IC-38 Life key terms

A contract in which the insurer pays a stated sum to a named beneficiary when the insured person dies, in exchange for premiums paid by the policyholder during the policy's life.

The person who owns a life insurance policy, pays its premiums, and holds the legal right to change the nominee, surrender the policy, or assign it. This may differ from the person whose life is covered.

The individual whose life is covered by the policy. The death benefit becomes payable when this person dies, provided the policy is in force and all conditions are met.

The person named by the policyholder to receive the policy money on the death of the life assured. Under Indian law, a nominee is a trustee for the legal heirs rather than the absolute owner of the benefit.

The person entitled to receive the death benefit under a life insurance policy. In India this is usually the nominee, who collects the money on behalf of the legal heirs of the deceased.

The base amount of cover stated in the policy schedule on which benefits and premium are calculated. It is not necessarily the total amount payable, because bonuses and riders may add to it.

The consideration paid by the policyholder to keep a life insurance contract in force. It may be paid as a single lump sum or at regular intervals such as monthly, quarterly, half-yearly or annually.

The amount the insurer pays when the life assured dies while the policy is in force. It typically equals the sum assured plus accrued bonuses, or a higher statutory minimum, depending on the product.

The amount paid to the policyholder if the life assured survives to the end of the policy term, for products that provide survival benefits. Pure term insurance plans pay nothing on survival.

A life insurance plan that provides death cover for a fixed period without any survival or maturity payment. Because it has no savings element, it usually offers the largest cover for the lowest premium.

A life insurance plan that pays the sum assured either on death during the term or on survival to maturity. It combines protection with a savings element, so premiums are higher than for pure term cover.

A life insurance product in which part of the premium buys life cover and the rest is invested in market-linked funds chosen by the policyholder. The investment value rises or falls with underlying asset prices.

The market value of the investment units held in a unit linked insurance plan at any date, calculated by multiplying the number of units by the net asset value of the chosen fund.

The per-unit price of an investment fund, obtained by dividing the fund's total assets minus liabilities by the number of units outstanding. Insurers typically publish NAV daily for unit linked funds.

A share of surplus that a participating life insurance policy receives from the insurer, usually declared annually and paid at death or maturity. It is not guaranteed and depends on the insurer's valuation results.

A participating policy that is eligible to receive bonuses declared by the insurer from the surplus of its participating business. Bonuses may be simple reversionary, compound reversionary or terminal in form.

The amount an insurer pays to the policyholder if the policy is voluntarily terminated before maturity or death. It is usually available only after premiums for a minimum period, such as two years, have been paid.

The reduced sum assured that continues to be payable on death or maturity after the policyholder stops paying premiums but has paid enough to keep the policy active. Further premiums are not required.

The status of a policy that stops being in force because premiums were not paid within the grace period and no surrender or paid-up option was exercised. Lapsed policies provide no cover until revived.

The extra time allowed after a premium due date, typically 15 days for monthly modes and 30 days for other modes, during which the policy stays in force even though the premium is unpaid.

The process of restoring a lapsed policy to full force by paying overdue premiums with interest and, where required, providing evidence of good health or other underwriting information.

A period, commonly 15 to 30 days from receipt of the policy document, during which the policyholder may cancel a new policy and receive a refund of premium less charges. It protects buyers from unsuitable purchases.

The formal written contract issued by the insurer setting out the terms, conditions, exclusions, schedule of benefits and premium details. It must be read together with the proposal form and any endorsements.

The application form completed by a person seeking insurance, containing personal, health, occupation and family details. It forms the basis of the insurance contract and must be answered truthfully and completely.

Any information that would influence a prudent insurer's decision to accept a risk or to set its terms and premium. The proposer must disclose all material facts, whether or not a question asks about them.

The principle that both parties to an insurance contract must deal honestly and disclose all relevant information. Unlike ordinary contracts, the proposer has a duty to volunteer material facts to the insurer.

Failure by the proposer to reveal a material fact when applying for insurance. Depending on the law and the insurer's practice, it can lead to the contract being avoided or a claim being reduced or rejected.

A false or misleading statement made by the proposer during the insurance application. If it concerns a material fact, the insurer may treat the contract as void and decline to pay a claim.

A financial or legal relationship in which a person benefits from the continued life of another or suffers loss from that person's death. It must exist when the policy is taken out and is a legal requirement.

The process by which an insurer assesses a proposed risk, using health, lifestyle, occupation and financial information, to decide whether to accept it and on what terms, premium or exclusions.

The rate at which people of a given age die within a defined period, usually expressed per thousand lives. Insurers use mortality tables to price life cover and to calculate reserves.

A professional who applies mathematics and statistics to insurance, calculating premiums, reserves, bonuses and solvency requirements. Appointed actuaries also certify the insurer's financial condition to the regulator.

Money set aside by an insurer to meet future obligations to policyholders. Reserves are calculated using actuarial assumptions and are a key measure of the insurer's ability to pay claims.

The excess of an insurer's assets over its liabilities, measured against a required minimum set by the regulator. It indicates the insurer's financial strength and ability to honour policyholder claims.

An optional benefit attached to a basic life insurance policy for an extra premium, such as accidental death, critical illness or waiver of premium. It operates only alongside the base policy.

The transfer of the rights of a policyholder under a life insurance policy to another person or entity, either outright or conditionally. It is commonly used to secure a loan or as part of a commercial arrangement.

The process by which an insurer examines a claim, verifies documents and policy conditions, and pays the benefit due or gives reasons for rejection. Timely settlement is regulated and monitored by the authority.

The statutory regulator for insurance in India, responsible for licensing insurers and intermediaries, protecting policyholders, and issuing regulations on products, conduct and solvency. It does not sell insurance itself.

A licensed intermediary who solicits and procures life insurance business on behalf of an insurer, advises prospects and helps with applications. The agent must hold a valid licence and follow prescribed conduct rules.

The remuneration paid by an insurer to an agent or intermediary for the business they bring in, usually a percentage of the premium. Rates are subject to regulatory limits set to protect policyholder interests.