IC-38 Life cheat sheet

Life insurance is a contract of utmost good faith (uberrimae fidei): both proposer and insurer must disclose all material facts; non-disclosure or misrepresentation can make the policy voidable.

Insurable interest must exist at the time of proposal (for own life it is presumed); a person has insurable interest in own life, spouse, and dependants, and an employer in key employees.

Principle of indemnity does not apply to life insurance: a life is not measurable in money, so the sum assured is paid as agreed rather than as reimbursement of loss.

Utmost good faith, insurable interest, proximate cause, and contribution (rarely applicable to life) are the core principles; subrogation does not apply to life policies.

Risk is the uncertainty of loss; peril is the cause of loss; hazard is a condition that increases the chance or severity of loss (physical, moral, morale).

Moral hazard includes fraud or intent to gain from loss; morale hazard is carelessness or indifference; both raise premium loading.

Pure risk has only loss or no-loss outcomes and is insurable; speculative risk (profit or loss) is generally not insurable.

A premium is the consideration for the insurer's promise; it comprises mortality cost, interest/expense assumptions, and loadings for expenses, contingency, and profit.

Material facts must be disclosed: age, health history, occupation, habits, family history, other policies, and hazardous pursuits; age misstatement adjusts benefits under policy terms.

Term insurance pays the sum assured only if death occurs within the term; it has no cash value and is the lowest-premium pure protection product.

Whole life insurance covers the whole of life with a guaranteed sum assured and builds cash value; premiums may be level for life or limited-payment.

Endowment policies pay the sum assured on survival to maturity or on earlier death; they combine protection with savings and carry higher premiums than term.

Money-back policies pay a percentage of the sum assured at specified survival intervals, with the full sum assured payable on death or at maturity.

ULIPs are unit-linked: premiums are invested in funds chosen by the policyholder; investment risk is borne by the policyholder and charges are disclosed separately.

An annuity is the opposite of life insurance: it liquidates a capital sum into periodic payments; a life annuity pays for life and ceases on death.

Participating (with-profits) policies share in surplus through bonuses: reversionary bonus attaches to the sum assured, terminal bonus is paid on maturity or death, and interim bonus applies on death between valuation dates.

Riders extend cover for an extra premium: critical illness, accidental death, waiver of premium, and term rider; rider benefits are usually capped as a percentage of the base sum assured.

Group insurance covers a defined group under one master policy with limited underwriting; individual members receive a certificate, not a policy document.

Underwriting classifies risk to decide acceptance and premium: standard, substandard (rated up or with exclusions), or declined; the basis is the proposal form, medical reports, and agent's confidential report.

The proposal form is the basis of the contract; answers given become warranties of truth, and the proposer signs a declaration confirming accuracy.

A free-look period (typically 15-30 days from receipt of the policy) allows the policyholder to return the policy for a refund of premium less proportionate risk charges.

The policy document contains the schedule, recitals, operative clause, definitions, exclusions, conditions, and endorsements; the schedule states sum assured, premium, term, and nominees.

Grace period (usually 15-30 days) allows premium payment after the due date without lapse; if death occurs in grace period, the claim is paid after deducting unpaid premium.

A lapse occurs when premium remains unpaid beyond the grace period; revival (reinstatement) restores the policy on payment of arrears with interest and evidence of continued insurability.

Non-forfeiture options on lapse of a savings policy include surrender value, paid-up value (reduced sum assured for the full term), and automatic premium loan where permitted.

Nomination names a person to receive the policy money on the policyholder's death; the nominee is a trustee/collector, and the benefit is payable to legal heirs if no valid nomination exists.

Assignment transfers the rights of the policy to another person (absolute or conditional); a conditional assignment can be cancelled, an absolute one cannot, and assignment must be notified to the insurer.

Death claims are either early (within the contestability period, usually 3 years) or non-early; early claims are scrutinised for misrepresentation, non-disclosure, or suicide exclusion.

The suicide exclusion typically limits payment to premiums paid (or a percentage of sum assured) if death by suicide occurs within 12 months of commencement or revival.

Claim documents for death: claim form, death certificate, original policy, proof of age, nominee/legal heir proof, and medical or police records where required.

Section 45 of the Insurance Act, 1938 bars the insurer from repudiating a policy after 3 years from issuance (or revival) on the ground of misstatement or fraud, unless fraud is proved.

Maturity claims are paid when the policy survives the term; the insurer must pay interest for delay beyond the stipulated period.

Surrender value is paid when the policyholder discontinues a savings policy after it acquires value; guaranteed surrender value is a percentage of premiums paid, and special surrender value applies after a minimum period.

Policy loans are granted against surrender value within limits (often up to 90% of surrender value) with interest; unpaid loan and interest are deducted from the claim.

Duplicate policies are issued on loss of the original after an indemnity bond, advertisement, and fee; alterations (name, address, nominee) are made by endorsement.

The ombudsman mechanism allows a policyholder to complain against an insurer's decision up to a prescribed monetary limit, with an award binding on the insurer if accepted by the complainant.

The agent acts as a representative of the insurer to procure business; the agent's authority is defined by the appointment and the agency contract, not by the policyholder.

IRDAI regulations require agent licensing/training and mandate that commissions and remuneration are disclosed; the agent must not rebate commission to the prospect.

The agent must disclose the insurer's name, policy features, exclusions, and charges before sale, and must collect accurate information in the proposal form without aiding misrepresentation.

Prohibited conduct includes rebating, misrepresentation of policy terms, twisting (inducing replacement of an existing policy), and submitting a false proposal or forged documents.

The sales process: prospecting, approach and appointment, fact-finding and needs analysis, presentation of a suitable solution, handling objections, closing, underwriting follow-up, and delivery of the policy with a free-look explanation.

Fact-finding identifies income, dependants, liabilities, existing cover, and goals; needs analysis estimates the appropriate sum assured and budget before recommending a product.

The agent must explain the free-look period and ensure the policy is delivered to the policyholder, with the nomination completed and the premium mode confirmed.

Confidentiality applies to client information; the agent must not use it for personal gain or disclose it without consent.

An agent who violates the code of conduct faces penalties including suspension or cancellation of licence and forfeiture of renewal commissions.

Mortality tables show the rate of death at each age; the premium is based on expected claims discounted at an assumed interest rate plus expense loading.

Net single premium equals the present value of expected death benefits; level annual premiums spread this over the premium-paying term using annuity factors.

The reserve (liability) is the present value of future benefits minus the present value of future net premiums; it grows over the policy term and funds maturity and surrender payments.

The mortality rate qx is the probability of death within a year at age x; the survival probability is px = 1 - qx, and lx is the number of lives surviving to age x.

The asset share is the accumulated value of premiums less expenses and claims per policy; it is compared with surrender value and reserve to manage profitability.

Solvency margin is the excess of assets over liabilities measured against the required solvency ratio; insurers must maintain the prescribed solvency ratio at all times.

Expense loading covers acquisition costs, administration, and commissions; the first-year premium carries the highest loading, which is why lapse in early years causes losses.

Interest assumption is critical: a lower assumed interest rate raises premiums, and a higher rate lowers premiums but increases the risk of not meeting guarantees.

Actuarial valuation determines reserves and surplus; surplus is distributed as bonuses or dividends in participating business and retained as free reserves otherwise.

Under Section 80C of the Income Tax Act, premiums paid on life policies for self, spouse, and children qualify for deduction within the overall limit, subject to the sum assured-to-premium condition.

Under Section 10(10D), maturity proceeds and death benefits are generally exempt, provided the annual premium does not exceed the prescribed percentage of the sum assured; otherwise the excess is taxable.

Premiums on policies for a handicapped dependant may qualify under Section 80DD, and under Section 80U for the policyholder's own disability, subject to conditions.

The sum assured-to-premium condition for tax exemption is commonly 10% (or 15% for policies issued after the specified date for persons with disability or specified diseases).

A nomination must be made by the policyholder; a valid nomination ensures the policy money is paid to the nominee, but the nominee holds it for the legal heirs unless the nomination is beneficial.

Under the MWP Act, 1874, a married man may effect a policy for the benefit of his wife and children; the policy is protected from creditors and cannot be surrendered or attached.

A minor cannot contract; a policy on a minor's life is effected by a parent or guardian, and on maturity the proceeds are paid to the guardian or the major on attaining majority.

The Insurance Act, 1938, the IRDA Act, 1999, and IRDAI regulations govern licensing, conduct, solvency, and policyholder protection.

Fraud or misrepresentation in the proposal permits repudiation within the contestability period, but protection under Section 45 applies after three years unless fraud is proved.

Prospecting methods include referred leads, centres of influence, cold canvassing, direct mail, and social networking; a lead becomes a prospect only if it has need, ability to pay, and insurability.

Qualifying a prospect uses the three tests: need for insurance, ability to pay premiums, and insurability (health, age, occupation, habits).

The approach should be by appointment, with a clear statement of purpose; the agent must identify himself or herself and the insurer.

Objections are handled by listening, clarifying, and answering with facts; price objections are addressed by comparing value and needs rather than by cutting cover.

Customer service includes premium reminders, address and nominee updates, claim assistance, and periodic policy reviews; service quality drives referrals and persistency.

Persistency is the proportion of policies retained in force; low persistency harms the policyholder, the insurer, and the agent's renewal commission.

Ethical practice requires placing the client's interest first, avoiding twisting and churning, and recommending products suited to the client's needs rather than to commission.

The agent must keep records of proposals, receipts, and client communications, and must remit premiums collected to the insurer without delay.

Complaints should be acknowledged and routed to the insurer's grievance redressal officer, then to the ombudsman if unresolved within the prescribed period.