Insurance 101: Understanding Insurance Policy Documents
This year, as we emphasize on the importance of procuring insurance as a proactive and risk mitigating step towards a secured financial wellbeing, we are equally keen to ensure you truly understand the technicalities in a policy document. This is because insurance documents are very detailed legal contracts that provide in clear terms the responsibilities and obligations for the insured and the insurer. Since the technical terms may be headache inducing, we would like to have them simplified.
This week, our focus is on life insurance policy; we have summarised some of the common terms and provisions that you will come across in a life insurance policy for better understanding.
Proposal Forms: A proposal form is a document that captures the basic information of an insurance contract issued by the insurer (the insurance company) to a proposer or client. Proposal forms are the most important and basic document required for a life insurance contract between the insured and insurer.
Policy Documents: A Policy document is a formal document that contains the details of the insured, policy schedule, key covers of the policy, as well as the extensions and exclusions of the insurance contract.
Policy Assignment: This is defined as the transfer of right of a policy from the insured to another legal entity or third party. In life insurance, a policyholder who has a policy on his own life can assign the policy to another person. For example, a man can elect to assign his life policy to his wife or child.
Date of Inception: The date of inception of a life insurance policy is the contract start date or the commencement date of an insurance contract. It refers to the actual date at which the insurance policy goes into effect. An insurance policy is a tenured programme. It has a commencement and an end date, when the insurance coverage and obligation to the insured comes to an end.
Duration of Policy: Duration of policy refers to the defined period of cover of an insurance contract. In a life insurance policy, it is the maximum length of time during which policy coverage continues, provided that the insured is still alive.
Beneficiary: A Beneficiary is defined as a person who is legally entitled to an agreed benefit at the occurrence of an insured event or at maturity. In a life insurance policy, a beneficiary is legally entitled to an agreed benefit in the event of the insured death.
Life Insurance Premium: A life insurance premium is the price or consideration paid for insurance cover/contract. Simply put, a life insurance premium is paid to the insurer to keep a life insurance policy in force.
Life Insurance Sum assured: This is the assured amount payable at the occurrence of a defined event agreed at the inception of the insurance contract. In a life insurance policy, the sum assured is the agreed amount payable to the beneficiary on the occurrence of the event insured.
Cash Surrender Value: This is the amount paid back to the policyholder at termination of a policy before the agreed maturity after deduction of agreed charges. The cash surrender value is the amount of money that an insurer will pay to the policyholder when the policy is voluntarily terminated before it reaches full maturity, or before the insured event occurs.
Maturity Benefit: Maturity benefit refers to the amount received by a policyholder or beneficiaries when a policy matures. It is the claim of the policyholder once the policy matures.
Lapsed Policy: This is defined as a situation where a policy becomes dormant due to non-payment of premium amount on due date or after the grace period. Insurers are legally bound to give a grace period to policyholders before the policy falls into a lapse. However, once a policy lapses, the insurer is not under any legal obligation to provide the benefits stated in the insurance policy.
Joint Life Insurance: A Joint Life Insurance is a type of policy that covers two lives (usually spouses) under one contract where payment is made to a surviving party or beneficiary when the one or both insured dies.
Annuity: An Annuity is the periodic payment of a series of amount (usually equal) over a specified period of time. It is agreed by contract between a policyholder and a third party (an insurer) where in exchange for making a lump sum payment, the insurance company provides for a series of guaranteed payments, either for a specific period or for the lifetime of the individual(s).
Read also: One Lunch Date Or A Hospital Cash Cover?
Ordinary Life Insurance: This is insurance policy made on the life of the insured for a fixed amount at a definite premium that is paid each year in the same amount during the entire lifetime of the insured.
Death Benefit: Death benefit is the value or amount payable to specified beneficiary or beneficiaries at the occurrence of death of the insured. It is the amount on a life insurance policy that is payable to the stated beneficiaries when a valid life insurance claim is filed.
For more information that may help you understand life insurance better, please contact our insurance professionals at Leadway Assurance Company Limited. For more details on any of our Life Assurance policies, you can also contact our agents on (01) 2800 700, 2800 701, 08129997022; or send an email to: Lcs@leadway.com.