Life Insurance Products and Terms and Conditions
This domain tests whether you can read a policy schedule and product literature and explain them accurately: which product type is being sold, what is payable on death or on survival, and how definitions such as sum assured, paid-up value, surrender value and revival actually work. Mis-description at the point of sale is the root of most repudiation disputes.
Product families
- Term: death cover only; nothing if the life survives the term. Cheapest cover per rupee of sum assured.
- Endowment: sum assured plus bonuses on maturity, or on earlier death.
- Money-back: periodic survival benefits plus the balance at maturity; full sum assured on death.
- Whole life: cover to a stated high age rather than a short term.
- ULIP: premiums buy units; the fund value rises or falls with the market.
- Annuity/pension: the insurer pays income; the mirror image of life cover.
- Participating policies share profits through reversionary bonuses declared each year and a terminal bonus at exit; non-participating policies carry no bonus.
Terms that decide claims
Sum assured is the basic amount in the schedule, excluding bonuses. Policy term is the cover period; the premium paying term may be shorter. Grace period is 30 days (15 days for monthly mode). Revival of a lapsed policy is normally possible within five years of the first unpaid premium, with arrears, interest and fresh underwriting. Paid-up value applies when premiums stop after the policy has acquired value; surrender value is paid on voluntary termination. Section 64VB of the Insurance Act, 1938 means no risk is assumed before the premium is received.
Worked example
A 20-year endowment, sum assured ₹5,00,000, annual premium ₹25,000, stops after four years. The policy becomes paid up: on death the nominee gets the paid-up sum assured - (premiums paid ÷ premiums payable) × sum assured, subject to the minimum death benefit - not ₹5,00,000. Saying 'five lakh is guaranteed' is a mis-sale.
Traps
Treating maturity value as equal to sum assured; promising bonuses under a non-par plan; telling a prospect a term plan returns premiums; quoting surrender values without the schedule.