III IC-81 cheat sheet

Underwriting is the process of classifying risks into homogeneous groups so that each policyholder pays a premium commensurate with the risk he or she brings to the pool; the underwriter's output is a classification decision (standard, substandard, postpone, decline), not a price.

Mortality risk factors split into personal (age, sex, health history, family history, build, habits), occupational (hazard class of employment), and environmental/residential; each factor is assessed for its effect on expected mortality relative to the standard life.

Numerical rating method: assign debit points for adverse factors and credit points for favourable ones; the algebraic sum converts to a mortality rating expressed as a percentage of standard (e.g. +75 debits = 175% of standard mortality).

Table rating (A to J or 1 to 10) applies a multiple of standard mortality (each table typically adds 25% mortality in many markets); flat extra is a fixed addition per mille of sum assured for a stated number of years, used for temporary or non-mortality risks such as aviation or hazardous pursuits.

Financial underwriting tests whether the sum assured is justified by income replacement, human life value, or business need; over-insurance creates moral hazard and is a principal reason for limiting or declining cover.

Moral hazard and anti-selection indicators include non-disclosure, frequent policy churning, unusual beneficiary arrangements, and third-party premium payment; these are assessed alongside medical risk and may justify decline regardless of physical health.

Medical examination requirements are graduated by age and sum assured (e.g. proposal alone at young ages and low sums, medical examiner's report at higher bands, special reports such as ECG or blood profile at the highest bands); the underwriter may also call for an attending physician's statement.

Standard substandard classifications: increased mortality risk (rated or excluded), occupational hazard (extra premium or exclusion), and declined risk; postponement is used where the impairment is temporary or where treatment outcome is awaited.

Non-medical limits, revival underwriting, and claims-stage underwriting differ from new-business underwriting: revival requires fresh evidence of insurability, and claims underwriting checks non-disclosure and policy conditions before admission.

Term assurance pays the sum assured only on death within the term and builds no cash value; variants are level term, decreasing term (often used with mortgage or loan cover), increasing term, renewable term, and convertible term.

Whole life pays on death whenever it occurs; premiums may be payable for life or limited to a fixed period, and policies may be with or without profits (participating or non-participating).

Endowment assurance pays the sum assured on death within the term or on survival to maturity; it combines protection with savings and therefore carries a higher premium than term for the same sum assured.

Money-back (cash-back) policies pay a percentage of the sum assured at stated survival intervals while keeping the full sum assured payable on death, with premiums higher than an equivalent endowment.

Participating policies distribute surplus through bonuses: reversionary bonus (simple or compound, added to the sum assured and payable at death/maturity) and terminal bonus (paid only on death or maturity, not on surrender).

Unit-linked insurance plans (ULIPs) separate the risk fund from the investment fund; the policyholder bears investment risk, charges include premium allocation, policy administration, fund management, mortality and surrender charges, and the regulator prescribes minimum lock-in and charge caps in India.

Annuities are the reverse of life insurance: the insurer liquidates a capital sum over a lifetime; immediate vs deferred, and life annuity vs annuity certain, determine whether payments stop at death or continue to a nominee for a guaranteed period.

Group insurance covers many lives under one master policy with a single premium rate, typically one-year renewable term; individual evidence of insurability is usually not required, and experience rating may adjust future premiums.

Key product-selection variables are need (protection, savings, retirement), affordability, term, tax treatment, and inflation; an inflation-indexed or increasing benefit option addresses erosion of real cover value.

Net (pure) premium = present value of expected benefits ÷ present value of an annuity due of 1 per annum payable while premiums are paid, computed on a mortality table and an assumed interest rate.

Gross (office) premium = net premium + expense loading + contingency/risk margin + profit margin; expense loading covers commission, administration, and acquisition costs, which are front-loaded.

Mortality table lx columns give the number living at age x; the probability of death in year x is qx = (lx − lx+1)/lx, and the probability of survival is px = 1 − qx.

Level premium works because mortality rises with age while the premium stays constant; the excess collected in early years builds the reserve that funds the higher cost of claims in later years.

Prospective reserve = present value of future benefits − present value of future net premiums; retrospective reserve = accumulated past premiums − accumulated past claims (cost of insurance). Both are equal on the same valuation basis.

Reserves are calculated on a conservative valuation basis (valuation interest rate, valuation mortality table, and expense assumptions); a lower valuation interest rate produces a higher reserve.

Terminal reserve (the reserve at the end of a policy year) is the reserve carried forward; Zillmerised reserves deduct the unrecouped acquisition cost from the first-year reserve so that early reserves are not negative.

Surplus = actual experience (interest, mortality, expenses, lapses) minus assumed experience; sources of surplus are interest, mortality, and expense gains, and surrender/withdrawal gains.

Asset-liability matching: long-duration liabilities such as annuities and whole life are matched with long-dated bonds; a fall in interest rates increases the present value of liabilities and can strain solvency.

Utmost good faith (uberrimae fidei) obliges the proposer to disclose all material facts; a material fact is one that would influence a prudent underwriter's decision or the premium charged.

Insurable interest must exist at inception of a life policy (presumed for self, spouse, and dependent); for property insurance it must exist at the time of loss as well.

Non-disclosure and misrepresentation render a life policy voidable; in India, Section 45 of the Insurance Act, 1938, restricts repudiation after three years from issuance, date of revival, or rider addition, whichever is later, except for fraud.

The policy document contains the preamble, schedule (sum assured, premium, term, nominee), operative clause, conditions, exclusions, and privileges (grace period, surrender, loan, revival, nomination).

Grace period typically 30 days (15 days for monthly mode) allows payment of premium after the due date without lapse; risk cover continues during the grace period for most conventional policies.

Free-look period allows the policyholder to return the policy within a stated period (typically 15 or 30 days depending on channel) for a refund of premium less proportionate risk and expenses.

Nomination under Section 39 and assignment under Section 38 of the Insurance Act, 1938, govern who receives the policy money and transfer of rights; a nominee is a trustee-like recipient, not necessarily the beneficial owner.

The IRDAI (Insurance Products) Regulations and the IRDAI (Protection of Policyholders' Interests) Regulations prescribe product filing, disclosure, grievance redressal, and the role of the Insurance Ombudsman.

Insurable-interest, disclosure, and policy-condition disputes are decided on the contract wording and statute; agents and intermediaries must disclose commissions and cannot rebate premium under Section 41 of the Insurance Act, 1938.

Death claim documents typically include the claim form, death certificate, original policy, proof of age and identity, nominee/legal heir proof, and medical or hospital records where relevant.

Early claims (death within a short period from commencement or revival, commonly up to three years) attract detailed investigation; non-early claims are settled on the basis of documents unless there is doubt.

Claim investigation verifies the cause of death, the accuracy of the proposal declarations, the validity of premium payment and revival, and the identity of the claimant; the investigator reports facts, not a decision.

Section 45 of the Insurance Act, 1938, limits repudiation for non-disclosure after three years; claims within three years may be repudiated if material facts were suppressed or misrepresented.

Suicide exclusion clauses bar payment if death by suicide occurs within a stated period (commonly 12 months) from inception or revival; after the exclusion period the full sum assured is payable.

Maturity claims are payable on survival to the maturity date; the insurer must intimate the maturity value and settle on receipt of discharge and policy documents, with interest for delay beyond the prescribed period.

Survival benefit claims under money-back policies are paid at stated intervals; surrender claims pay the surrender value (guaranteed plus special surrender value) and terminate the contract.

The IRDAI prescribes claim settlement timelines: a claim must be settled within 30 days of receipt of all documents, and where investigation is needed, within 45 days; interest is payable for delay.

Repudiation must state the specific grounds and be communicated in writing; the claimant may approach the insurer's grievance cell, the Insurance Ombudsman, or consumer forums.

An insurance agent must hold a valid licence from IRDAI, meet the prescribed minimum qualification and training requirements, and pass the insurance agent examination before appointment.

The agent's code of conduct prohibits misrepresentation, rebating of commission, and inducing policy lapse or replacement without disclosure; breach can lead to cancellation of licence.

Commission rates on life insurance are capped by IRDAI regulation and vary by product type and policy year; commission must be disclosed to the prospect as required by the product and conduct regulations.

The agent must collect the premium through official channels and issue a proper receipt; premium must be remitted to the insurer promptly and never held in a personal account.

A corporate agent, insurance broker, web aggregator, and bancassurance partner are distinct intermediary categories with separate registration requirements and permitted activities.

Replacement or churning of a policy requires a declaration that the existing policy is being replaced and disclosure of the disadvantages; the insurer must inform the policyholder of the financial implications.

The agent must complete the proposal in the proposer's presence, explain the product and exclusions, verify identity, and record answers accurately; the agent cannot answer health questions on the proposer's behalf.

Grievances received by the agent must be forwarded to the insurer; the agent is not an officer of the insurer and cannot bind the insurer to cover or promise claim settlement.

Risk categories for a life insurer: underwriting (mortality/morbidity) risk, investment/market risk, credit risk, liquidity risk, operational risk, and reputational risk.

Retention is the maximum amount the insurer keeps on a single life; amounts above retention are reinsured; retention limits are set per life and per event.

Reinsurance types: proportional (quota share, surplus) and non-proportional (stop-loss, catastrophe cover); facultative reinsurance is arranged case by case, treaty reinsurance covers a class automatically.

Risk-based capital and solvency margin: the solvency ratio = available solvency margin ÷ required solvency margin; IRDAI prescribes a minimum control level of 150% for life insurers in India.

The required solvency margin is based on a factor approach applied to mathematical reserves and to the sum at risk (capital charge for mortality and expense risks).

Catastrophe and accumulation risk arise when many insured lives are exposed to a single event (epidemic, disaster); reinsurance and geographic diversification mitigate accumulation.

Asset-liability management matches cash inflows from premiums and investments with claim outflows; duration gaps create interest-rate risk.

Enterprise risk management includes risk identification, measurement, monitoring, and reporting to the board; the Appointed Actuary certifies reserves and solvency on a prescribed basis.

Mortality/morbidity experience monitoring compares actual claims with expected claims from the valuation basis; persistent adverse experience requires a review of premium rates and underwriting.

The insurance buying process: need identification, product presentation, proposal, underwriting, policy issue, and post-sale service; the agent's role is advisory and disclosure-based, not merely sales.

Needs-based selling matches cover to income replacement, outstanding debt, children's education, and retirement; human life value and needs analysis are the standard quantification methods.

Customer service standards include prompt documentation, accurate premium receipts, timely policy issue, and clear communication of policy status, lapse, and revival.

Anti-money-laundering (AML) obligations require know-your-customer (KYC) verification, monitoring of unusual transactions, and reporting of suspicious transactions to the Financial Intelligence Unit.

Ethical conduct: confidentiality of customer data, no mis-selling of product features or returns, no false promises on bonus or claim, and fair treatment of the customer at every stage.

The Insurance Ombudsman scheme provides free, speedy redressal of grievances up to the prescribed monetary limit; the Ombudsman's decision is binding on the insurer if the complainant accepts it.

Persistency and lapse ratio measure the quality of the sale; high early lapse indicates mis-selling and is monitored by the regulator and the insurer.

Complaint handling: acknowledge in writing, resolve within the prescribed turnaround time, and inform the policyholder of the escalation route to the grievance redressal officer and the Ombudsman.

Digital distribution and web aggregators must display the insurer's name, product features, and premium comparison transparently; the insurer remains accountable for conduct.