Tuesday, 15 December 2015

Banking Awareness: Terms relating to Life Insurance Policies

Terms relating to Life Insurance Policies

Source: LIC of India websiteIBPS Banking Awareness MCQS and Notes

  1. Accident Benefit
Provides for payment of an additional benefit equal to the sum assured in installments on permanent total disability and waiver of subsequent premiums payable under the policy.(This is an additional benefit to the insurance value covered by premium payments)

  1. Annuity Plans
These plans provide for a “pension” (or a mix of a lump sum amount and a pension) to be paid to the policy holder or his spouse. In the event of death of both of them during the policy period, a lump sum amount is provided for the next of kin. (Now pension schemes are based on such policies. People contribute monthly some amount up to certain age and thereafter they get some amount every month lifelong)
  1. Assignment
Assignment means legal transference. A method by which the policy holder can pass on his interest to another person. An assignment can be made by an endorsement on the policy document or as a separate deed.(whenever loan is taken against insurance policies, NSCs etc the surrender/maturity value is assigned in f/o lender through endorsement or separate deed which are then registered with the insurance companies, post office etc)
  1. Beneficiary
The person(s) or entity(ies) (e.g. corporation, trust, etc.) named in the policy as the recipient of insurance proceeds upon the death of the insured.(when the policy holder survives beyond the premium payment period he is the first person eligible to receive the maturity value. He can also nominate some other person as beneficiary to receive the maturity proceeds after his death when it happens before the maturity proceeds become due for payment)
  1. Convertible Whole Life Policy
A mix of “whole life policy” and “endowment policy”, it provides for very low insurance premiums with maximum risk cover while the life assured is just beginning his working career, and the possibility of converting the policy to an “endowment” policy after five years of commencement.
  1. Depreciation
A decrease in the value of property over a period of time due to wear and tear or obsolescence. Depreciation is used to determine the actual cash value of property at time of loss.
  1. Endowment Policy
The assured has to pay an annual premium which is determined on the basis of the assured’s age at entry and the term of the policy. The insured amount is payable either at the end of specified number of years or upon the death of the insured person, whichever is earlier.
  1. Exclusions
Specific conditions or circumstances for which the policy will not provide benefits.
  1. Family Insurance.
A life insurance policy providing insurance on all or several family members in one contract, generally whole life insurance on the principal breadwinner and small amounts of term insurance on the spouse and children, including those born after the policy is issued
  1. Fire Insurance
Coverage for losses caused by fire and lightning, plus resultant damage caused by smoke and water.
  1. Flood insurance
Coverage against loss resulting from the flood peril, available at low cost under a programme developed by the Central government.
  1. Franchise Insurance
A form of insurance in which individual policies are issued to the employees of a common employer or the members of an association under an arrangement by which the employer or association agrees to collect the premium and remit them to the insurer.
  1. Jeevan Akshay
Plan of Life Insurance Corporation of India. This amount is referred to as GIS. The monthly pension that is payable one month after payment of first premium is calculated on the basis of the age at entry.
  1. Group Life Insurance
Life insurance usually without medical examination, on a group of people under a master policy. It is typically issued to an employer for the benefit of employees, or to members of an association, for example a professional membership group. The individual members of the group hold certificates as evidence of their insurance
  1. Guaranteed Policies
These are policies where the payment stays fixed.
  1. Indemnity
Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss.
  1. Insurable Interest
A condition in which the person applying for insurance and the person who is to receive the policy benefit will suffer an emotional or financial loss, if any untouched event occurs. Without insurable interest, an insurance contract is invalid.
  1. Insurability
All conditions pertaining to individuals that affect their health, susceptibility to injury and life expectancy; an individual’s risk profile.
  1. Insurance
Social device for minimizing risk of uncertainty regarding loss by spreading the risk over a large enough number of similar exposures to predict the individual chance of loss.(under insurance the risk of loss is spread over a large group so that the premium for covering risk is as low as possible.)
  1. Insured
The person whose life is covered by a policy of insurance.
  1. Joint Life Endowment Assurance Plans
The sum assured ( plus any accrued bonuses) under this type of policy is payable on the end of the endowment term or on the first death of the two lives assured, whichever is earlier. Typically (though not a necessity) taken out by a couple, a variation is available for couples only. In this case, the sum assured will be payable on first death and then again on the second death (along with all vested bonuses) if both deaths occur during the term of the policy. If one or both lives survive to the maturity date, the sum assured along with all vested bonuses will be payable on maturity date. Premiums during this plan cease on the first death or the expiry of the selected term, whichever is earlier. Another variation provides for annuity to both/surviving spouse, or a lumpsum amount to the legal heirs.
  1. Keyman Insurance Policy
A life insurance policy taken by a person on the life of another person who is or was his employee/connected to his business in any manner whatsoever.
  1. Lapsed Policy
A policy which has terminated and is no longer in force due to non-payment of the premium due
  1. Limited Payment Life Policy
Premiums need to be paid only for a certain number of years or until death if it occurs within this period. Proceeds of the policy are granted to the beneficiaries whenever death of the policy holder occurs. Again, this policy can also be of the “with profits ” or “without profits” type.
  1. Loyalty Additions
The loyalty addition is given upon the maturity of the policy, and not before. It’s a small percentage of the sum assured. Broadly speaking, loyalty addition is the difference between the performance, of the insurance company and the guaranteed additions. It is LIC’s effort to further share its surplus after valuation with the policy holders, as LIC is a non-profit organization.
  1. Life Assured
The person whose life is insured by an individual life policy is called life assured.
  1. Maturity
The date upon which the face amount of a life insurance policy, if not previously invoked due to the contingency covered (death), is paid to the policyholder.
  1. Maturity Claim
The Payment to the policy holder at the end of the stipulated term of the policy is called maturity claim.
  1. Money Back Policy
Unlike endowment plans, in money back policies, the policy holder gets periodic “survivance payments” during the term of the policy and a lumpsum amount on surviving its term. In the event of death during the term of the policy, the beneficiary gets the full sum assured, without any deductions for the amounts paid till date, and no further premiums are required to be paid. These type of policies are very popular, since they can be tailored to get large amounts at specific periods as per the needs of the policy holder.
  1. Moral Hazard
Risk depends on the need for insurance, state of health, personal habits standard of living and income of insured person. Moral hazard is the risk factors that affects the decision of the insurance company to accept the risk.
  1. Nomination
An act by which the policy holders authorizes another person to receive the policy moneys. The person so authorized is called Nominee.
  1. Premium
The payment, or one of the regular periodic payments, that a policy holder makes to an insurer in exchange for the insurer’s obligation to pay benefits upon the occurrence of the contractually-specified contingency (e.g., death).
  1. Premium Back Term Insurance Plans
These provide for refund of all the premiums paid, in the event of the life assured surviving to the end of the policy term. The total sum assured is paid to the beneficiaries in the event death occurs during the policy term.
  1. Risk
The obligation assumed by the insurer when it issues a policy. The spreading of risk across a broad base of the population, adjusted for statistical probability, and the protection against catastrophic loss, is the entire purpose of insurance. For risk assumption purposes, death is viewed as a contingency. That is, although death is certain, its timing is unknown. The process of evaluating and selecting risk is known as underwriting.
  1. Salary Saving Scheme
This scheme provides for payment of premiums by money deduction from the salary of the employees by one employer.
  1. Surrender Value
The value payable to the policy holder in the event of his deciding to terminate the policy before the maturity of the policy.
  1. Survival Benefit
The payment of sum assured to the insured person which has become due by installments under a money back policy.
  1. Whole Life Policy
Premiums are paid throughout the life time of life assured. This can be with profits or without profits (A “with profit” policy is eligible for various bonuses declared by LIC every year, while a “without profits” policy does not have this privilege)
  1. With-Profit policy
Policies entitled to bonus, which is paid at the time of claim-death or maturity one with profit policies.
  1. Without-Profit policy
These policies are not entitled to participate in bonuses.

Recent Initiatives of IRDA

i) The market regulation by prudential norms,
ii)The registration of players who have the necessary financial strength to withstand the demands of a growing and nascent market,
iii) The necessity to have “fit and proper” person in-charge of businesses,
iv) The implementation of a solvency regime that ensures continuous financial stability, and above all,
v) The presence of an adequate number of insurance companies to provide competition and choice to customers all these steps lead to the establishment of a regime committed to an overall development of the market in normal times.
vi) Prescribed rural and social sector norms in respect of Insurance business being underwritten by the companies.
vii) The companies have also been asked to devise insurance policy to specific sector in the economically weak population.

Terms Relating to General Insurance

Source: The New India Insurance website

  1. Cargo Insurance
Type of insurance that protects the shipper/owner of the goods against financial loss if the goods are damaged or lost while in transit in between place of commencement and destination.
  1. Comprehensive
A loosely used term signifying broad or extensive coverage of insurance(For instance in vehicle insurance comprehensive policy covers damages even when the vehicle is driven by other than the owner whereas third party insurance excludes damages due to use of vehicle by third party)
  1. Cover Note
A cover note is a document issued in advance pending the issue of the policy, and is normally required if the policy cannot for some reason or other be issued straight away. Cover notes can also be issued during the course of negotiations to provide cover on a provisional basis. A cover note is not a stamped document but is honored, all the same, by all parties concerned.
  1. Credit Insurance
A form of guarantee to manufacturers and wholesalers against loss resulting from default on the part of debtors (Another sort of credit insurance for bank loans were in vogue till recently but since has been discontinued on the advice of IRDA)
  1. Double Insurance
If the insurance policy is taken from more than one underwriter where period of insurance, subject matter of insurance and sum insured are same, then this is called double insurance.
  1. Employers liability
Legal liability imposed on an employer making him or her responsible to pay damages to an employee injured by the employer’s negligence. Generally, replaced by ‘workers compensation’, which pays the employee whether the employer has been negligent or not.
  1. Ex Gratia
A payment made where there is no legal liability
  1. Fidelity Bond
A form of protection which reimburses an employer for losses caused by dishonest or fraudulent, acts of employees.
  1. Financial Loss Insurance
Insurance of legal liability for financial loss not involving bodily injury or loss of or damage to property
  1. Fire insurance
Coverage for losses caused by fire and lightning, as well as the resultant damage caused by smoke and water
  1. Floater Policy
A policy under the terms of which protection follows moveable property, covering it wherever it may be
  1. Gross Premium
The premium paid by the policyholder.
  1. Indirect Loss (Or Damage)
Loss resulting from a peril, but not caused directly and immediately thereby.
For example: Loss of property due to fire is a direct loss, while the loss of rental income as the result of the fire would be an indirect loss.
  1. Marine
Pertaining to the sea or to transportation: usually divided as to ‘ocean marine’and ‘inland marine’; the insurance covering transportation risks
  1. Marine Insurance
A form of insurance primarily concerned with means of transportation and communication, and with goods in transit
  1. Moral Hazard
Moral Hazard refers to increase in probability of loss that results from dishonesty in the character of the insured person. Thus it is the dishonest tendencies on the part of the insured person that may induce that person to attempt to defraud the insurance company
  1. Morale Hazard
An attitude that increases the probability of loss from a peril. The attitude of, “It’s insured; so why worry?” is an example of a morale hazard
  1. Occupational Hazards
Occupations which expose the insured to greater than normal physical danger by the very nature of the work in which the insured is engaged, and the varying periods of absence from the occupation, due to the disability, that can be expected
  1. Ombudsman
An authority established either by the company or the Government for the quick redressed of grievances
  1. Policyholder
A person who pays a premium to an insurance company in exchange for the insurance protection provided by a policy of insurance. The person (or persons) whose risk of financial loss from an insured peril is protected by the policy.
  1. Policy Term
The period for which an insurance policy provides coverage
  1. Product Liability Insurance
Protection against financial loss arising out of the legal liability incurred by a manufacturer, merchant, or distributor because of injury or damage resulting from the use of a covered product
  1. Property Insurance
Insurance providing financial protection against the loss of, or damage to, real and personal property caused by such perils as fire, theft, windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion, and smoke
  1. Proposal
A person interested in taking out insurance has to make an offer by means of a proposal. This is an application for the cover required, or for obtaining quotations of the premium chargeable
  1. Recurring Clause
A provision in some health insurance policies, which specifies a period of time during which the recurrence of a condition is considered a continuation of a prior period of disability or hospital confinement
  1. Rider
Usually known as an endorsement, a rider is an amendment to the policy used to add or delete coverage
  1. Surety Bond
An agreement providing for monetary compensation should there be a failure to perform certain specified acts within a stated period: the surety company, for example, becomes responsible for fulfillment of a contract if the contractor defaults
  1. Workers Compensation
A system of providing for the cost of medical care and weekly payments to injured employees or to dependants of those killed in the course of or arising out of their employment in industry in which Absolute Liability is imposed on the employer, requiring him or her to pay benefits prescribed by law.

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