FAQs

What do you mean by Guaranteed Additions?

In case of some policies, the Life Insurance Corporation provides the policyholder with the bonus or the profits declared as a certain amount per thousand of sum assured. This assured bonus will be given to the policyholder whatever be the performance of the corporation for the period in question. These are Guaranteed Additions and are paid at the end of the term of the policy or in case of the early death of the policyholder.

What are Loyalty Additions?

In addition to the Guaranteed Additions for certain policies the Life Insurance Corporation declares further additions, which benefits the policyholder. This is usually an amount declared per thousand of sum assured every five years, depending on the corporation’s performance. This is known as Loyalty Addition.

What is Surrender Value?

When a policyholder wishes to encash his policy due to urgent need of cash he returns back the policy to the insurer for which is entitled to an amount. This is called surrender of policy or termination of the policy before the stipulated period. Policies can be surrendered provided it is kept in force for atleast 3 years. If it has been in force for five years the bonus is also added to the surrender value.

How do I revive a lapsed policy?

A lapsed policy can be revived during the lifetime of the assured, but within a period of 5 years from the due date of the first unpaid premium and before the date of maturity. Revival of a lapsed policy is considered either on non-medical or medical basis depending upon the age of the life assured at the time of revival and the sum to be revived. If the revival of the policy is completed by payment of over-due premium within 14 days from the expiry of the grace period, only the late fee for one month has to be paid.

When does a policy lapse?

If the policyholder fails to pay his premium within the days of grace provided after the due date, the policy lapses. The grace period in case of yearly, half-yearly and quarterly modes of payment is one month and in case of the monthly mode of payment, the grace period is 15 days.

Is there a difference between an Agent and a Broker?

Yes, there is a difference. An agent is the representative of the insurance company but the broker is the representative of the consumer or policyholder.

Is there any other benefit of buying insurance other than the risk cover?

There are several benefits of buying insurance. Other than the risk cover the most important you receive Income Tax Relief under Section 88 of the Income Tax Act, which means premiums paid by you, reduces your tax liability. Such exemptions are also available for premiums paid on health covers.

Besides it helps you build up compulsory savings.

Also through a valid assignment the beneficiaries of the policy are protected from claims of creditors. Life insurance policies can also be a great source of help as a security while availing of loans. One could also surrender his policy in case of emergencies.

For a policy taken under the MWP Act 1874, (Married Women's Property Act), a trust is created for wife and children as beneficiaries.

Who are Insurance Brokers?

An insurance broker would provide the following:

Pre sales and after sales service to the customers.

Provisions of relevant information to the underwriters to assess the risk and decide the premium.

Design covers that meet the client requirements.

Recommend risk improvement and loss minimisation measures.

Provide risk management and insurance education. Collection of premiums.

Which policy qualifies for Bonus eligibility?

Bonus is payable on all profits' policies of LIC

The amount of bonus for each Rs.1000/- sum assured in respect of Whole Life with Profits' policies is 125 percent of corresponding bonus amount for Endowment with Profits' Assurance policies

Bonus is payable once a policy has been in force for the full sum assured for a period of 5 years from the date of commencement of the policy

However, in case of a death claim within 5 years bonus is payable if the policy is in force for the full sum assured. Basically, a policy must be kept in full force for at least 5 years for it to be eligible for bonus unless a death claim were to arise within this period as a result of the death of a policyholder.

What is the Double Accident Benefit (DAB)?

Upon payment of an additional premium of only Re.1/- per annum against a sum assured of Rs.1000/-, you could opt for a very attractive Double Accident Benefit.

The benefit provides for the payment of an additional amount equal to the sum assured in the case of death of a policyholder owing to any accident. The death claim under Double Accident Benefit becomes double of the normal claim.

If owing to an accident, a permanent and total disability occurs to the life assured, all the subsequent premiums are waived off and the policy is still kept in full force. Additionally, LIC will pay the policyholder an amount equal to the original sum assured through monthly installments spread over 10 years. Upon maturity of the policy, the sum assured and the accumulated bonus amount is payable as well.

To be eligible for this benefit, the policy should be in full force for the full sum assured before the policy anniversary and the life assured must not be over 70 years of age either.

What is Nomination ?

When you make a nomination within your life insurance policy, as the policyholder you still continue to be the owner. However after your death, the nominee who did not have any right under the policy while you were alive becomes the rightful recipient who will receive the policy monies. He or she may not be the rightful heir in which case the legal heir can implement his rights and claim the monies from the nominee.

What is Assignment of a policy?

If your intention is that your policy monies should go to a particular person only then you need to assign the policy in that person's favour. Thereafter the insurer will pay the policy monies ONLY to the assignee who becomes its owner, irrespective of whether he or she is your legal heir.

Thanks to assignments, the proceeds of a policy can be protected against the claims of any of the policyholder's creditors. Assignment is a legal instrument and the insurer cannot be held responsible for its legal liability. The insurer will nevertheless register the assignment in its books.

What is a Paid-up policy?

According to LIC rules and regulations, once you pay the premiums on a life insurance policy for 3 full years, the policy does not become wholly void even if no subsequent premiums are paid.

Such policies are known as paid-up policies. In such cases, the sum originally assured is reduced to a sum bearing the same ratio to the full sum assured as the number of premiums actually paid to total number of premiums originally stipulated as payable under the policy.

If 6 out of the originally stipulated 30 premiums are paid, the sum assured under a paid-up policy would still be 20 percent of the original sum assured by the policy.

How is the Paid-up value of policy calculated?

The paid-up value of a policy is the reduced sum assured calculated on a proportionate basis by using a simple formula

Paid-up Value=(No of premiums paid/Total no of premiums payable) x Sum Assured

What benefits are not accrued to a Paid-up policy? A paid-up policy loses all the additional benefits attached to the policy:

Double Accident benefits

Survival benefit installments in the case of money-back policies

A paid-up policy may be free from payment of further premium but is subject to the payment of interest on any loan and other charges, if any are applicable. The interest on the loan must be paid regularly or LIC will start write off the policy towards the repayment of loan amount and the interest in terms of the conditions governing the grant of the loan.

Should you allow your policy to become a Paid-up one?

NO. Once a policy becomes a paid-up one, the sum assured is reduced to such a pitiful figure that it cannot provide any cover to the policyholder or his dependants. Besides, you should also consider the facts that

The cost of insurance goes up with advancing age. The next time you obtain a policy, the terms will not be as advantageous as available earlier.

The chances of insurability also diminish with the advancement of age despite the fact that insurance is needed more along with increasing age and growing responsibilities

The reinstatement of a policy once converted into a paid-up policy requires numerous cumbersome formalities to be completed

A paid-up policy cannot participate in the bonus declared by LIC

LIC will not issue a fresh policy for at least 3 years in case an earlier policy of yours stands lapsed or was converted into a paid-up one.

It is strongly advised that you should NOT allow any of your policies to become paid-up policies.