Life InsuranceLife Insurance
Policy ServicingPolicy Servicing
Rights and duties of insuredRights and duties of insured
• Need for service/deficiency of serviceNeed for service/deficiency of service
• Types of services renderedTypes of services rendered
Record maintainence – a statutoryRecord maintainence – a statutory
Premium payments- advance notices sent,Premium payments- advance notices sent,
not obligatory but a matter of courtesynot obligatory but a matter of courtesy
Contractual responsibility of insured toContractual responsibility of insured to
keep policy in force to prevent lapsekeep policy in force to prevent lapse
Duty of insured to receive premium andDuty of insured to receive premium and
account for in recordsaccount for in records
Days of graceDays of grace
• Due dates mentioned & days of graceDue dates mentioned & days of grace
permitted – considered as payment in timepermitted – considered as payment in time
• Not less than 30 days for all modesNot less than 30 days for all modes
barring salary savings - privilege extendedbarring salary savings - privilege extended
by insurance companyby insurance company
• Lapsation forfeits claimsLapsation forfeits claims
• In case of premium default, policyIn case of premium default, policy
conditions provide various safeguards calledconditions provide various safeguards called
NON-FORFEITURE provisionsNON-FORFEITURE provisions
• Various options before insurerVarious options before insurer
Return surrender value/ Guaranteed SVReturn surrender value/ Guaranteed SV
Making policy paid – upMaking policy paid – up
Providing term cover from SVProviding term cover from SV
• Paid –up value : definition & calculationPaid –up value : definition & calculation
Non-forfeiture provisionsNon-forfeiture provisions
• Surrender - a voluntary termination ofSurrender - a voluntary termination of
contract - anytime before it becomes acontract - anytime before it becomes a
claim – a breach of contractclaim – a breach of contract
• Guaranteed SV – a percent of allGuaranteed SV – a percent of all
premiums paid excluding first year’spremiums paid excluding first year’s
• SV is a percentage of premiums paidSV is a percentage of premiums paid
• Percentage increases as duration of policyPercentage increases as duration of policy
• SV factorSV factor
• Policy loans allowed, 85-90% of SV.Policy loans allowed, 85-90% of SV.
• Loans not allowed on all policiesLoans not allowed on all policies
• During loan, absolute assignment of policyDuring loan, absolute assignment of policy
to insurance co. Does not invalidateto insurance co. Does not invalidate
existing nomination.existing nomination.
If premia not paid regularly, policy lapses.If premia not paid regularly, policy lapses.
When loan & interest exceed surrenderWhen loan & interest exceed surrender
value foreclosure takes place.value foreclosure takes place.
• Foreclosure means closure or writing offForeclosure means closure or writing off
the policy before the actual maturitythe policy before the actual maturity
• Notice sent to PH asking for loan arrearsNotice sent to PH asking for loan arrears
and interest , then action taken.and interest , then action taken.
Balance of Surrender Value paid toBalance of Surrender Value paid to
policyholder after adjusting principal loanpolicyholder after adjusting principal loan
and interest.and interest.
• Foreclosed policy can be reinstated beforeForeclosed policy can be reinstated before
policyholder receives the balance SV.policyholder receives the balance SV.
• Lapse suggests policyholder not fullyLapse suggests policyholder not fully
convinced about utility of plan. Exposesconvinced about utility of plan. Exposes
PH to adverse circumstances.PH to adverse circumstances.
Insurer also loses. It can recover initialInsurer also loses. It can recover initial
expenses only if policy is in force.expenses only if policy is in force.
• Lapsation set right by revival. Arrears ofLapsation set right by revival. Arrears of
o/s premium plus interest plus proof ofo/s premium plus interest plus proof of
good health. No revival if policy lapsedgood health. No revival if policy lapsed
more than 5 years – pure lapse.more than 5 years – pure lapse.
• No proof of good health required uptoNo proof of good health required upto
6 months from date of lapse6 months from date of lapse
• Beyond this medical reports requiredBeyond this medical reports required
• Revival is a fresh contract , risk beingRevival is a fresh contract , risk being
equal to original SA less paid - up value.equal to original SA less paid - up value.
• Underwriter may/may not agree toUnderwriter may/may not agree to
accept risk.accept risk.
• Loan –cum-revival scheme - loan amountLoan –cum-revival scheme - loan amount
adjusted towards revival- party to repay.adjusted towards revival- party to repay.
• NOMINATION- done to ensure payment ofNOMINATION- done to ensure payment of
policy money in case of death claim.policy money in case of death claim.
Provision allowed as per sec 39 ofProvision allowed as per sec 39 of
Insurance act, 1938.Insurance act, 1938.
May be at time of proposal/ later – to beMay be at time of proposal/ later – to be
intimated to insurer else invalidintimated to insurer else invalid
Can be changed by endorsement onCan be changed by endorsement on
policy - nomination automaticallypolicy - nomination automatically
cancelled in case of assignment.cancelled in case of assignment.
• Nominee cannot receive maturity claim.Nominee cannot receive maturity claim.
For minor nominee, appointee fixed by PH.For minor nominee, appointee fixed by PH.
Appointee cancelled when nominee isAppointee cancelled when nominee is
major. If nominee minor & no appointee,major. If nominee minor & no appointee,
claim paid to legal heirs. When nomineesclaim paid to legal heirs. When nominees
more than one, money paid jointly.more than one, money paid jointly.
• Only insured can make nominationOnly insured can make nomination
• Need not be supported by considerationNeed not be supported by consideration
• Insured has full control of policyInsured has full control of policy
• If nominee dies, no one’s rights areIf nominee dies, no one’s rights are
• In spite of nomination, creditors can attachIn spite of nomination, creditors can attach
policy moneyspolicy moneys
• Assignee cannot make nomination as he isAssignee cannot make nomination as he is
not the life assurednot the life assured
ASSIGNMENT- transfer of all rights,ASSIGNMENT- transfer of all rights,
ownership, interest under policy toownership, interest under policy to
• Legal provisions of LI policies existLegal provisions of LI policies exist
• It is under Sec 38 of Insurance act, 1938.It is under Sec 38 of Insurance act, 1938.
• Can be done by an endorsement on theCan be done by an endorsement on the
policy or by separate deed. Stamp dutypolicy or by separate deed. Stamp duty
required in case done in separate deeds.required in case done in separate deeds.
Must be signed by transferror & witnessedMust be signed by transferror & witnessed
Effective only after execution.Effective only after execution.
Notice of assignment to be sent to insurer.Notice of assignment to be sent to insurer.
• Only PH can assign. Assignor must beOnly PH can assign. Assignor must be
major. Assignment cannot be cancelled/major. Assignment cannot be cancelled/
altered unless reassignment takes placealtered unless reassignment takes place
• A – Absolute/conditional. In both cases, allA – Absolute/conditional. In both cases, all
rights, title & interests pass to assignee.rights, title & interests pass to assignee.
In Conditional A, interest in policy reverts toIn Conditional A, interest in policy reverts to
LA on occurrence of specified condition.LA on occurrence of specified condition.
i.e reversion if assignee predeceases assignori.e reversion if assignee predeceases assignor
• Absolute assignee is owner & can dealAbsolute assignee is owner & can deal
with it any way he feels/ he can suewith it any way he feels/ he can sue
• Assignment to be supported by aAssignment to be supported by a
• If assignee dies after LA, but beforeIf assignee dies after LA, but before
settlement, policy moneys payable to heirssettlement, policy moneys payable to heirs
of assignee.of assignee.
• Creditors of LA can’t attach policy money.Creditors of LA can’t attach policy money.
• In Child plan, LA can assign after vesting .In Child plan, LA can assign after vesting .
• ALTERATION –change in address, of modeALTERATION –change in address, of mode
in payment of premium, of nomination,in payment of premium, of nomination,
break a policy into 2/more of smaller SAsbreak a policy into 2/more of smaller SAs
in plan, term.in plan, term.
Principle is that alterations in existingPrinciple is that alterations in existing
policies may be allowed if risk does notpolicies may be allowed if risk does not
Alteration in plan not allowedAlteration in plan not allowed
Other types of serviceOther types of service
• Transfer of policyTransfer of policy
• Issue of policy bondIssue of policy bond
• Payment of claimsPayment of claims
• Corrections in bondCorrections in bond
• Duplicate policy issueDuplicate policy issue
• Change of addressChange of address
Cooling –off periodCooling –off period
• Introduction by IRDAIntroduction by IRDA
• Review of terms & conditions byReview of terms & conditions by
policyholder within 15 days from receiptpolicyholder within 15 days from receipt
of policy documentof policy document
• Option to return policy in case ofOption to return policy in case of
• Entitled to refund of premium lessEntitled to refund of premium less
expenses like postage, stamp & medicalexpenses like postage, stamp & medical
fees etcfees etc
Why is this allowed ?Why is this allowed ?
• Since life insurance is a long-termSince life insurance is a long-term
contract, these provisions provide ancontract, these provisions provide an
opportunity to policyholder to judgeopportunity to policyholder to judge
the suitability of the cover as per needthe suitability of the cover as per need
• In case of Ulip policy, insurer canIn case of Ulip policy, insurer can
repurchase the units at their respectiverepurchase the units at their respective
prices on the date of cancellationprices on the date of cancellation
Other informationOther information
• Mention of various clauses like suicide, firstMention of various clauses like suicide, first
pregnancy, exclusionspregnancy, exclusions
• Details of riders/ charges/ calculation ofDetails of riders/ charges/ calculation of
NAV/ details of hospitalization coverage &NAV/ details of hospitalization coverage &
expenses ( where applicable )expenses ( where applicable )
• Participation in profitsParticipation in profits
• Mis-statement of age - cancellation ofMis-statement of age - cancellation of
policy if overage & uninsureable ;policy if overage & uninsureable ;
difference of premium if insureabledifference of premium if insureable
INDISPUTIBILITY OF THE POLICY -INDISPUTIBILITY OF THE POLICY -
Sec 45 of Insurance act states that a policySec 45 of Insurance act states that a policy
which has been in force for 2 yearswhich has been in force for 2 years
cannot be disputed on the grounds ofcannot be disputed on the grounds of
incorrect or false statements in theincorrect or false statements in the
proposal & other documents unless it has aproposal & other documents unless it has a
material bearing & was madematerial bearing & was made
Married Women’s Propert Act policiesMarried Women’s Propert Act policies
• If a life insurance policy is taken by anyIf a life insurance policy is taken by any
married man on his life and expressedmarried man on his life and expressed
on policy bond for benefit of his wife &on policy bond for benefit of his wife &
children, policy becomes a trust & shallchildren, policy becomes a trust & shall
not be under control of insured/ hisnot be under control of insured/ his
creditors/ his estate. Claims paid to trustees.creditors/ his estate. Claims paid to trustees.
• A financial arrangement for wife/ childrenA financial arrangement for wife/ children
• Individual policy a separate trustIndividual policy a separate trust
• Insured cannot alter/surrender/take loan .Insured cannot alter/surrender/take loan .