Life insurance practice and products
Domain 2: Life insurance practice and products
This domain tests how life contracts are structured, underwritten and serviced. Questions cover term, whole life, endowment, money-back, annuity and ULIP designs; proposal and underwriting; premium payment; nomination and assignment; policy loans, surrender, revival and claims.
Core rules
- Term assurance pays only on death within the term; endowment pays on death or maturity; money-back pays survival benefits at intervals; whole life pays on death whenever it occurs; annuity addresses longevity risk; ULIP separates risk cover from investment and discloses charges.
- Underwriting classifies risk by age, health, occupation, habits and sum assured; standard, substandard and declined lives attract different terms.
- Nomination names a person to receive the claim proceeds but does not transfer ownership; assignment transfers the policy rights.
- Grace period is generally 30 days for yearly, half-yearly and quarterly modes and 15 days for monthly; revival may require evidence of health and payment of arrears.
- Death claims are classified as early, non-early and accidental; the insurer verifies documents and policy status.
Worked example
A 20-year endowment policy has a sum assured of ₹5 lakh. After four yearly premiums, the policy lapses. Under the paid-up formula, paid-up value = sum assured × premiums paid ÷ total premiums = ₹5,00,000 × 4/20 = ₹1,00,000. The policy continues for a reduced sum assured of ₹1 lakh, payable on death or maturity, without further premiums. If the policy had acquired surrender value, the insured could instead surrender it for a lower cash amount.
Traps
- Saying a nominee is the owner of the policy.
- Treating ULIPs as pure protection or ignoring charges.
- Forgetting that revival is not automatic and may need underwriting.
- Stating that lapsed policies always pay the full sum assured.