How a life insurance policy is born?

It also means how a life insurance contract is born? An insurance intermediary approaches an individual and discusses with him his life insurance needs on the basis of information on the income and expenses or assets and liabilities and various monetary demands that will come up in specific points of time in the prospect’s life. Let this intermediary be an Agent of a life insurance company. He solicits life insurance business from the person [whom we call prospect] suggesting to him the most appropriate life insurance Plans.

The prospect, let us assume, agrees to the suggestion of the Agent. The prospect has a daughter, two years old, for whom he goes in for a Marriage Endowment policy for 20 year term. He also decides to go in for a Money Back Policy for 20 years that will give him periodic payments every five years. The prospect will be in employment for another 20 years.

Features of Marriage Endowment Plan are (1) Policyholder shall pay premium for all the years or till his death, if earlier. In case of his death no more premiums need be paid. On the maturity date full maturity claim will be paid, i.e. sum assured + full bonus for 20 years + full final additional bonus (if any). Loan is available on the policy from within its surrender value before maturity. Even when premiums are not fully paid (on account of death of life assured) bonus (profit share) for all the years will be paid as if all premiums were paid. That is, even when the life assured dies during the term only maturity claim is paid. This is to provide for the expenses of marriage of the daughter.

In Money Back Policy premiums are payable for 20 years or till death of the life assured, if earlier. On the life assured surviving 5, 10 and 15 years Survival Benefit claims are paid at the rate of 20% of the sum assured. At the end of 20 years (i.e. on maturity) balance 40% of the sum assured and bonus for 20 years on the full sum assured  become payable along with final additional bonus, if any. If the life assured dies after receiving any SB claim, it will be ignored and death claim is settled for full sum assured.

For purchase of insurance the prospect shall submit a ‘Proposal for insurance’ to the life insurance company. The proposal is to be supported by a first premium deposit and:

(i)                  Proof of age / date of birth

(ii)                Additional records of past illnesses / operation etc.

(iii)               Proof of identity

(iv)              Proof of residence, and

(v)                Proof of income

The company will call for confidential reports on the prospect from its Agent / officers and medical report from its authorized medical examiners before taking up the proposal for underwriting. Let us go through each of these in some detail to get full picture of the process.