DOCUMENTATION – POLICY CONDITION – II
Grace Period :
The “Grace Period” clause grants the policyholder an additional period of time to pay the premium after it has become due.
The standard length of the grace period is one month or 31 days computed from next day after due date.
The premium however remains due and if the policyholder dies during this period, the insurer may deduct the premium from the death benefit. If premiums remain unpaid even after the grace period is over, the policy would then be considered lapsed and the company is not under obligation to pay the death benefit but for the amount under Non Forfeiture provisions.
If the policy premium has not been paid even during days of grace , the policy is deemed to be lapsed.
Reinstatement / Revival :
Reinstatement is the process by which a life insurance company puts back into force a policy that has either been terminated because of non-payment of premiums or has been continued under one of the non-forfeiture provisions
Conditions of Policy Revival :
- Payment of outstanding premium with interest
- Fee for reinstatement
- Proof of continued good health& income
- No increase in Risk cover
- Within time frame – in India within 5 years from the date of lapse.
- Payment of outstanding loan.
- Fresh medical examination may be required if SA is large.
- Revival is more often advantageous because buying a new policy would call for a higher premium based on age on the date of revival
Policy Revival Measures :
- Ordinary Revival :Involves payment of arrears of premium with interest. When the policy has acquired surrender value.
- Special Revival :If the policy has run for less than 3 years and has not acquired minimum surrender value, Special Revival is done .New policy has been written when the DOC is within two years of the original date of commencement of the lapsed policy.
- Loan cum revival :The simultaneous granting of a loan and revival of the policy.
- Installment Revival :When the policy holder is not in a position to pay arrears of premium in a lumpsum and neither can the policy be revived under special revival scheme.
Non Forfeiture Provision:
If premiums have been paid for at least 3 consecutive years, the accrued Surrender Value will be paid.
Surrender Value: It is a percentage of paid up value. Surrender value as a percentage of premiums paid is called Guaranteed Surrender Value.
- When a policy acquires a cash value, policyholder can borrow money (loan) while keeping the insurance alive.
- It is usually limited to a percentage of Surrender Value (say 90%).
- The policy has to be assigned in favor of insurer.
- Insurers charge interest on policy loans.
- It is the process of life insured proposing the name of the person(s) to whom the sum insured should be paid by the insurance company after his/her death.
- A nominee does not have any right to whole ( or part ) of the claim.
- For an insurance policy nomination is allowed under Section 39 of the insurance Act 1938.
Provisions of Section 39 :
- Nomination can be made when the policy is bought or thereafter
- Nomination is not applicable to sec 6 of MWP Act.
- Policy moneys payment is made to surviving nominees
- Assignment cancels nomination
- Addition , change or cancellation of nomination is allowed.
- Nomination shall be by endorsement.
- Where the nominee is a minor, an Appointee needs to be appointed by policy holder.
- The appointee loses the status when the nominee reaches majority age.
- No specific share of nominee can be made.
Transfer the rights of the property ( Policy).
Types of Assignment :
Conditional Assignment :provides that the policy shall revert back to the life assured on his or her surviving the date of maturity or on death of assignee.
Absolute Assignment: Provides that rights, title and interest of the assignor in the policy are transferred to the assignee without reversion.
On assignment, nomination is cancelled, except when assignment is made to insurance company for a policy loan
Difference between nomination and assignment:
|Basis of Difference||Nomination||Assignment|
|What is Nomination|
|Nomination is the process of appointment of a person to receive the death claim||Assignment is the process of transferring the title of the insurance policy to another person or institution|
|When can the nomination or assignment be done?||Nomination can be done either at the time of proposal or after the commencement of the policy.||Assignment can be done only after commencement of the policy.|
|Who can make the nomination or assignment||Nomination can be made only by the life assured on the policy of his own life.||Assignment can be done by owner of the policy either by the life assured if he is the policyholder or the assignee|
|Where is it applicable?|
|It is applicable only where the Insurance Act, 1938 is applicable|
|It is applicable all over the world, according to the law of the respective country relating to transfer of property.|
|Does the policyholder retain control over the|
|The policyholder retains title and control over the policy and the nominee has no right to sue under the policy|
|The policyholder loses the right, title and interest under the policy until a re-assignment is executed and the assignee has a right to sue under the policy.|
|Is a witness required?||Witness is not required.||Witness is mandatory.|
|Do they get any rights?|
|Nominee has no rights over the policy|
|Assignee gets full rights over the policy, and can even sue under the policy.|
|Can it be revoked?||Nomination can be revoked or cancelled at any time during the policy term.||The assignment once done cannot be cancelled, but can be reassigned.|
|In case of minor||In case the nominee is a minor, appointee has to be appointed.||In case the assignee is a minor, a guardian has to be appointed.|
|What happens in case of the nominee’s or assignee’s death?|
|In case of nominee‟s death,|
the rights of the policy revert to the policyholder or to his legal heirs.
|In case of conditional assignee‟s death, the rights on the policy revert back to the life assured, based on the terms of assignment. In case of the absolute assignee‟s death, his legal heirs are entitled to the policy.|
|What happens in case of death of the nominee or assignee after the death of the life assured and before the payment of the death claim||In case the nominee dies before the settlement of death claim, the death claim will be payable to the legal heirs of the life assured.||In case the assignee dies|
before the settlement, the policy money is payable to the legal heirs of the assignee and not the life-assured who is the assignor
|Can creditors attach the policy|
|Creditors can attach the insurance policy which has a nomination in it.||Creditors cannot attach the policy unless the assignment is shown to have been made to defraud the creditors.|
Duplicate Policy :
If the insured person loses the original life insurance policy document, the insurance company will issue a duplicate policy without making any changes to the contract.
The claim may be settled on furnishing an indemnity bond with or without Surety
10. Alterations :
- Policy holder may seek to effect alteration in policy terms and conditions.
- It is subject to the consent of both insurer and insured.
- Normally alterations may not be permitted during 1st year of policy Except for some simple ones like change of mode of payment of premium, change in name, address, request for grant of DAB or PDB etc
Main Types of alterations that are permitted are :
- Change in certain classes of insurance or term [where risk is not increased]
- Reduction in the sum assured
iii. Change in the mode of payment of premium
- Change in the date of commencement of the policy
- Splitting up of the policy into two or more policies
- Removal of an extra premium or restrictive clause
vii. Change from without profits to with profits plan
viii. Correction in name
- Settlement option for payment of claim and grant of double accident benefit.