying term or premiums
are not being paid upto a certain period. The value of insurance coverage
will be reduced to a sum that is worked out based on a pre-defined formula
which has a relation to the period for which premiums have been paid and
remain payable.
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PAID UP VALUE:
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When premium payment
is stopped by the proposer during the term of the policy paying period, and
does not or cannot make further payments, the policy can become 'paid up',
that is, it can be frozen in terms of benefits which will be a portion of the
sum assured and no further premiums need be paid for that benefit level.
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PARTICIPATING /WITH PROFIT POLICIES:
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Policies where the
policyholder 'participates' in the surplus generated by the insurer are
called participating or with profit policies.
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PERIL:
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is a contingency or
an accidental happening, which may be covered or excluded under a policy of
insurance.
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PERMANENT DISABILTY:
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Irrevocable loss of
entire sight of both eyes.
- Amputation
of both hands at/above the wrists.
- Amputation
at or above both ankles.
- Amputation
of one hand and one foot.
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POLICY:
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is a stamped
document, which provides evidence of the contract of insurance between the
insurer and the insured.
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POLICY REVIVAL:
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A lapsed policy can
be revived before the date of maturity within five years from the date of
first unpaid premium. The policyholder needs to submit proof of his ability
to pay future premium. All premium arrears, with interest, have to be
cleared. SBILife reserves the right to accept the offer for revival. Evidence
of good health may be required.
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PREMIUM:
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is the monetary
consideration paid by the insured to the insurer for an insurance cover. The
premium can be for the entire policy period (as in the case of annual
policies) or payable periodically (as in life policies). In India
premiums have to be paid before coverage can begin and the insurer can be 'at
risk', a provision under section 64 V B of the Insurance Act.
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PREMIUM PAYING TERM (PPT):
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is the term for which
premium has to be paid. In some policies, the term for which premium is to be
paid by the insured is less than the term of the policy.
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PREMIUM PERIODICITY:
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For life policies
premium are payable periodically. They are payable annually, half-yearly,
quarterly and monthly. Rebates are usually offered on annual and half-yearly
premium payments and loadings on monthly payments.
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PREMIUM WAIVER BENEFIT (PWB):
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Children’s policies
provide this benefit where the future premiums payable upto the vesting date
are waived in the event of your death.
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PROPOSAL FORM:
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The Application in
the required format sent by the proposer (person who wants to buy the
contract) is the Proposal Form.
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PROPOSER:
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is the person who
buys the insurance policy.
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PURE ENDOWMENT PLANS:
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are policies where
the amount is payable by the insurer to the policyholder only at the end of
the specified term. They serve as savings instruments.
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REBATES:
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are the discounts
offered on the premium levied by Insurance Companies. The rebates could be
based on the Premium Payment Frequency, Term or the amount of Insurance Cover
(sum assured).
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REVIVAL OF A LAPSED POLICY:
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In case your policy
has lapsed due to non-payment of premium, you can revive the lapsed policy by
paying arrears with interest and providing new documentation. This can be
done only within a stipulated period of time from the date of lapse, and
before the date of maturity of the policy.
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RISK:
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is the probability of
a loss. This chance of something happening (a factory catching fire for
instance) is what is the subject matter of insurance as far as it is a
quantifiable financial loss.
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SALARY SAVING SCHEME (SSS):
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comes into operation
when the employee makes a written request to the employer for direct
deduction of the premium due to the insurer from the monthly salary payable
and remittance to the insurer.
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SPECIAL REVIVAL SCHEME:
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is available for
policyholders who cannot afford full settlement of arrears. Arrears of
premium have to be paid only for two years.
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STANDARD LIFE:
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Any person who,
according to the insurer's underwriting standards, is eligible for insurance
at the normal rates of premium, as a result of meeting the normal health
standards.
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SUBROGATION:
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Since insurance is a
method of transferring risk from the insured to the insurer, the insurer is
said to step into the shoes of the insured to take care of the monetary
obligations arising out of the loss. In the same way the rights of the
insured under the circumstances, say to receive compensation for the loss
from some other authority, or to proceed legally against a third party that
has caused the loss will be subrogated to the insurance company so that it
can pursue all methods of getting back some of the money it pays as claims.
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SUB-STANDARD LIFE:
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Any person considered
as under-average for granting insurance cover due to reasons such as
occupation, dangerous lifestyle or personal or family history of some
disease. The insurance company can accept insurance proposal of such a person
with increased premium or restrictions on coverage. In some cases, the
proposal can be rejected.
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SUICIDE CLAUSE:
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The insurance company
will not pay the benefits under the policy if the insured person commits
suicide or dies due to attempted suicide within a certain period from the
date of the issue of the policy document.
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SUM ASSURED:
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is the amount payable
on occurrence of the specified event for which the policy is taken, such as
death or completion of term.
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SUM INSURED:
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is the monetary limit
of liability of insurers under a policy.
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SURCHARGE:
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is the extra loading
on the normal premium, due to any cause, such as monthly premium payments,
etc.
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SURRENDER:
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is the voluntary
termination of the policy contract by the policyholder before it matures into
a claim. The insurer pays the policyholder a surrender value for his policy.
This value is normally calculated as a percentage of the premium paid or as a
percentage of the paid up value.
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SURRENDER VALUE:
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The amount payable by
the insurance company if you foreclose a policy after the premium is paid for
a minimum period as stipulated.
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SPECIAL SURRENDER VALUE:
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The surrender value
calculated as per a formula announced by the insurer from time to time, which
will be paid if it is more than the guaranteed surrender value on foreclosing
the policy.
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SURVIVAL BENEFIT:
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is the benefit
payable to the life assured if he survives up to a specified date during the
term of the policy.
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TERM:
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is the period during
which the policy remains in force. The sum assured is payable only if the
specified event occurs during this period.
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TERM INSURANCE:
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Under this scheme,
you pay premium for a certain number of years, and your nominee will receive
the money upon your death; however, you will not receive anything if you
survive the term.
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TERM INSURANCE PLANS:
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provide only a death
risk cover. These policies do not have any savings element built into them.
The Sum Assured is receivable only in case of death during the term of the
policy. If the insured survives the term the entire sum assured may not be
payable but a smaller maturity benefit may be payable.
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THE ORIENTAL INSURANCE COMPANY LIMITED:
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This GIC subsidiary
was set up in and is headquartered in Delhi.
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UNIT LINKED INSURANCE PLAN:
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is designed to
compensate for inflation. The premium is split into two parts, one part is
used to provide risk cover and the second component is converted into units
and invested in equities or other markets.
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UNITED INDIA INSURANCE COMPANY LIMITED:
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This GIC subsidiary
was set up in and is headquartered in Chennai.
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UTMOST GOOD FAITH:
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All insurance
contracts are on the basis of the concept of 'Uberrima Fides', or Utmost Good
Faith. Since the insured has the advantage over the insurer as far as the conditions
under which insurance is being bought - say the true state of his health, or
the dangers that his house faces from fire - the insurer has the obligation
to declare all such material facts with utmost good faith to the insurer so
that he may sell you the policy while in possession of the required
information.
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VESTING AGE:
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is the age at which
life assured becomes absolute owner of the policy, which in the case of
minors is 18 years (minimum age for a valid contract).
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WHOLE LIFE INSURANCE:
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remains in force
through out the lifetime of the life assured. The sum assured is payable in
case of the insured's death. Premiums too are payable till death.
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WITH PROFIT:
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A policy of insurance
can be of the 'with profit' kind or 'without profit'. In the first case, the
policyholder is eligible to have a share in the profits of the insurance
company at the cost of a higher premium.
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WITHOUT PROFIT:
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A 'without profit'
policyholder is not eligible to have a share in the profits of the insurance
company and only the sum assured under the policy will be paid on the
maturity of the policy or on death as the case may be.
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