LIFE INSURANCE IN INDIA – III

Contents :
1. Glossary of Terms used in Life Insurance Business

GLOSSARY OF TERMS USED IN LIFE INSURANCE BUSINESS :

1. Accident - An event or occurrence causing damage/injury to an entity, and is
unforeseen and unintended.
2. Accident Benefit - Provides for payment of an additional benefit equal to the sum
assured in instalments on permanent total disability and waiver of subsequent
premiums payable under the policy.
3. Accidental Death benefit. A supplementary life insurance benefit offering a specified
amount of death benefit over and above the policy’s basic death benefit in the event
of the Insured’s Accidental Death.
4. Age Limits - Stipulated minimum and maximum ages below and above which the
company will not accept applications or may not renew policies.
5. Agent - An insurance company representative licensed by the state who solicits,
negotiates or effects contracts of insurance, and provides service to the policyholder
for the insurer.
6. 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.
7. Annuity - A contract under which the insurer promises to make a series of periodic
payments in exchange for a premium or series of premiums.
8. Application Form - Supplied by the insurance company, usually filled in by the agent
and medical examiner (if applicable) on the basis of information received from the
applicant. It is signed by the applicant and is part of the insurance policy if it is
issued.
9. Assignment - Assignment means legal transference (transfer). A method by which the
policy holder can person on his interest to another person. An assignment can be
made by an endorsement on the policy document or as a separate deed. Assignment
can be of two types – Conditional, Absolute.
10. Automatic Non-Forfeiture option - In case the policyholder does not elect for a non-
forfeiture option, the automatic non-forfeiture option operates as an automatic
premium loan arrangement, under which the insurance company advances an
amount from the policy cash value to pay the overdue premium. Such an
arrangement can continue only while the accumulated loan and interest is less than
the policy cash value.
11. 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.
12. Business Insurance - A policy which primarily provides coverage of benefits to a
business as contrasted to an individual. It is issued to indemnify a business for the
loss of services of a key employee or a partner who becomes disabled.
13. Cancellable - A contract of health insurance that may be cancelled during the policy
term by the insurer or insured.

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14. Cash Dividend Option - A policy dividend option that instructs the insurance company
to send the policy owner a cheque for the amount of policy dividend declared by the
insurance company’s board of directors.
15. Cash Value - The gross amount, before any deduction, that is to be refunded to the
policyholder upon termination of the policy while it is in force, in the event of
voluntary discontinuance or surrender.
16. Co-insurance –
a. A provision under which an insured who carries less than the stipulated
percentage of insurance to value, will receive a loss payment that is limited to
the same ratio which the amount of insurance bears to the amount required;
b. A policy provision frequently found in medical insurance, by which the insured
person and the insurer share the covered losses under a policy in a specified
ratio, i.e., 80 per cent by the insurer and 20 per cent by the insured.
17. 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.
18. Coverage - The scope of protection provided under a contract of insurance; any of
several risks covered by a policy.
19. Credit Life Insurance - A kind of term life insurance that pays the balance due on a
loan, if the insured borrower dies before repaying the loan.
20. Critical Illness (CI) Coverage - Is a supplementary policy benefit paying a lump sum
benefit to an insured diagnosed with any of the listed critical illnesses while the
policy is in force.
21. Days Of Grace - Policy holders are expected to pay premium on due dates. A period
is 15-30 days is allowed as grace to make payment of premium; such period is days
of grace.
22. Deferment Period - Period between the date of subscription to an insurance-cum-
pension policy and the time at which the first instalment of pension is received. Such
policies generally prescribe a minimum and maximum limit on the deferment period.
23. Deferred Annuity Plan - An annuity under which periodic benefits are scheduled to
begin more than one annuity period – i.e. more than 12 months – after the date on
which the annuity is purchased.
24. Defined Contribution Pension Plan - A Pension plan under which the benefits payable
on retirement are an accumulation with investment credits of the contribution paid
by Employer or Employee towards the Employee’s account.
25. 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 the time of loss.
26. Double/Triple Cover Plans - These offers to 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.
27. Elective Non-Forfeiture option - One of the choices available to a policyholder if he
discontinues premium payments on a policy with a cash value. This may be encashed
or continued as a reduced paid up insurance.

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28. Embezzlement - Fraudulent use or taking of another's property or money which has
been entrusted to one's care.
29. 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.
30. Excess And Surplus Insurance –
a. Insurance to cover losses above a certain amount, with losses below that amount
usually covered by a regular policy.
b. Insurance to cover an unusual or one-time risk, e.g., damage to a musician's
hands or the multiple perils of a convention, for which coverage is unavailable in
the normal market.
31. Exclusion - An insurance policy provision that describes circumstances under which
the insurance company will not pay policy benefits that otherwise would be payable.
Specific conditions or circumstances for which the policy will not provide benefits.
32. Face Amount - The initial Sum Assured of the Basic Policy, when the policy is issued.
If subsequently altered, the adjusted amount will then become the face amount.
33. Facultative Reinsurance - A type of reinsurance in which the reinsurer can accept or
reject any risk presented by an insurance company seeking reinsurance.
34. 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 other spouse and children, including
those born after the policy is issued
35. Fiduciary - A person who holds something in trust for another.
36. Fire Insurance - Coverage for losses caused by fire and lightning, plus resultant
damage caused by smoke and water. Flood insurance Coverage against loss resulting
from the flood peril, available at low cost under a programme developed by the
Central government.
37. 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.
38. Free-Look provision - The Free Look provision gives the Policy owner a right to cancel
his policy and obtain a refund of any premium(s) paid by giving a written notice to
the company. Such notice must be signed by the Policy owner and received directly
by the company along with the policy document, within 15 days from the date of
receipt of the policy document. The refund of premium is subject to deduction of
expenses incurred on medical examination of the Insured and Stamp Duty charges.
39. Grace Period - The period of 31 days from the due date, allowed for paying each
premium. The policy will remain in force during this period. If any premiums remain
unpaid at the end of the grace period, the policy shall lapse.
40. Gross Insurance Value Element (GIVE) - The amount payable on the deferred date
under Jeevan Dhara Life of Life Insurance Corporation of India. An annuity of 1% of
the GIVE is payable per month after the deferment period. And the entire GIVE is
payable on death after deferment period.

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41. 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
42. Guaranteed Insurance Sum (GIS) - A lump sum purchase price is given to purchase
future pensions under the 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.
43. Guaranteed Policies - These are policies where the payment stays fixed.
44. 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.
45. Insurability - All conditions pertaining to individuals that affect their health,
susceptibility to injury and life expectancy; an individual's risk profile.
46. 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 untoward event occurs. Without insurable interest, an insurance contract is
invalid.
47. 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.
48. Insured - A person covered by an insurance policy, for whom protection is provided
under the policy terms. Or simply the person whose life is covered by a policy of
insurance.
49. 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 lump sum amount to the
legal heirs.
50. Juvenile (Minor) Insurance Policy - An insurance policy taken on the life of a child but
owned and sponsored by an adult, usually the child’s parent or legal guardian.
51. Key Man 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.
52. Key Person Life Insurance - Insurance designed to protect a business firm against loss
of income resulting from the death of a key employee.
53. Lapse - The expiration or forfeiture of an insurance policy on account of non payment
of a due premium.
54. Lapsed Policy - A policy which has terminated and is no longer in force due to non-
payment of the premium due

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55. Life Assured - The person whose life is insured by an individual life policy is called life
assured.
56. 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.
57. 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 LICs effort to further share its surplus after valuation
with the policy holders, as LIC is a non-profit organization.
58. 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.
59. Maturity Claim - The Payment to the policy holder at the end of the stipulated term of
the policy is called maturity claim.
60. Minor - A person below the age of legal capacity, i.e. 18 years.
61. Misrepresentation - 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.
62. 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 lump
sum 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 types
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.
63. 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 affect the decision of the insurance company to accept the risk.
64. Nomination - An act by which the policy holders authorises another person to receive
the policy moneys. The person so authorised is called Nominee.
65. Non-Cancellable policies - Such policies stay in effect regardless of whatever that
might happen and as long as the premium is paid from time to time
66. Non-participating policy - An insurance policy where a policy owner does not share in
the insurance company’s profits. Also called a no-par policy.
67. Participating policy - An insurance policy where a policy owner shares in the
insurance company’s profits in the form of policy dividends. Also known as a par
policy.
68. Pension Plan - An agreement under which an Employer establishes a plan to provide
its Employees with a pension—a lifetime monthly income benefit that begins at
retirement.
69. Policy Anniversary - Refers to the same date each year on which coverage under the
insurance policy was effected.

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70. Policy Dividend - The share of an insurance company’s profits that the insurance
company pays to or credits to the owner of a participant policy.
71. Policy Owner - The person or organisation who owns a life insurance policy.
72. 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).
73. 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.
74. Premium - The sum paid by the policyholder to keep an insurance policy in force.
75. Reinstatement - The restoration of a lapsed policy to in-force status. Reinstatement
can only occur after the expiration of the grace period. The company may require
evidence of insurability (and, if health status has changed, deny reinstatement), and
will always require payment of the total amount of past due premium.
76. Reversionary Bonus - The additional benefit added to a life policy, as a percentage of
sum assured and payable on the maturity of the policy or the earlier death of the life
(???) insured.
77. 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.
78. Salary Saving Scheme (SSS) – This scheme provides for payment of premiums by
money deduction from the salary of the employees by one employer.
79. 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, and residence in unhealthy climate or dangerous habits.
80. 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.
81. Surrender - The voluntary discontinuance of a policy by the insured.
82. Survival Benefit - The payment of sum assured to the incurred person which has
become due by instalments under a money back policy.
83. Third-Party Administrator (TPA) - An entity other than an insurance company that
provides specified administrative services to the insurance company, e.g. for claims
management.
84. Vesting Age - The age at which the receipt of pension starts in an insurance-cum-
pension plan.
85. Waiver of Premium for Disability (WP) Benefit - A supplementary life insurance policy
benefit where, if the insured suffers from Total Permanent Disability during his
lifetime and while the policy is in force, future premiums corresponding to the Basic
Policy are waived.
86. Waiver of Premium for Payor Benefit - A supplementary life insurance policy benefit
offered with certain juvenile insurance policies, where, if the payor dies or is

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 completely disabled during his lifetime and while the policy is in force, future
premiums corresponding to the Basic Policy are waived.
87. Whole Life Insurance - A type of life insurance where the insured pays a fixed
premium throughout his life and after his death, the sum assured is paid to his
nominee and legal representative.
88. 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 )
89. Without-Profit policy - These policies are not entitled to participate in bonuses.
90. With-Profit policy - Policies entitled to bonus, which is paid at the time of claim-death
or maturity one with-profit policies.
Note: All definitions in this Glossary are meant merely as generic explanations posted for
educative purposes only. No responsibility is taken for the exact legal interpretation of
these definitions or for any reliance you may take on this information. The meanings of
the terms vary from time to time and from company to company. For example, a Policy
Statement can be called Policy Wordings, Sum Assured can be called Face Amount. Also
new words are coined continually. For exact meanings, please refer to the relevant policy
contract offered by the Insurance Companies.

REFERENCE
1. IRDA Website.
2. LICI Website.
3. Websites of other Private Insurance Companies.

[ End of Part 3 of 4. To be concluded in Part IV ]

Himansu S M / 22-Feb-2009