Policy

A Policy or policy bond is evidence of the insurance contract. It is the final stage of a series of steps in life insurance purchasing. The person who desires to purchase a life insurance product that answers his specific needs submits his Proposal seeking insurance cover to the life insurance company. A life insurance company is also known as an insurer. Generally an insurer has specific proposal form for each product.

Insurers require other documents like medical examiner’s report, Agent’s report, proof of age or date of birth, reports pertaining to past illness/surgery on the proposer, details of medical advice given for proposer’s long period treatment (in the past), evidence of identity, proof of residence, proof of income, report on moral hazard and report on physical hazard (from employment etc) to consider and decide whether life cover could be given to a proposed life. When all the required documents are received the insurer carries out an assessment of risk on the proposed life   and decides whether (a) life cover could be granted on the standard terms of the insurer (b) life cover could be given on terms other than the standard terms – like charging an extra premium, reducing the proposed term, offering a different product with less risk for the company etc or (c) life cover should be refused or declined. This process is known as underwriting.

Once the insurer decides to grant life cover it issues a policy as evidence of the contract. Policy contract comes into being when the proposal is accepted and first premium is paid. The contents of a policy are standardized as per Regulation 6 of the IRDA (Protection of policyholder’s Interests) Regulations, 2002. It is reproduced below:

 Matters to be stated in life insurance policy

(1) A life insurance policy shall clearly state:

      (a) the name of the plan governing the policy, its terms and conditions;

      (b) whether it is participating in profits or not;

      (c) the basis of participation in profits such as cash bonus, deferred bonus, simple or compound reversionary bonus;

      (d) the benefits payable and the contingencies upon which these are payable and the other terms and conditions of the insurance contract;

      (e) the details of the riders attaching to the main policy;

      (f)   the date of commencement of risk and the date of maturity or date(s) on which the benefits are payable;

      (g) the premiums payable, periodicity of payment, grace period allowed for payment of the premium, the date of the last installment of premium, the implication of discontinuing the payment of an installment(s) of premium and also the provisions of a guaranteed surrender value.

      (h) the age at entry and whether the same has been admitted;

      (i)   the policy requirements for (a) conversion of the policy into paid up policy, (b) surrender (c) non-forfeiture and (d) revival of lapsed policies;

      (j)  contingencies excluded from the scope of the cover, both in respect of the main policy and the riders;

      k) the provisions for nomination, assignment, and loans on security of the policy and a statement that the rate of interest payable on such loan amount shall be as prescribed by the insurer at the time of taking the loan;

      (l)  any special clauses or conditions, such as, first pregnancy clause, suicide clause etc.; and

        (m)  the address of the insurer to which all communications in respect of the policy shall be sent.

        (n)  the documents that are normally required to be submitted by a claimant in support of a claim under the policy.

(2) While acting under regulation 6(1) in forwarding the policy to the insured, the insurer shall inform by the letter forwarding the policy that he has a period of 15 days from the date of receipt of the policy document to review the terms and conditions of the policy and where the insured disagrees to any of those terms or conditions, he has the option to return the policy stating the reasons for his objection,when he shall be entitled to a refund of the premium paid, subject only to a deduction of a proportionate risk premium for the period on cover and the expenses incurred by the insurer on medical examination of the proposer and stamp duty charges.

(3) In respect of a unit linked policy, in addition to the deductions under sub-regulation (2) of this regulation, the insurer shall also be entitled to repurchase the unit at the price of the units on the date of cancellation.           

(4)                 In respect of a cover, where premium charged is dependent on age, the insurer shall ensure that the age is admitted as far as possible before issuance of the policy document. In case where age has not been admitted by the time the policy is issued, the insurer shall make efforts to obtain proof of age and admit the same as soon as possible.

I shall deal with these topics in detail in later posts.