Life insurance servicing

Life Life Insurance Insurance

Policy Policy Servicing Servicing

Rights and duties of Rights and duties of insuredinsured

• Need for service/deficiency of serviceNeed for service/deficiency of service• Types of services renderedTypes of services rendered Record maintainence – a statutory Record maintainence – a statutory

requirementrequirement Premium payments- advance notices Premium payments- advance notices

sent, not obligatory but a matter of sent, not obligatory but a matter of courtesycourtesy

Contractual responsibility of insured to Contractual responsibility of insured to keep policy in force to prevent lapsekeep policy in force to prevent lapse

Duty of insured to receive premium and Duty of insured to receive premium and account for in records account for in records

Days of graceDays of grace

• Due dates mentioned & days of Due dates mentioned & days of grace permitted – considered as payment grace permitted – considered as payment in timein time

• Not less than 30 days for all modes Not less than 30 days for all modes barring salary savings - privilege barring salary savings - privilege extended by insurance companyextended by insurance company

• Lapsation forfeits claimsLapsation forfeits claims• In case of premium default, policy In case of premium default, policy

conditions provide various safeguards conditions provide various safeguards called NON-FORFEITURE provisionscalled NON-FORFEITURE provisions

• Various options before insurerVarious options before insurer

Return surrender value/ Guaranteed SVReturn surrender value/ Guaranteed SV

Making policy paid – upMaking policy paid – up

Providing term cover from SVProviding term cover from SV• Paid –up value : definition & calculationPaid –up value : definition & calculation

Non-forfeiture Non-forfeiture provisionsprovisions

SurrenderSurrender

• Surrender - a voluntary termination of Surrender - a voluntary termination of contract - anytime before it becomes a contract - anytime before it becomes a claim – a breach of contractclaim – a breach of contract

• Guaranteed SV – a percent of all Guaranteed SV – a percent of all premiums paid excluding first year’s premiums paid excluding first year’s premium.premium.

• SV is a percentage of premiums paidSV is a percentage of premiums paid• Percentage increases as duration of Percentage increases as duration of

policy increasespolicy increases• SV factorSV factor

LoanLoan

• Policy loans allowed, 85-90% of SV. Policy loans allowed, 85-90% of SV. • Loans not allowed on all policiesLoans not allowed on all policies• During loan, absolute assignment of policy During loan, absolute assignment of policy

to insurance co. Does not invalidate to insurance co. Does not invalidate existing nomination.existing nomination.

• FORECLOSURE FORECLOSURE

If premia not paid regularly, policy If premia not paid regularly, policy lapses. When loan & interest exceed lapses. When loan & interest exceed surrender value foreclosure takes place.surrender value foreclosure takes place.

ForeclosureForeclosure

• Foreclosure means closure or writing Foreclosure means closure or writing off the policy before the actual off the policy before the actual maturitymaturity

• Notice sent to PH asking for loan Notice sent to PH asking for loan arrears and interest , then action taken.arrears and interest , then action taken.

Balance of Surrender Value paid to Balance of Surrender Value paid to policyholder after adjusting principal policyholder after adjusting principal loan and interest.loan and interest.

• Foreclosed policy can be reinstated Foreclosed policy can be reinstated before policyholder receives the before policyholder receives the balance SV.balance SV.

RevivalRevival

• Lapse suggests policyholder not fully Lapse suggests policyholder not fully convinced about utility of plan. Exposes convinced about utility of plan. Exposes PH to adverse circumstances.PH to adverse circumstances.

Insurer also loses. It can recover initial Insurer also loses. It can recover initial expenses only if policy is in force.expenses only if policy is in force.

• Lapsation set right by revival. Arrears Lapsation set right by revival. Arrears ofof

o/s premium plus interest plus proof of o/s premium plus interest plus proof of good health. No revival if policy lapsed good health. No revival if policy lapsed more than 5 years – pure lapse.more than 5 years – pure lapse.

RevivalRevival

• No proof of good health required upto No proof of good health required upto 6 months from date of lapse6 months from date of lapse

• Beyond this medical reports requiredBeyond this medical reports required• Revival is a fresh contract , risk being Revival is a fresh contract , risk being

equal to original SA less paid - up value.equal to original SA less paid - up value.• Underwriter may/may not agree to accept Underwriter may/may not agree to accept

risk. risk.• Loan –cum-revival scheme - loan amount Loan –cum-revival scheme - loan amount

adjusted towards revival- party to repay. adjusted towards revival- party to repay.

NominationNomination

• NOMINATION- done to ensure payment NOMINATION- done to ensure payment of policy money in case of death of policy money in case of death claim. claim.

Provision allowed as per sec 39 of Provision allowed as per sec 39 of Insurance act, 1938.Insurance act, 1938.

May be at time of proposal/ later – May be at time of proposal/ later – to be intimated to insurer else invalidto be intimated to insurer else invalid

Can be changed by endorsement on Can be changed by endorsement on policy - nomination automatically policy - nomination automatically cancelled in case of assignment. cancelled in case of assignment.


• Nominee cannot receive maturity claim.Nominee cannot receive maturity claim.

For minor nominee, appointee fixed by PH.For minor nominee, appointee fixed by PH.

Appointee cancelled when nominee is Appointee cancelled when nominee is major. If nominee minor & no appointee, major. If nominee minor & no appointee, claim paid to legal heirs. When nominees claim paid to legal heirs. When nominees more than one, money paid jointly.more than one, money paid jointly.

• Only insured can make nominationOnly insured can make nomination• Need not be supported by considerationNeed not be supported by consideration


• Insured has full control of policyInsured has full control of policy• If nominee dies, no one’s rights are If nominee dies, no one’s rights are

affectedaffected• In spite of nomination, creditors can attach In spite of nomination, creditors can attach

policy moneyspolicy moneys• Assignee cannot make nomination as he is Assignee cannot make nomination as he is

not the life assurednot the life assured

ASSIGNMENT- transfer of all rights, ASSIGNMENT- transfer of all rights, ownership, interest under policy to assignee.ownership, interest under policy to assignee.

AssignmentAssignment

• Legal provisions of LI policies existLegal provisions of LI policies exist• It is under Sec 38 of Insurance act, 1938.It is under Sec 38 of Insurance act, 1938.• Can be done by an endorsement on the Can be done by an endorsement on the

policy or by separate deed. Stamp duty policy or by separate deed. Stamp duty required in case done in separate deeds.required in case done in separate deeds.

Must be signed by transferror & witnessedMust be signed by transferror & witnessed

Effective only after execution.Effective only after execution.

Notice of assignment to be sent to insurer.Notice of assignment to be sent to insurer.


• Only PH can assign. Assignor must be Only PH can assign. Assignor must be major. Assignment cannot be cancelled/ major. Assignment cannot be cancelled/ altered unless reassignment takes placealtered unless reassignment takes place

• A – Absolute/conditional. In both cases, allA – Absolute/conditional. In both cases, all

rights, title & interests pass to assignee.rights, title & interests pass to assignee.

In Conditional A, interest in policy reverts In Conditional A, interest in policy reverts to LA on occurrence of specified to LA on occurrence of specified condition.condition.

i.e reversion if assignee predeceases i.e reversion if assignee predeceases assignorassignor


• Absolute assignee is owner & can deal Absolute assignee is owner & can deal with it any way he feels/ he can suewith it any way he feels/ he can sue

• Assignment to be supported by a Assignment to be supported by a consideration.consideration.

• If assignee dies after LA, but before If assignee dies after LA, but before settlement, policy moneys payable to heirs settlement, policy moneys payable to heirs of assignee.of assignee.

• Creditors of LA can’t attach policy money.Creditors of LA can’t attach policy money.• In Child plan, LA can assign after vesting In Child plan, LA can assign after vesting

..

AlterationAlteration

• ALTERATION –change in address, of ALTERATION –change in address, of mode in payment of premium, of mode in payment of premium, of nomination, break a policy into nomination, break a policy into 2/more of smaller SAs2/more of smaller SAs

in plan, term.in plan, term.

Principle is that alterations in Principle is that alterations in existing policies may be allowed if existing policies may be allowed if risk does not increase.risk does not increase.

Alteration in plan not allowedAlteration in plan not allowed

Other types of serviceOther types of service

• Transfer of policyTransfer of policy• Issue of policy bondIssue of policy bond• Payment of claimsPayment of claims• Corrections in bondCorrections in bond• Duplicate policy issue Duplicate policy issue • Change of addressChange of address

Cooling –off periodCooling –off period

• Introduction by IRDAIntroduction by IRDA• Review of terms & conditions by Review of terms & conditions by

policyholder within 15 days from policyholder within 15 days from receipt of policy documentreceipt of policy document

• Option to return policy in case Option to return policy in case of dissatisfactionof dissatisfaction

• Entitled to refund of premium Entitled to refund of premium less expenses like postage, stamp less expenses like postage, stamp & medical fees etc& medical fees etc

Why is this allowed ?Why is this allowed ?

• Since life insurance is a long-Since life insurance is a long-term contract, these provisions term contract, these provisions provide an opportunity to provide an opportunity to policyholder to judge the policyholder to judge the suitability of the cover as per needsuitability of the cover as per need

• In case of Ulip policy, insurer can In case of Ulip policy, insurer can repurchase the units at their repurchase the units at their respective prices on the date of respective prices on the date of cancellationcancellation

Other informationOther information

• Mention of various clauses like suicide, Mention of various clauses like suicide, first pregnancy, exclusions first pregnancy, exclusions

• Details of riders/ charges/ calculation of Details of riders/ charges/ calculation of NAV/ details of hospitalization coverage NAV/ details of hospitalization coverage & expenses ( where applicable )& expenses ( where applicable )

• Participation in profitsParticipation in profits• Mis-statement of age - cancellation of Mis-statement of age - cancellation of

policy if overage & uninsureable ; policy if overage & uninsureable ; difference of premium if insureable difference of premium if insureable

IndisputabilityIndisputability

INDISPUTIBILITY OF THE POLICY -INDISPUTIBILITY OF THE POLICY -

Sec 45 of Insurance act states Sec 45 of Insurance act states that a policy which has been in that a policy which has been in force for 2 years cannot be force for 2 years cannot be disputed on the grounds of disputed on the grounds of incorrect or false statements in incorrect or false statements in the proposal & other documents the proposal & other documents unless it has a material bearing & unless it has a material bearing & was made fraudulently.was made fraudulently.

Married Women’s Propert Act Married Women’s Propert Act policiespolicies

• If a life insurance policy is taken by any If a life insurance policy is taken by any married man on his life and expressed married man on his life and expressed on policy bond for benefit of his wife & on policy bond for benefit of his wife & children, policy becomes a trust & shall children, policy becomes a trust & shall not be under control of insured/ his not be under control of insured/ his creditors/ his estate. Claims paid to creditors/ his estate. Claims paid to trustees.trustees.

• A financial arrangement for wife/ children A financial arrangement for wife/ children • Individual policy a separate trustIndividual policy a separate trust• Insured cannot alter/surrender/take loan .Insured cannot alter/surrender/take loan .

Thank Thank

You !You !

Economy & Finance

Life insurance servicing