Premium under a life insurance policy becomes due on the due date as mentioned on the face of the policy document, which will be aligned to the issue date of the policy. Life insurance being a contract between insurer and insured, it is obligatory on the part of the insured to pay the premium as and when it becomes due, and on the part of the insurer to pay the sum that is assured. In case the premium is not paid by the due date, policy lapses. But, usually insurer allows additional time to pay the premium after its due date which is called ‘Days of Grace’. So, if the premium is paid within the days of grace the policy does not lapse.
If the premium is not paid within the days of grace then the policy lapses. Typically, the days of grace for policies with monthly mode of payment is 15 days and for all other modes it is one month not less than 30 days.
Nomination is the process of designating a person to receive the policy moneys payable under life insurance policy upon happening of the risk event specified in the policy. Life insured at the time of taking a policy or at any time later during the term of the policy, may nominate a person who he thinks will suffer the financial loss upon his/her (LA) sudden demise. Nominee is authorized only to give a valid discharge to the policy proceeds when the claim is payable.
Assignment in simple terms is transfer of ownership of the policy. With assignment the interest of the insured (Owner) is transferred to the person usually for a monetary consideration he receives or as a gift. There are two types of Assignment -
conditional and absolute assignment. In the conditional assignment ownership is transferred back upon fulfilling a condition which is mutually agreed upon. In absolute assignment complete ownership is transferred. In this kind of assignment creditors of the policyholder cannot have any claim against the policy moneys and proceedings of the policy forms part of the assignee’s estate.
The policy, under which at least 3 full years’ premiums have been paid, is treated as paid-up policy. After policy acquiring paid-up value, if the further premiums are not paid, then the policy is not treated as void but will continue to cover the risk for the reduced sum which is Paid-up value.
The participating insurance product is a type of life insurance product that allows the policyholder to share the profits emerging from the participating fund. The non-participating insurance product is a type of insurance product where the profits emerging from the non-participating fund belongs to the company. The participating policyholder is a policyholder who purchases a policy which pertains to the participating insurance product.
The asset share represents the share of a participating policy in the participating fund by considering all premiums paid, investment returns earned and various deductions towards expenses and commission, cost of providing death and other benefits, cost of capital and guarantees, contribution from miscellaneous surplus, taxes and shareholder transfers. The calculation follows guidance note from the Institute of Actuaries of India (IAI), a statutory body, which advises companies on the declaration of bonus.
The cost of providing death benefits is based on actual deaths experienced by the company under the participating products. The expenses are same as those considered for generating BI (Benefit Illustration). The cost of capital and guarantees are considered to be nil as the participating fund has sufficient surplus to meet this cost. The investment of the participating fund including different types of assets is governed by IRDAI Regulations as amended from time to time and managed by the Investment Committee. The investment yield earned under this fund is available in public disclosure published on company’s website. The shareholder transfers represent the company’s share of profits which is 10% of the profits distributed under participating policy in accordance with Insurance Act and Insurance Regulatory and Development Authority of India (IRDAI) Regulations and the taxes are as per Income Tax Act.
The bonus under participating policy represents the share of profit distributed to participating policyholders. The declaration of bonus, based on company’s policy on bonus distribution, is recommended by With-Profit Committee (WPC) and approved by the company’s Board of Directors. The With-Profit Committee of the company is governed by IRDAI Regulations. The allocation of operating expenses under participating and non-participating policies are consistently followed in line with Board approved expense policy which is in compliance with IRDAI Regulations. The company declares stable bonus rates which do not fluctuate unless there is excess instability in actual experience. This is known as smoothening of bonus. A part of good experience is set aside to support bad experience in other years by smoothening of bonus. This strategy ensures equitable treatment among different generation of participating policyholders by avoiding varying bonus rates across years. The amount available for smoothening of bonus is available in public disclosure published on company’s website.
The Internal Rate of Return (IRR) for a participating policyholder is the estimated annual interest rate earned by the participating policyholder on the premiums paid under the policy. The average overall IRR of in-force participating policies maturing during the year is around 4.5%.
