Glossary

Adverse Selection

The tendency of persons exposed a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. Adverse selection concentrates risk instead of spreading it. The fact is that insurance works best when risk is shared among large numbers of policyholders.

Age limits

The predefined minimum and maximum ages below and above which the insuring company will not accept applications or may not renew policies.

AIDS

Acronym for Acquired Immune Deficiency Syndrome, a disease.

Annuity

A scheme under which a certain amount is paid at regular yearly/ half yearly/ quarterly/ monthly intervals.

Annuity Plans

These plans provide for a "pension" amount (or a mix of a lump sum amount and a pension) to be paid to the insured or his spouse. In the event of death of both of them during the policy period, a lump sum amount is paid to the next of kin.

Annuitant

Annuitant is the person who receives certain amounts as income at yearly/ half yearly/ quarterly/ monthly intervals from an annuity contract. Usually the owner of the contract or his or her spouse.

Assignment

The tendency of persons exposed a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. Adverse selection concentrates risk instead of spreading it. The fact is that insurance works best when risk is shared among large numbers of policyholders.

• Conditional assignment

• Absolute Assignment

Assignee

The person to whom the benefits of a life policy are assigned.

Assignor

Assignor is the person who holds the right/ title under the policy and who can make a valid assignment

Beneficiary

This is the amount added on to the basic sum assured under a with-profit life insurance policy.

Binding Receipt

A temporary receipt given for a premium payment accompanying the application for insurance. If the policy is approved, this binds the company to make the policy effective from the date of the binding receipt

Bonus

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Branch Office System

This is a type of life insurance marketing system under which the company opens branch offices in various areas. Here the Salaried Branch Managers, who are employees of the company, are responsible for hiring and training new agents.

Claim Amount

It is the amount payable by the insurer to the insured, or the assignee/ beneficiary under a policy on a claim arising.

Dating Back

Dating Back or Back Dating is an option to the life assured to get the advantage of lower age wherein the policy is commenced from a date earlier than the actual date of signing of proposal form. However, back dating is limited to one year.

Days of Grace

Policyholders are expected to pay regular premium on due dates. A period of 15-30 days from the due date is allowed as grace to make payment of premium. This duration is known as days of grace.

Death Benefit

The payment made to a beneficiary upon the death of the insured person.

Declining

The process of the insurer refusing to insure an individual after careful evaluation of the application for insurance and any other risk factors.

Deferred Annuity

An annuity plan where the first annuity payment becomes payable after a chosen period that exceeds one year.

Deferment date

It is the date on which the deferment period ends.

Deferment period

This is the period from the date of commencement of the policy to the date of commencement of risk on the child's life under a Children's Deferred Endowment Assurance policy.

Deferred Group Annuity

A type of group annuity providing for the purchase each year of a paid-up deferred annuity for each member of the group. Here the total amount received by the member at retirement is the sum of these deferred annuities.

Defined Benefit Plan

A pension plan stating either (1) the benefits to be received by employees after retirement or (2) the method of determining such benefits. The employer's contributions under such a plan are actuarially determined.

Defined Contribution Plan

A plan under which the contribution rate is fixed and benefits to be received by employees after retirement depend to some extent upon the contributions and their earnings.

Deposit Administration Group Annuity

A type of group annuity providing for the accumulation of contributions in an undivided fund out of which annuities are purchased as the individual members of the group retire.

Deposit Premium

The premium deposit paid by a policyholder when an application is made for an insurance policy and is applied toward the actual premium when asked to pay.

Deposit Term Insurance

This is a form of term insurance, not really involving a "deposit," but one in which the first-year premium is more than subsequent premiums.

Double/ Triple Cover Plans

These plans offer the beneficiaries double/ triple the sum assured on death of life assured during the term of the policy. On survival to the date of maturity, the basic sum assured is paid to the assured. These are low-premium plans, most useful for situations such as housing.

Endowment 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. 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.

EPDB

Extended Permanent Disability Benefit

Female lives

Category I: Women with income earned by virtue of their employment in any reputed organisation or institution eligible for Non-Medical Special Schemes. Valid for professionals such as Medicine, Law, Charted Accountancy etc. and lady career agents of LIC.
Category II: Women with unearned income attracting payment on income tax or women holding sizeable personal properties/ investments yielding income attracting assessment for income tax.

First Class Life

An Individual is categorised as First Class Life if he/ she is eligible to have insurance coverage at normal rates of premium

First Unpaid Premium (FUP)

First unpaid premium refers to the first default in paying premium by the policyholder. On payment of the due premium, a receipt is issued and this receipt indicates the date of next due. If this due premium is not paid, then that date becomes the date of FUP

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. This is done under an arrangement by which the employer or association agrees to collect the premium and remit them to the insurer.

Grace Period

A specified period after a premium payment is due, in which the policyholder may make such payment, and during which the protection of the policy continues

Graded Commission Scale

A commission scale providing for payment of high first-year commission and lower renewal commissions.

Gross Premium

The total premium paid by the policyholder.

Gross Rate

The sum of the pure premium and a loading element.

Group Contract

A contract of insurance made with an employer or other entity that covers a group of persons identified as individuals by reference to their relationship with the entity.

Group Insurance

Insurance covering a number of people under a single policy, issued to their employer with whom they are working.

Guaranteed Addition

These Additions are calculated at a pre-defined rate per every thousand of sum assured. They are added to the basic sum assured and are payable on admittance of claim. This benefit is allowed exclusively for each year for which premiums are paid.

Guaranteed Insurance Sum (GIS)

Guaranteed Insurance Sum is equal to purchase price paid for a pension along with final bonus that may be earned on the paid up amount.

Immediate Annuity

An annuity providing for payment to the beneficiary immediately.

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 unforeseen event occurs. Without insurable interest, an insurance contract is invalid.

Insurability

Insurability refers to all conditions pertaining to individuals seeking insurance; that affect their health, susceptibility to injury and life expectancy; an individual's risk profile.

Insured

This is term that refers to the individual, whose life is covered by a policy of insurance.

Lapsed Policy

This refers to a policy which has terminated and is no longer in force due to non-payment of the premium due.

Last Birth Day

Age at last Birthday

Lien

In some cases, extra risk is expected to decrease over a period of time. In such cases proposal is considered and accepted with lien. Lien operates throughout the period, on a decreasing basis. In the event of death, during the lien period the full sum assured is not payable. Eg: If 25% decreasing lien is imposed for 5 years. It is understood that in first year risk cover (sum assured payable) is only up to 75%,second year- 80%, third year-85%, fourth year 90%, fifth year 95%, and from sixth year onwards lien is not operative.

Life Assured

Life Assured refers to the person whose life is being insured.

Loyalty Additions

The loyalty addition is given upon the maturity of the policy, and not before. It is 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.

Maturity

The date on which the face amount of a life insurance policy, if not previously invoked due to the contingency covered (death), is paid to the policyholder.

Maturity Claim

The Payment made to the policyholder at the end of the chosen term of the policy is known as Maturity Claim.

Misrepresentation

The act of misrepresenting any terms, benefits or payments of a policy, deliberately misleading any interested public. It is the act of making, issuing, circulating or causing to be issued or circulated an estimate, an illustration, a circular or a statement of any kind that does not represent the correct policy terms, dividends or share of surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.

Moral Hazard

Moral Hazard is said to exist in the case where there is an apparent absence of a genuine need for a life insurance or when a proposal for insurance is submitted by an individual beyond his means.
It also indicates 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.

Near Birth Day

Age on nearest birthday

Nomination

An act by which the policyholder authorises another person to receive the policy monies. The person so-authorised is called Nominee.

Nominee/Beneficiary

Nominee is the person who is nominated to receive the amount under a policy and to give a valid discharge to the insurer on settlement of claim under a life insurance policy.

Non-Standard Life

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.

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.

Paid-up Insurance

Insurance policy on which all required premiums have been paid.

Paidup Value

Paidup value is the reduced amount of sum assured, paid by the insurer in case of discontinuation of the payment of premiums, after paying the full premiums for the first three years.

Paramedical Examination

Physical examination of an applicant by a trained person other than a physician.

Policy

This is the legal hardcopy document that has the conditions of the insurance contract, formally issued by the insurer in the name of the insured. This document has to be produced to the insurer during the term of the policy in case of any changes, claims, etc. made in relation with the policy.

Policy year

Period between a Policy's anniversary dates.

Policyholder's funds

Monies set aside by insurers to cover outstanding liabilities to Policyholders. Also known as technical reserves.

Policyholder's surplus

Amount over and above liabilities available for an insurer to meet future obligations to its policyholders.

Policyholder's surplus ratios

The difference between an insurers' asset and its liabilities divided by its liabilities. This is one measure of an insurer's financial strength.

Premium

The payment, or one of the regular periodic payments, that a policyholder 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).

Premium Back Term Insurance Plans

These provide for refund of all the premiums paid, in the event of the life assured surviving till the end of the policy term. The total sum assured is paid to the beneficiaries in the event death occurs during the policy term.

Premium Notice

Notice of a premium due, sent out by the company or one of its agencies to an insured. It is also referred to as "Renewal Notice".

Premium Waiver Benefit (PWB)

Premium waiver benefits are the benefits which can be availed under children's policies, wherein the future premiums payable up to the vesting date are waived in the event of death of the proposer before the vesting date.

Premium

Premium is the amount paid to secure an insurance policy.

Premium Waiver Benefit (PWB)

Premium waiver benefits are the benefits which can be availed under children's policies, wherein the future premiums payable up to vesting date are waived in the event of death of the proposer.

Proposal Form

It is a form which is to be completed for securing an insurance policy.

Proposer

Proposer is a person who proposes the insurance policy.

Rebating

Giving a consideration, usually all or part of the commission, to the prospect or insured as an inducement to buy or renew a policy. Rebating is officially prohibited, as it takes away from the earning of the agent.

Reduced Paid-up Insurance

A form of insurance available as a non-forfeiture option. It provides for continuation of the original insurance plan, but at a reduced amount.

Renewable Term Insurance

Term insurance which can be renewed at the end of the term, at the option of the policyholder and without evidence of insurability, for a limited number of successive terms. The rates increase at each renewal as the age of the insured goes up and apparent risk increases.

Revival

The process of the restoration of a lapsed policy to an in-force status. Revival can only occur after the expiration of the grace period. The company may require evidence of insurability (and, if health status has changed, deny Revival), and will always require payment of the total amount of past due premium.

Rider

A provision attached to a policy that adds benefits not available in the original policy or that changes the original policy.

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.

Salary Saving Scheme

This scheme provides for payment of premiums by money deduction from the salary of the employees by the employer.

Settlement Options

The several ways, other than immediate payment in cash, which a policyholder or beneficiary may choose to have policy benefits paid.

Sub Standard Risk

Person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate or dangerous habits.

Suicide Clause

Limitation in life insurance policies to the effect that no death benefits will be paid if the insured commits suicide during a specified initial period, usually the first one year of the policy.

Sum Assured

Sum assured is the amount that an insurer agrees to pay on the occurrence of a stated contingency (eg: Death).

Surrender Value

Surrender Value is the amount payable to the policy holder on his surrendering his right under a policy, and terminating the contract of insurance.

Survival Benefit

The payment of sum assured to the insured person which becomes due in instalments under a money back policy.

Target Pension

This is the amount of pension which one wishes to receive under a pension policy.

Term Insurance Rider

An endorsement or attachment to a life insurance policy that provides additional term coverage for only a specified, limited period. If the insured dies during this time, the designated beneficiary can receive death benefit proceeds.

Term Life Insurance

A form of life insurance which provides coverage for a specified period of time and does not build cash value.

Underwriting

The process of evaluating risks for insurance and determining in what amounts and on what terms the insurance company will accept the risk.

Unearned Premium

The portion of a premium that a company has collected but has yet to earn because the policy still has an unexpired time to run.

Unenforceable Contract

The contract, though a valid one cannot be enforced in a court of law because of lack of some evidential features.

Uninsurable Risk

That which is not acceptable for insurance due to excessive risk.

Vesting Bonus

It is the Bonus, which the insurer declares after evaluating its assets and liabilities, and that is added to the sum assured under a policy

Vesting Date

This is the date from which the life assured i.e., child becomes the absolute owner of the policy.

Void Contract

A contract obtained by fraud is a void contract. It is not a contract at all. Under this there cannot be any action as no rights or obligations are cast on the parties to the contract.

Voidable Contract

A contract, which is valid until it is treated as void by the aggrieved party, is a voidable contract. Usually in such an event, the insurer would be the aggrieved party and has the option to repudiate liability.