Life Insurance FAQS

When the name is changed the same has to be officially published in the Gazette of India for Indian Nationals. If the insured person has acquired a foreign nationality subsequent to taking the Insurance and has changed the name, then as per the name change documents of the foreign country should be produced.
A copy of the official gazette/ document of the foreign country must be produced to the Insurance company immediately for making the requisite endorsement, otherwise the contract of Insurance becomes void.
On maturity of the policy the payable proceeds will be prepared in the name at the time of taking the policy. However, when presenting to the bank there will be a change between the current name and the name on the instrument. The maturity proceed will return to the Insurance Company as “Name differs”. Thereafter going for a change will complicate the maturity claim and may have to go through legal process to prove that the name of the Insured person and the changed name pertain to one and the same person.
Similarly, in the event of a death claim the legal heirs of the deceased person have to prove that the Insured person is one and the same at the time of taking the policy and at the time of death. It will involve a lot of legal process and the claim may take years to settle.
Also as soon as the original policy is received the insured person should check that the given name in the proposal and the one on the printed schedule are correct. For e.g. name given in Proposal: PRABAHAR whereas printed on the policy PRABHAKAR, the difference must be noted and corrected immediately.
Anyone can be nominated by the Insured person including a trust. However, at the time of payment of the claim no objection certificate is required from the Legal Heir (if applicable).
As per the Insurance Amendment Act 2015 if the Insured Person nominates father, mother spouse or children then the nominated person becomes the “beneficial owner”( person with the right to receive the amount) and the Insurance Company will settle to the beneficial owner only.
When the Policy is offered as a security for a loan taken then the policy will be assigned in favour of such institution giving the loan. i.e. at the time of maturity or death the institution who gave the loan will get the payment first to the extent of the outstanding loan. This is called assignment.
An assignment of a life insurance policy once validly executed, cannot be cancelled or rendered in effectual by the assignor. Scoring of such assignments or super scribing words like 'cancelled' on such assignment does not annul the assignment. And the only way to cancel such assignment would be to get it re-assigned by the assignee in favour of the assignor.
According to Section 42A(2) of the Insurance Amendment Act 2015 “No person shall allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance policy through multilevel marketing scheme” .
Lapsed policies are those where the premium has not been paid up to date and will not be of any use in the event of a claim. However there are certain concessions for lapsed policies:
If the policyholder has paid premiums for at least 3 full years and subsequently discontinued paying premiums, and in the event of death of the life assured within six months from the due date of the first unpaid premium, the policy money will be paid in full after deduction of the unpaid premiums, with interest up to date of the death.
If the policyholder has paid premiums for at least 5 full years and subsequently discontinued paying premiums and in the event of death of the life assured within 12 months from the due date of first unpaid premium, the policy money will be paid in full after deducting the unpaid premiums, with interest up to date of the death. However it is to be noted that this applies only to the Policy Sum Insured and does not apply for rider benefits.
Essentially, riders are add-on covers insurers provide to enhance the scope of a life policy. Riders cover risks that are beyond the scope of the main life policy, resulting in a more comprehensive protection. The riders may cover critical illness (or dreaded diseases), personal accident (or accidental death and dismemberment), and waiver of premium benefit (applicable to child Ulips). These add-ons step in during situations where the main life insurance policy may not come into play.
For example, if the insured meets with an accident resulting in absence from work, he/she could be faced with the prospect of loss of income during the period of recovery. The life cover will not be able to offer any succour in this situation. This is where a personal accident rider, covering temporary disability, would come into play. The insurance company will compensate the insured monetarily during the period, depending on the policy terms and conditions.
Likewise, if the policyholder is diagnosed with a critical illness, the life cover will be of no help as it does not cover funding of the treatment cost.
On the other hand, if it is topped up with a critical illness benefit rider, the insurer will hand out a lump sum upon diagnosis of such an illness, unlike a health insurance policy. Thus, it can take care of the post-recovery costs as well. Cancer, kidney failure, and bypass surgery are some of critical illnesses covered under the rider.
Surrender value is the amount payable to the policyholder should he decide to discontinue the policy and encase it. It is payable only after three full years' premiums have been paid to the insurance company. Moreover, if it is a participating policy, the bonus gets attached to it. Surrender of policy is not recommended since the surrender value will always be proportionately lower.
Surrender value is what an insurance company will pay an insured, after charges are deducted, if he terminates or surrenders the policy before the original maturity date. The life cover provided by a life insurance policy ends with its surrender as it effects a termination of the contract between the insured and the insurer. On surrender, the insured basically gets the fund value of his investments minus the charges that the insurer levies on account of premature termination.
Surrender values exist only in investment-cum-insurance policies like endowment plan, money back plan and unit-linked insurance plan (ULIP) since they originate from the investments of the insured. Some ULIPs can be surrendered after one year but the surrender value is payable only after three years as investments in ULIPs are locked-in for this period. Single premium policies can be surrendered after one year.
Insurance companies side step all avoidable risks through restrictive and exclusion clauses in a policy. The suicide clause is a good example of a restrictive clause.
Generally, a suicide clause states that if death of the life assured takes place as a result of committing suicide within one year of the c/ommencement of risk, the policy shall be void. Given below is the suicide clause as it appears in the policy of a private sector life insurance company - ‘If the life assured commits suicide within one year from the date of commencement of risk or date of revival if revived, whether sane or insane at that time, the policy will be void and no claim will be payable’.
What is important to note here is the operation of the exclusion clause from date of revival too. Beyond the period specified in the suicide clause, the claim is payable on death by suicide.
What is important to note here is the operation of the exclusion clause from date of revival too. Beyond the period specified in the suicide clause, the claim is payable on death by suicide.
The suicide clause on an LIC policy is as follows — ‘This policy shall be void if the life assured commits suicide (whether sane or insane at the time) at any time on or after the date on which the risk under the policy has commenced but before the expiry of one year from the date of commencement of risk.
The Corporation will not entertain any claim by virtue of this policy except to the extent of a third party’s bona fide beneficial interest acquired in the policy for valuable consideration of which notice has been given in writing to the branch where the policy is being presently serviced (where the policy records are kept), at least one calendar month prior to death.
Third party interest
The above clause protects the bona fide interests of a third party which has acquired interest in the policy through an absolute assignment by paying money to the policyholder. Suppose a company has given a housing loan of Rs. 15 lakh to the applicant on his new life insurance policies (worth Rs. 20 lakh) that have been assigned to it as collateral security. Or, a bank has given an education loan of Rs. 10 lakh to a student, accepting his assigned new life insurance policies (worth Rs. 15 lakh) as security. If the loaner commits suicide, the policy will not be totally void. The insurer will protect the interests of the assignee, viz. the housing company or the bank by repaying the loan. The condition for this is that notice of assignment should have reached the insurer at least one month before the date of death.
In group insurance business the life covered/assured is not the policyholder. Policyholder is a company/legal entity known as ‘Master policyholder’. Examples of group insurance schemes are (i) One Year Renewable Group Term Assurance (ii) Group gratuity assurance (iii) Group Superannuation (iv) Group savings linked insurance. In these schemes the decision to introduce them for the benefit of lives covered under the schemes is taken by the master policyholder.
It is unaffected by the impulsive decision of a life covered to kill himself. As such the suicide clause is not applied in group insurance; death benefit is paid to nominees/legal heirs in all cases of death.
The interest of a conditional assignee is not protected under the suicide clause of any insurer, the reason being that he acquires an interest consequent on death of the life assured. If the absolute assignee (other than life assured) commits suicide in the first year of the policy it does not affect the validity of the policy, instead his rights and liabilities in the policy are transferred to his legal heirs. And the policy continues to cover risk on the life of the assured.
If the insured, whether sane or insane, commits suicide within 12 months from the date of issue of the policy or the date of any reinstatement of the policy. Let's assume that an individual's policy had lapsed due to premium non-payment. He makes up the payment backlog to bring the policy back in force. Two months later, he commits suicide. The insurer will not be liable to pay the death claim to the nominee.
If the insured has misrepresented facts, usually pertaining to health conditions, at the time of entering the insurance contract. However, an incontestable period (usually two years after the policy has been in force) is imposed. That is, once the policy has been in force for this period, the cannot nullify or void a policy on the basis that the policy holder had made any misrepresentation or omission, usually pertaining to health conditions, at the time of entering into the insurance contract. The incontestable period clause does not affect the rights of the company in case there is any fraud involved. The onus of proving fraud lies on the insurance company. In such cases, the only one to lose out would be the nominee/family of the insured who would be dragged through unnecessary complications at a time when they need all the calm and peace they can get.
A misstatement of age clause is inserted by the company to protect itself against the insured wrongly stating her/his age. This doesn't void the policy, however. It still remains valid. In the event of the insured's death during the term of the policy, the death benefit is adjusted as per the actual age of the insured.
Individual life insurance policies will not pay the sum assured if the accidental death happens when the life assured was drunk and driving or was a participant in a car-racing event. There are a host of other exclusions such as deaths caused by war, terrorism, draughts or accidents incited by the actions of the life assured.
The waiting period in a policy is also a type of exclusion. This is used widely in non-life insurance policies. For example, a critical illness cover will insist on a waiting period of 180 days from the date of issuance of the policy. The waiting period protects the life insurance company from a fraudulent claim. Some insurance companies cover pre-existing diseases after a waiting period of four years. A set of day care surgeries is also covered after a waiting period of two years.