LIST OF QUESTIONS

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. What is a Plan or Product? ...................................................................................... 6 What is Premium and how it is typically arrived at? ............................................ 6 What is Term Plan? .................................................................................................. 6 What is Pure Endowment Plan? .............................................................................. 6 What is Normal Endowment Plan? ......................................................................... 6 What is Whole Life Plan? ........................................................................................ 7 What is a Annuity Plan?........................................................................................... 7 What is Maturity Benefit?........................................................................................ 7 What is Survival Benefit?or What is a Money Back policy? ................................ 7 What is Increasing Endowment Plan? ................................................................ 7 What is a Decreasing Term/ Mortgage Plan? .................................................... 8 What is a Rider?.................................................................................................... 8 What are the different types of Riders? .............................................................. 8 What are different types of Accident Riders? .................................................... 8 What is Riot and Civil Commotion Rider (RCC)? ............................................ 9 What are different types of Health Riders? ....................................................... 9 What is Living Benefit Rider? ............................................................................. 9 What is a Disability? Different types ................................................................ 10 What is Waiver of Premium / Payer Benefit? .................................................. 10 What is the difference between a plan and a Rider? ....................................... 10 What is Indemnify or Indemnification? ........................................................... 10 What is Subrogation? ......................................................................................... 10 What is a packaged Product? ............................................................................ 11 What is Event? .................................................................................................... 11

25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49.

What is Cause? What is Proximity Cause? ...................................................... 11 What is the relationship between events and causes? ..................................... 11 What is cause exclusion? .................................................................................... 12 What is relation between Plan/Rider and Events? .......................................... 12 What is Event Based Premium? ........................................................................ 12 What is Annualized Premium? .......................................................................... 12 What is meaning of term Per Mil or Per Millie? ..................................... 12 What is Sum Assured/Benefit and what are different types of benefits? ...... 12 What is Double or Triple Indemnity? ............................................................... 13 What is Unit rate or Unit Rate Premium?........................................................ 13 What is Occupation / Occupation Class / Occupation Industry? ................... 13 What is Free Cover Limit (FCL) ? .................................................................... 14 What factors are used for premium calculation in life Insurance?................ 14 What is Gross Premium and What is Net Premium? ...................................... 14 What is Backdating? How it is useful? ............................................................. 14 What is Policy Term and Premium Term? ...................................................... 15 What are the different dates involved in a policy ............................................ 15 What is Cease Age? Different types .................................................................. 16 What are the different types of customers involved in a policy? .................... 16 What is difference between Quotation/Proposal/Policy? ................................ 17 What is Proposal Deposit? ................................................................................. 17 What is Underwriting? ....................................................................................... 17 What is Extra Mortality/ Loading? Different types ........................................ 18 What is Policy Schedule?.................................................................................... 18 What is a short term policy? What are short term rates? .............................. 18

50.

What is a Participating Plan and Non-Participating Plan? ........................... 18

PREMIUM HANDLING .......................................................................... 19

51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. What is First Year Premium and Renewal Year Premium? .......................... 20 What is Frequency or Mode of Payment ? ....................................................... 20 What is Payment Method? Different Types ..................................................... 20 What is a Renewal or Reminder Notice? .......................................................... 20 What is Over Payment and Short Payment? ................................................... 21 What is short payment tolerance? ..................................................................... 21 What is zero payment? ....................................................................................... 21 What is Outstanding Premium? ........................................................................ 21 What is a Debit Note and a Credit Note? ......................................................... 21 What is Premium Breakup? .............................................................................. 22 What is Premium Sharing? ................................................................................ 22 What is Premium Grace Period?....................................................................... 22

POLICY SERVICING .............................................................................. 23

63. 64. 65. 66. 67. 68. 69. 70. 71. What is cash value or Surrender Value? .......................................................... 24 What is Non-forfeiture(NF)? What is Automatic Premium Loan (APL)? .... 24 What is Policy Surrender? ................................................................................. 24 What is Partial Surrender? How it is done? .................................................... 25 What is Paid up? What are the different types? .............................................. 25 What is Extended Term Insurance(ETI)? ........................................................ 25 What is Policy Renewal? .................................................................................... 25 What is a Policy Loan? ....................................................................................... 25 What is Loan Excess? ......................................................................................... 26

72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83.

What is New Entrant? ........................................................................................ 26 What is Exit? ....................................................................................................... 26 What is Policy Cancellation? Different types? ................................................. 26 What is cooling off cancellation? ....................................................................... 26 What is Unexpired premium / Future Premium? ............................................ 26 What is Policy Alterations or Policy Endorsement? Different types ............. 27 What is Nominations/ Beneficiary? ................................................................... 27 What is Policy Assignment? ............................................................................... 27 What are the different status of a policy? What is its significance? .............. 27 What is Revival? ................................................................................................. 28 What is Experience Refund?.............................................................................. 28 What is Bonus? What are the different types of Bonus? ................................ 28

AGENCY MANAGEMENT ................................................................... 29

84. 85. 86. Who is a Agent? .................................................................................................. 29 What are the different types of Agents? What is a channel? .......................... 29 What is Commission? ......................................................................................... 29

87. What is First Year Commission and Renewal Year Commisson? Or What is Commission Year? .......................................................................................................... 30 88. 89. 90. 91. 92. What is a commission standard? ....................................................................... 30 What is a overriding commission? .................................................................... 30 What is commission shares? .............................................................................. 30 What is commission claw back? ........................................................................ 30 What is Agents Persistency? .............................................................................. 31

CLAIMS ......................................................................................................... 32
93. What is a Claim? ................................................................................................. 32

94. 95. 96. 97. 98. 99. 100. 101. 102. 103.

What is a Intimation or Claim Intimation? ...................................................... 32 What is a Discharge Letter or voucher? ........................................................... 32 What is Provision Accounting?.......................................................................... 32 What is a Deduction or Recovery? .................................................................... 32 What is a Refund?............................................................................................... 32 What is a Penalty Clause in Claims?................................................................. 33 What is LIEN?..................................................................................................... 33 What is Claim Ratio?.......................................................................................... 33 What is claim rejection? What is cancellation after death? Why it happens?33 What is Ex-gratia Payment? .............................................................................. 34

REINSURANCE ........................................................................................ 35
104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. What is Reinsurance? ......................................................................................... 35 What is a Risk Category? ................................................................................... 35 What is Sum at Risk (SAR)? .............................................................................. 35 What is a Treaty? How do we classify from systems view? ............................ 35 What is a arrangement? ..................................................................................... 35 What is a Quota share treaty? ........................................................................... 35 What is a Surplus Treaty? ................................................................................. 36 What is Excess of Loss (XOL)Treaty? .............................................................. 36 What is Retention Limit? ................................................................................... 36 What is Corridor Amount? ................................................................................ 36 What is Facultative/Manual Reinsurance? ...................................................... 36

PRODUCTS AND NEW BUSINESS

1.

What is a Plan or Product?

A Insurance Plan or Product specifies a set of RISKS covered, PREMIUM to be charged for the risks, and also specifies the RULES, EXCLUSIONS included in the contract. RISKS : On Death Sum assured is Paid. On Accidental Death twice Sum Assured is Paid. Risk is also looked as EVENT in the system. PREMIUM : An amount charged from the customer to cover the risk(risk events). Premium can be paid for the complete coverage period as a lump. Then it becomes a SINGLE PREMIUM. Or the Premium can be paid in installments at a specified frequency of Monthly, Quarterly, Half-yearly or Annualy. RULES : Rules of a Plan appear like, Age of Life Assured shall be between 15 and 60. If the cause of death is suicide within one year of policy commencement then sum assured cannot be paid, and the collected premium will be refunded. An Insurance contract or Policy is always based on a specific plan. A policy cannot be issued without a plan.

2.

What is Premium and how it is typically arrived at?

Premium calculation in the system is usually referred to tables, where per 1000 sum assured premium, for a specified age, sex and occupation are stored. But how are these tables arrived at? Premium depends on the plan and the risks the plan covers. Life Insurance plans can be classifed as Risk or Investment Plans. In case of Investment Plans like Endowment, sum assured is payable even if the risk event does not occur in the term. Hence, if you take Premium as 100 for a typical endowment plan, it consists of the following breakups. (Values are for Example only and are not correct.) Risk Premium = 25 Office and other Underwriting Expenses = 5 Business Procurement Expense or Commissions = 5 Statutory stamp duty and taxes = 2 Investment Portion = 63

3.

What is Term Plan?

It is the simplest and the cheapest plan in Life Insurance. The events or risks covered are Death Only.

The customer pays premium, and the coverage is given for a specified period, say 5 years or 10 years. If customer dies within that specified period, then sum assured is payable. If death does not occur in the coverage term, then nothing is payable. Term plan, there is no investment portion or cash value. Hence the premium is less.

4.

What is Pure Endowment Plan?

Pure Endowment is only for principle purposes. It cannot be sold. Pure Endowment is the exact opposite of Term Plan. If the death or event occurs within the specified period, nothing is payable. But if the death or event does not occur in the specified term of the policy, then sum assured is payable on completion of the term as maturity.

5.

What is Normal Endowment Plan?

Normal Endowment sold is a combination of Term and Pure Endowment. If the event occurs(death) within the specified term(coverage period) of the policy, then sum assured is payable. If the event does not occur, then, at the end of the term(coverage period) of the policy, the sum assured is payable as MATURITY amount.

6.

What is Whole Life Plan?

Both endowment and Term have a specified coverage period till which insurance cover is given. But, whole life plans do not have term. The meaning of whole life is Cover till Death Occurs. With respect to premium payment, whole life plans can have a specified term within which premium can be paid, and the cover extends till whole life. Example is Whole life plan with 20 years premium payment. Another type of determination of premium payment term determination is through cease age. For example, Pay premium till you attain the age of 55 or 60(retirement age) and the cover extends till death.

7.

What is a Annuity Plan?

Operation of Annuity plans is exactly opposite of Insurance process. In normal insurance, premium is paid by the customer at regular intervals and the insurance company promises to pay the sum assured in the likely happening of the risk.

In annuity, the individual pays a large amount in the beginning and buys annuity policy. The insurance company pays a pension to the individual till the death of the individual. For example, an individual at the age of 60 buys a annuity plan by paying 500,000 to the insurance company. The insurance company promises to pay 5000 per month subsequently till the death of the individual. Other types of annuity plans are can be like, Even on death of the policy holder, the dependant beneficiary continues to get the income benefit till death.

8.

What is Maturity Benefit?

Typically applicable in Endowment types of plans where cash value of the policy accumulates in the policy term, and can be payable after completion of the term if the risk event(death) does not occur.

9.

What is Survival Benefit?or What is a Money Back policy?

Also called Money back policy. The concept of a 20 year endowment plan, where the return of money can only be expected at the end of the end 20 years may be repelling for many individuals. Hence, in survival benefit plans, the sum assured is broken into multiple payments and shall be paid after policy completes specified interim terms. Example, 3rd Year 10% of Sum assured, 6th year 10% of sum assured 21st year 40% balance sum assured. In some other plans, a little higher premium is charged, and a full 100% sum assured will be given at the end of the policy term.

10.

What is Increasing Endowment Plan?

These are insurance plans to address the inflation rates. A sum assured of 2 million on the current day may appear reasonable to address the insurance needs of a individual. The same 2 million may appear little short one year down the line due to inflation. Hence to address this, increasing endowment plans are designed, which has the sum assured component increasing at a specified rate. For example, every 1000 sum assured becomes 1060 1060 after first year. 1123 after second year, and so-on.

11.

What is a Decreasing Term/ Mortgage Plan?

This is typically applicable in cases of need for insurnance during loan transactions. For example, a bank gives a large loan of 5 million to a individual at a interest rate of 16% and with a repayment period of 10 years. Then the insurance company shall issue a Decreasing Term policy or a Mortgage policy for 5 million + interest, which decreases in steps(monthly or yearly) such that the sum assured payable at the end of 10 years shall become zero. If death occurs anytime within the term, then the payable sum assured is calculated. The above example, is a level or single premium Decreasing term. But, in sum cases, even the premium installments can also be in decreasing during the term of the policy.

12.

What is a Rider?

A rider is also like a plan. The only difference is that an insurance policy cannot be issued based on a rider. An insurance policy can only be issued on a plan. But the customer can opt for addition riders which gives him coverage to other types of risk. Need For Riders : If Life insurance is considered in its strict definition, the only event or risk covered is death. But, considering any life, there can other catastrophic events which may occur and there is great need of insurance coverage for it. Examples like, An accident occurs resulting in losses of legs and eyes, but death does not occur. The individual is affected by a critical disease, due to which his normal working is completely hampered. The individual is suddenly hospitalized, and the expenses are too much to bear. To address to the above risks, various riders are designed. The insured, while opting for a policy can opt for the additional riders and pay the rider premium.

13.

What are the different types of Riders?

Riders can be classified as follows 1. 1. Accident Riders 2. 2. Health Riders 3. 3. Income benefit Riders 4. 4. Miscellaneous riders like Waiver of Premium,

14.

What are different types of Accident Riders?

An accident is usually a complicated event and the losses incurring out of it can be numerous and is typically a chain of events. For example, let us examine a typical accident. An accident occurred and the individual lost both his legs and a eye. The individual was immediately admitted to a hospital, where he has to pay room and board expenses. A medical consultant visits the individual and charges a fee for consulting. The individual undergoes a surgical operation for his eyes and legs. There is a operation expense. The doctor declares that the individual has to be on bed for 1 year before a decision is made to issue fitness for work. Hence, the individual loses his living(income). Looking at the above scenario, an accident rider may cover one to many of the risk events as below. Death due to accident. Losses of Limbs (legs, hands eyes) due to accident. Temporary Partial Disability, resulting in loss of income.(Fracture of a leg etc.) Temporary Total Disability resulting in loss of income. Permanent Total Disability resulting in loss of income. Hospital Room and Board expenses. Doctors consultation fees. Surgical Expenses. Accident Riders can be like Accident Death Benefit Rider. Accident Death and Disability Rider Accident Indemnity Riders(which includes hospitalization and income benefits.) Accident insurance is also issued as a policy in general Insurance(some times life insurance too). It is called Personal Accident, which is typically given for a 1 year period and is renewable.

15.

What is Riot and Civil Commotion Rider (RCC)?

Accident riders do not cover injury to the individual who, even without intention gets involved in War, Riots and Civil commotion. To address this additional risk of accident,

the customer has to opt for RCC rider, which works like a rider to the main accident rider. Along with RCC, there can be other special risk events like Accident while playing adventurous games. Accident while traveling in non-commercial airlines. Etc.

16.

What are different types of Health Riders?

Health riders are classified as Hospital Benefit Riders Hospital and Surgical Benefit Riders Critical Illness or Dreaded Disease Riders. Hospital Benefit or HB address the expense of hospitalization like, Room and Board Expenses, Nurse fees, consultation fees etc. Hospital and Surgical, typically includes HB in it and also includes, surgical expense insurance. It has a schedule in which, for each operation, a specified percentage of sum assured is payable. Critical Illness or Dreaded disease covers a set of dreaded disease as per schedule (say some 40 diseases). On evidence that the individual is affected by the disease, sum assured is payable. Critical Illness, usually is packaged with living benefit, wherein, subsequently, disability income is payable.

17.

What is Living Benefit Rider?

Usually packaged to either health or accident(is also sold separate), this rider, on evidence of Permanent Total Disability of the policy holder, a disability income is payable on a periodic basis. Ex: 10% of Sum assured every year for 10 years.

18.

What is a Disability? Different types

The following are the different types of disability Temporary Total Disability(TTD) : Typically Weekly or monthly Income benefit Permanent Partial Disability(TPD): Typically Weekly or monthly Income benefit Permanent Total Disability(PTD) : Typically Yearly Income benefit

19.

What is Waiver of Premium / Payer Benefit?

These are riders. When the insured, or the proposer in child policy is Permanent Total Disabled(PTD), then if the policy has this rider chosen, the further premiums of the policy is waived off. Premium amount in such cases is drawn from the Accident or health claim account and adjusted to keep the policy inforce. Waiver of Premium changes the status of the Policy. So, whenever, the system meets outstanding for premium for the policy, it passes the following accounting and moves the due date forward. Dr. Accident Disability claim(or Dr. Waiver of Premium Claim) Cr. Premium

20.

What is the difference between a plan and a Rider?

Principally, there is no difference between a plan and a rider. But, as a process, there is a difference. A plan can be sold on its own. A rider cannot be associated without a plan being associated with the policy. There can be only one plan for a policy, but there can be multiple riders.

21.

What is Indemnify or Indemnification?

Indemnification or Indemnify is assessment and compensating exactly for the loss, (may be less but never more). This term is highly used in General Insurance, where sum assured of the policy determines only the higher limit, and the exact nature of the loss needs to be assessed objectively. But, in Life Insurance, Indemnification is applicable in Hospitalization and Disability Income part. In hospitalization, it is usually reimbursement of bills, and the income benefit determined based on sum assured is less than or equal to the original income of the assured when in service. The underlying principle is, never allow the insured to make profit out of a risk event.

22.

What is Subrogation?

Applicable only in General Insurance, wherein the Insured loses the right over the object when risk event occurs. This can be understood by the following examples Ex 1 : The Insured car meets with an irreparable damage and the Insurance company decides to replace with an equivalent car. In such cases, the damaged car is the property of the Insurance company. And it sells it as a scrap to recover the part of the amount paid as claim. Ex 2 : The insured has a comprehensive policy with own damage for his car. After accident with another car, the insured claims Own Damage claim with the insurance company and gets his car repaired. Later it is proven that the fault is with the other party and a third party property damage can be claimed from the other insurance company. In such case, the third party proceeds will go to the Insurance company which paid the Own Damage claim, not the insured.

23.

What is a packaged Product?

To facilitate easier selling, competetion reasons, and to address specific segment of customers, insurance companies package a plan and a set of riders, and design premium tables accordingly. Example of a packaged product is as follows. Plan : Comprehensive Cover Coverage Natural Death : Sum assured payable Accidental Death : Double Sum assured payable Maturity : Sum Assured Critical Illness Hospital Benefit Waiver of Premium

24.

What is Event?

An Event (Risk Event) is a happening which has uncertainty, as to when it will happen. There is always a probability less than 1 for the event to happen within a specified period of time. Examples : Death is a CERTAIN event. But, Death of a Individual in the next two years has uncertainty. Accident is always a Uncertain Event. Critical Illness is a always a uncertain event.

25.

What is Cause? What is Proximity Cause?

An event always has a cause. If death is a event, the cause of death may be due to a disease, or Accident or due to natural reasons.

26.

What is the relationship between events and causes?

Causes and Events some times form a chain. In real terms it is difficult to differentiate what is a cause and what is a event. Both are same. The following example may make it clear of the chain. Cause 1: The insured is Drunk and driving a car. Event 1/Cause 2 : The insured cant control and meets with a accident. Event 2/Cause 3 : The insured is admitted into hospital and expenses incur. Event 3/ Cause 4 : Insured is operated and surgical expenses occur. Event 4/ Cause 5 : The insured is Permanently disabled and income benefit is paid. Event 5/ Cause 6 : After a month, the insured dies. In the above example, the cause of death needs to be assessed. The root cause or PROXIMATE CAUSE in this case is the accident. Hence, it is treated as accidental death, and sum assured is payable. Suppose, that there is a exclusion cause in the policy, that accidents arising out of drunken driving is not covered. Then, nothing is payable to the insured.

27.

What is cause exclusion?

Certain causes are excluded in some policies. Exclusions can be Occupational Exclusions, Health Exclusions Geographical Exclusions. Miscellaneous Exclusions. OCCUPATIONAL exclusion appears as If the accident occurs when the insured is participating in a motor racing event, then nothing is payable. HEALTH Exclusion appears as If the cause of death is due to AIDS, then nothing is payable. (or premium collected is refunded.) GEOGRAPHICAL exclusion appears as If the accident or hospitalization occurs outside the country, then nothing is payable.

MISCELLANEOUS exclusions can be other than above and appears as If the cause of death is SUICIDE or Murder by Beneficiary, then premium will be refunded and no sum assured shall be paid.

28.

What is relation between Plan/Rider and Events?

A plan or a Rider shall have one or more risk events covered on the OBJECT of Insurance. The object of Insurance can be a Life, or a object like car, house etc.

29.

What is Event Based Premium?

Premium is typically applicable for a plan or a rider. But to arrive at the premium for a plan or a rider, premium is calculated for each risk event, the plan or rider covers. And the sum of all event premiums under the plan or rider becomes the premium of the plan or rider. It depends on how the premium tables are designed. If the premium table is designed directly for the plan, considering all the events in it, then there shall be no event based premium calculation. Instead, if the premium tables are designed such that, it consists of premium for each event of the plan/rider, then EVENT premium is calculated for each event and the sum of the event premiums will be the plan/rider premium.

30.

What is Annualized Premium?

Typically premium tables are designed for Yearly premium or Single premium. If it is yearly premium, and the policy is issued on a monthly, or quarterly or half-yearly frequency, then, for some calculations of MIS or Persistency, there is a need to assess the New Business Premiums. But fetching premium from policy tables yields premium depending on frequency. Hence, to facilitate uniform scale, all premiums fetched are annualized(multiplied by 12 for monthly, by 4 for quarterly) to get the annualized premium.

31.

What is meaning of term Per Mil or Per Millie?

Jargon used in Insurance, it means What is the premium rate for 1000 sum assured?

32.

What is Sum Assured/Benefit and what are different types of benefits?

An insurance policy promises certain benefits or compensations when the specified risk events as mentioned in the policy occurs. Sum Assured is a benefit which is payable on the occurrence of the event. The meaning of sum assured differs in different types of situations.

In life insurance, sum assured is always the payable amount on the occurrence of death of the insured. But, In hospital insurance, Motor Insurance, sum assured determines the maximum amount which can be payable and the actual payment amount depends on the assessment of actual loss. For example, In a life endowment plan with a sum assured of 1 million. On death of insured, the insurance company is liable to pay full 1 million. In a Motor policy, with sum assured 1 million(Vehicle value), upon accident, the payable amount is determined by the surveyor, and subsequently the garage bill.

33.

What is Double or Triple Indemnity?

In some cases, to address some catastrophic and unusual risks, and for better selling of products, the insurance company shall promise double or triple (or multiple) sum assured, in case certain event occurs or the cause of certain event is as specified. For example, If the accident occurs when the insured is traveling in a public train or a bus, then sum assured payable will be doubled. If the accident is due to fire in a public place, (ex : cinema hall), then double sum assured is payble

34.

What is Unit rate or Unit Rate Premium?

Applicable in Group Insurance. If a Group Term Assurance plan is considered, it is typically issued to a company consisting of a group of employees. Typically the client company pays premium on behalf of the employees. But, premium depends on age and sex and varies for each individual in a group. Hence, to simplify the process of policy issue and for better comprehension, the average premium for the group is calculated, and it is taken as unit rate. Hence, unit rate is the rate of premium which is specially calculated and applied to the specified group policy. Calculation of unit rate involves the following steps. Calculate the exact premium(Qx Rates) for each individual in the group based on Sex , age and Occupation Class. Calculate the Sum of premium for all individuals. Calculate the sum of sum assured for all individuals.

UNIT RATE = Sum of Premium -----------------------------------------Sum of Sum Assured The above unit rate is nothing but the average premium for the group, which is reapplied back on each individual to get the unit rate premium of each individual. In some cases, the above formula has other factors like Profit, Commission and Service Tax and the unit rate obtained shall not be the exact average.

35.

What is Occupation / Occupation Class / Occupation Industry?

Occupation of Insured plays a major role in determination of risk premium(especially for accident). There are various occupations, and these occupations are classified into 5 Classes, with Class 1 specifying the lowest risk and Class 5 specifying the highest risk occupation. Occupation class is a factor in calculation of premium. To understand occupations better, it is grouped based on industry. Examples of industry are as Computers and Software Workshop and Engineering. Mining Civil and Construction etc. Industry at times is essential to understand the difference in classes because, A supervisor in a Mining industry is a high risk class, than a supervisor in a computer industry.

36.

What is Free Cover Limit (FCL) ?

Applicable in Group Insurance. The term Free Cover Limit is misleading. It should be No Underwriting Limit to make sense. Underwriting is a expensive activity. In a large group policy, it is impractical to underwrite all the individuals. Hence, a suitable method is devised to filter out standard and manageable risk cases. FCL amount is dependent on the group size, age of each individual, and the average sum assured of the group. Average sum assured is calculated for the group, and each individual with his sum assured request is compared to the average sum assured based on a formula. If the individual sum assured request is less than the arrived FCL for him, then the individual passes auto underwriting, else, the individual is subjected to manual Underwriting.

37.

What factors are used for premium calculation in life Insurance?

Factors considered for premium calculation depends on each event. But the following is a exhaustive list of factors considered in calculation of premium. 1. 2. 3. 4. 5. 6. 1. 2. 3. 4. 5. 6. Plan/Rider -- Event Age of Insured. Sex of Insured. Occupation class of Insured. Term of the policy/Cease age of policy Sum assured/ Benefit requested by Insured. 1. 7. Frequency of payment chosen(Single, Yearly, Half-yearly, Quarterly, Monthly)

38.

What is Gross Premium and What is Net Premium?

Gross Premium is the premium which is charged on the insured. It consists of risk premium with all the expenses. Net premium is the actual risk premium considered for reserve calculation purposes.

39.

What is Backdating? How it is useful?

Insurance policy coverage typically starts from the date of first premium payment of Insured to the company. Age is a factor in the calculation of premium. And as the age increases, the premium increases. Age of insured is calculated as Age Last Birthday, or Age Next Birthday or Age Nearest Birthday. In some cases, if the customer has completed his birthday recently(15 days or one month back), and is taking a insurance policy now, he may wish to backdate the policy to get the age advantage of 1 year. This is called backdating. In group policy, the client company may backdate the policy to align the policy with the financial year. If the policy is backdated, then no claim can be entertained for the events which has happened in the backdated period.

40.

What is Policy Term and Premium Term?

Policy term is the period for which risk is covered on the insured. Policy has a start date or risk commencement date. The end of risk cover of the policy (policy end date) is arrived by adding the term of the policy to the risk commencement date.

Premium term is the term for which premium installment shall be paid. In many cases, the policy and premium term are same. But, in some types of plans, the premium term will be shorter than the policy term. Ex : Whole life Plan with 20 Year Premium Payment. 30 year Endowment Plan with 20 year premium payment. Also look for Cease Age.

41.

What are the different dates involved in a policy

Fig : Dates line diagram of a policy with Back dating and premium term less than policy term

PSD PRD

PID PDD PDD PDD PDD PDD

PRED

PED

BP Premium Term Policy Term

PSD ---------- Policy Start Date PRD ---------- Proposal Date PID ---------- Policy Issue Date BP ---------- Back Dating Period PRED -------- Premium End Date PED --------- Policy in Date There are various dates involvedEnd a policy as follows.

Proposal Date : The date on which the proposal is received and keyed in the system. Policy Start Date : Also called Risk commencement date. The date from which risk starts for the policy. Policy Issue Date : The date on which the policy is accepted and issued to the customer. Will be same as policy start date, except in cases of backdating of the Policy start date.

Premium Start Date : Always same as Policy start date. Premium End Date : The date on which the premium payment of the policy shall be completed as per plan. In most plans, it coincides with end date, but some plans have a shorter premium payment period. Policy End Date : The date on which the risk cover for the policy terminates. It is also the Maturity date in case of endowment plans. Premium Due Date : This is a date which is dynamic. As the premium payment of the policy depends on frequency, premium falls due depending on frequency. When the customer pays the premium, the premium due date is moved to the next due date based on the frequency. It is also called Paid To Date. For Example, if start date is 1st March 2001 and the frequency is quarterly, when the customer pays the first installment, the premium due date is moved to 1st June 2001. When the customer pays the second installment, the premium due date is moved to 1st September 2001. Next Outstanding Date : Premium Due date as mentioned is the Paid to Date. That is till what date the premium for the policy is paid for. If the customer does not pay the premium for the policy even after due date, In some cases, for process reasons, it is essential to know how many premium out standings are due from the customer. Hence, this date is used to track the next outstanding premium. Renewal Date : (Premium Due Date can be treated as a renewal date in Individual Life Insurance.) In group and general Insurance, the policy is typically issued for one year. After the completion of one year, the policy needs to be renewed. This date specifies, the date on or before which the policy needs to be renewed.

42.

What is Cease Age? Different types

A plan designed can be based on a term or a cease age. There can be two cease ages. Policy Cease age and Premium Cease Age. These are used to determine the Policy End date and Premium End Date

Payment of premium is convenient during the earning period of the Insured. In the later stages of life, when the commitment towards the family increases and the earning capacity decreases, commitment towards insurance premium may get affected. Hence to facilitate, instead of specifying term, cease ages are specified. Premium Cease age is the age of insured at which the premium payment of the policy is stopped. Policy Cease age is the age of insured at which the coverage stops.

43.

What are the different types of customers involved in a policy?

The following is for Life Insurance. Life Assured or Insured : The object of contract. He is the person, on whom if any of the events occur, the sum assured/benefits are payable. Proposer : In some cases, a husband may take a policy on wife, or a father may take the policy on the child. In such cases, the formal policy holder, who signs the contract is either the husband or the father. Then he is called a proposer. A proposer has insurable interest in the life assured. Payer : In some cases, only for payment of premium, a third person may get involved, who does not have any insurable interest in the life assured. For example, an individual takes a policy and his employer pays the premium. In this case, the employer is a payer. A payer can be an individual or a company. Beneficiary or a Nominee : On the event of death, it is the beneficiary, to whom, the policy proceeds go. The life assured nominates the beneficiaries for the policy. Trustee : If the beneficiary is a minor, then a trustee can be appointed for the policy to take the proceeds and give it to the beneficiary.

44.

What is difference between Quotation/Proposal/Policy?

Quotation : It is issued to a prospective client, after analyzing his insurance needs to make him understand and decide on which plan and how much sum assured to go for. Proposal : A proposal is a prospective insurance policy given by the client(thru agent) along with the first installment of the premium as determined by the agent. Proposal is converted into a policy after the process of Underwriting.

Policy : An Insurance policy is a contract of insurance given to the Insured, which consists of a schedule and policy terms and conditions.

45.

What is Proposal Deposit?

When the customer submits the proposal, it is typically accompanied by the first installment of premium. This first installment of premium is initially kept as proposal deposit ( a suspense account.). After Underwriting, if the proposal is accepted, then this proposal deposit (suspense money) is converted into the first premium and the policy is issued. If the Underwriter does not accept, this proposal deposit amount is refunded to the insured.

46.

What is Underwriting?

One of the most critical aspects of insurance selling is assessment of risk and to ensure that the business is fair to all. The degree of risk is a variable and is dependent on various factors. For example, the risk of death of a person who smokes 20 cigarettes a day is much more than a non-smoker enjoying good health. Underwriting is a process of assessing the degree of risk. In life insurance, the risk premium tables are developed by considering the standard lives. A standard life is considered to enjoy good health, without any disease, without any health deteriorating habits, without involvement in any hazardous occupations. Any life which deviates from above standard is considered as sub-standard. An underwriter assess the degree of sub-standard ness and charges a extra premium to compensate for higher degree of risk. An Underwriter can also reject issuing a policy for high risk cases, ask for additional health checkups, impose new cause exclusions.

47.

What is Extra Mortality/ Loading? Different types

The activity in which an underwriter charges a extra premium for sub-standard case is called loading. Loading can be done for Occupational or Medical Reasons. Loading is done on the risk part of the premium, not on the total premium which includes the investment part.

48.

What is Policy Schedule?

It is the policy document given to the customer as part of fulfilling the contract, which consists of Insureds name, policy term, risk commencement date, Plan, Riders, Sum assured/Benefits for each plan/rider, premium and frequency of payment.

49.

What is a short term policy? What are short term rates?

Applicable for General and Group Life Insurance. In some cases, due to various reasons like alignment of financial year with the Insurance policy year, the customer company may request for the policy to be issued only till the next financial year start date. Hence, the policy is issued for specified days, not a full year. Such policies are called short term policies. In cases of General Insurance and PA, when such request arises, premium calculated for the year is not pro-rated for the specified days. Instead, a short term percentage is applied to get the premium. Premium obtained from short term method is more than that of Prorated means.

50.

What is a Participating Plan and Non-Participating Plan?

Participating in this context means Participating in sharing of profits. Insurance companies invest the excess reserve they have as per regulations, which yields profits. Principle of insurance defines to share the profits back with the investors(policy holders). Hence, plans which allow sharing of profits are called Participating Plans and plans which do not support are called Non-Participating plans.

PREMIUM HANDLING
Fig : Activities & Behaviour of Policies with regards to Premium Due date:
RN PDD(OG) RE 15 Days LAPSE/APL/NF

30 Days

GP 45 Days

Out Standing Generation RN -------------- Renewal Notice PDD-------------- Premium Due Date OG ---------------Out Standing Generation RE --------------- Remainder Notice GP ---------------- Grace Period for premium payment

51.

What is First Year Premium and Renewal Year Premium? APL ---------------Automatic Premium Loan

The premium collected for the policy in the first year of its term is called first year NF ----------------Non-Forfeitures premium. Premium collected for the policy in its subsequent years are called as renewal year premium. These classification is usually needed for accounting purposes.

52.

What is Frequency or Mode of Payment ?

The premium amount for insurance can either be paid at a go, or paid in installments with a specified installment frequency. If premium is paid at a go for the whole term, then it is called a SINGLE PREMIUM. But, only some plans have provision for single premium.

Other than single premium, the customer can opt for the following modes Yearly Half-Yearly Quarterly Monthly

53.

What is Payment Method? Different Types

Customer can opt to pay premium by various methods. They are as follows. Direct : Customer pays the premium at the receipt counter of the insurance company, by either cash or card or cheque. Bank Slips : Insurance companies have arrangement with some banks where the insurance company has account. The customer can walk into any of such bank branches and pay the money to the bank by filling a specified slip. The bank credits the money given by customer to the insurance company account and sends the duplicate of slip to the insurance company where policy due date movement and accounting is done. Bank usually charge commission per transaction in such cases. Bank Deductions : In cases where even the customer also has his account with a bank and there is arrangement between insurance company and the bank, the customer can opt for auto deduction method. That is, a few days in advance before premium falls due, the insurance company sends a statement of dues of all its policy holders, who have opted for the deduction from specific bank. This statement is usually sent in soft form in a predefined format. System in Bank processes the statement, (Debit policy holder account and Credit Insurance company account.) and sends the updated statement back. Adjustment of differences, policy due date movement, accounting is done by insurance company after receipt of updated statement. Private or Employer or Salary Deductions : In case when large number of employees from a single company have taken policies from the insurance company, they may request their Personnel Department to handle their premium payment by deducting their salary. This method works exactly the same as bank deductions, with the statement sent to the employer, and received back along with a cheque or a bank slip. Angkasa Deductions : Applicable in Malaysia. Similar to bank deductions. Angkasa is a separate body which handles insurance and other transactions of government employees.

54.

What is a Renewal or Reminder Notice?

Life insurance policy gets lapse, if the premium is not paid within time. Lapse is equivalent to lost business. Hence, to avoid lapses, and to remind of timely payment of premium, insurance companies send renewal and reminder notices to the customer. Renewal Notice is a notice which states the due date and the amount and is sent (usually 30 days) in advance of due date to the customer.

If the customer does not pay the premium before due date, on the due date of policy, a outstanding is generated and the policy enters grace period(usually 30 to 45 days). If the customer does not pay for 15 days beyond grace period, a reminder is sent to him of the premium payment. If there is no response, then the policy is lapsed on the day the grace period ends.

55.

What is Over Payment and Short Payment?

If Premium value is 267, there are chances that the customer sends a cheque of 270 or in some cases for 265. If 270 is the cheque amount, then the excess 3 is kept in a suspense account as overpayment for the policy. If 265 is the cheque amount, then the shortage 2 is kept in a suspense account as shortpayment for the policy.

56.

What is short payment tolerance?

Insurance premium should always be received in full. Principally, there should not be any entertainment of short payment. But, if the short payment is too small like 2 RM or 20 baht, then the insurance company allows the same and appropriates the premium by keeping the shortage in suspense. This 20 baht or 2 RM is short payment tolerance limit.

57.

What is zero payment?

Applicable in Deductions. When a statement is sent to the bank or employer for deductions, then, if for a individual, the returned amount by the bank is zero, then it is called a zero payment. Typical rule in deductions say, if zero payment is received for two times, then lapse the policy.

58.

What is Outstanding Premium?

The principle of insurance needs that the premium is collected in advance and cover is given. Hence, the premium due date specifies the Premium Paid to date for the policy. To continue the policy in INFORCE stage, the insured has to pay the installments in advance of the premium due date. If it does not happen, then on the day of premium due date, the premium becomes outstanding. This is called outstanding premium.

59.

What is a Debit Note and a Credit Note?

Applicable in Group and some types of General Insurance, where the customer is not a individual, but a company.

Debit Note is an Invoice of premium and other dues, generated by the insurance company in the name of the client company. A credit note is a reverse of debit note, which is raised to address the claim payments to the client company. Please note that Bill, Debit Note/Credit Note, Invoice are used interchangeably and all means the same. Example : In group insurance, for a large group, if the total premium for all individuals is 50000, then, upon underwriting, The policy is issued to the company along with a Debit Note for 50000. The cover of the policy begins immediate, but no claim shall be payable till the Debit Note is cleared.

60.

What is Premium Breakup?

Applicable in Group Insurance. Group Insurance products can be classified into two types. One in which, premium due date movement and accounting is done at the company level, and the other, in which, premium due date movement and accounting is done at the individual level. Hence, to differentiate, plans are classified based on whether Premium Breakup is Needed Yes/ No. If premium breakup is needed for a plan, then, when money is received for a debit note, it should be accompanied by a statement of individual breakup premiums received. If premium breakup = No, then it is the responsibility of the customer company to pay the premiums, and individual has no involvement in policy accounting of movement of due dates. If Premium breakup = Yes, then it is the responsibility of each individual to keep his policy inforce. Due dates and policy accounting is done at the individual level. Premium breakup should not be confused with Premium sharing. Sharing is from the customers point of view and does not affect the process of insurance company.

61.

What is Premium Sharing?

Premium sharing is more of a policy feature and is for information purposes only. It specifies the arrangement between employer and employees on the sharing aspects of premium. For example, the arrangement can be like 60% of premium is paid by employer and 40% is paid by the employee. Premium sharing does not affect accounting or any process aspect from the insurance company point of view.

62.

What is Premium Grace Period?

Typically, installments of insurance premium should be received in advance before the due date reaches for the policy. If the premium is not received after due date, then the policy is supposed to be lapse and no claims shall be entertained. But, insurance companies do not lapse the policy immediately, instead, give a grace time for the customer to come and pay premium. This grace period can be anywhere from 31 to 45 days. If any claim is registered in the grace period, then it is payable by deducting the outstanding installment of premium.

POLICY SERVICING

Sum Assured

Sum Assured

Paid Up SA

ETI PU Cash Surrender Value Premium Line CSV Line Lapse Sum of Premium ETI Reduced Term

APL 2 or 3 Years Term

ETI ------------Extended Term Insurance PU ------------Paid up CV ------------Cash value APL -----------Automatic Premium Loan

63.

What is cash value or Surrender Value?

Insurance plans can be of two types with respect to premium. Term plans which do not have any investment component, and Cash value plans, which have cash value component. In cash value plans, the premium amount paid by the customer consists of risk part and a investment part. This investment part accumulates with time, (due to premium payment and interest on accumulation) and it will become maturity sum assured at the end of the term of the policy. This is called cash value. Properties of Cash/Surrender Value

Cash value will be zero in the first 3 years (2 in some countries). Then only the accumulation starts. The reason is, Procurement expenses in Insurance is quite high. Large commission needs to be paid in the first few years and the Underwriting , medical expenses, issue expenses(stationery) also exists at inception of policies. Hence, the investment part of premium is consumed for these expenses in the initial years of the policy. Cash value calculation depends only on time. Amount of premium collected is not a factor for cash value calculations. Cash value formula is typically designed such that the value changes each day. Cash value exactly becomes maturity sum assured at the end of the policy term.

64.

What is Non-forfeiture(NF)? What is Automatic Premium Loan (APL)?

The term Forfeiture in English means Fine, Penalty or Losing. Forfeiture of policy means losing the insurance cover, which is equivalent to lapse of policy for nonpayment of premium. Non-forfeiture means not allowing the policy to lapse. If the policy is based on a cash value plan and if the plan allows NF, then, when the premium is not received after grace period, before lapsing, the system checks the cash value accumulated for the policy. If the cash value is more than the premium installment due, an AUTOMATED PREMIUM LOAN is extracted from the cash value and adjusted for the premium.

65.

What is Policy Surrender?

In policies, where a cash value exists, the customer can wish to terminate the policy at any point of time and take back the Surrender value. But, surrendering a policy always works at the disadvantage of the customer and the returns will be loss prone. Typically, Customers wish to surrender policies for the following reasons. Urgent need of cash to cater to other commitments. Inability to pay any further premium due to some financial constraints.

Surrender is termination of policy and losing business, hence, the insurance companies provide for other options to the customer. Issue a Policy loan from cash surrender value at low interest rates to address the immediate needs.

If payment of further premium is a problem, then, make policy Paid up, by projecting the current cash value and thus reducing sum assured. If payment of further premium is a problem, and the need for the same insurance cover still exists, then convert the cash value to buy term insurance for the same sum assured(but may be for a reduced term.)

66.

What is Partial Surrender? How it is done?

Partial surrender can be of following types In Individual Life, it is surrender of bonus. In group life, it can be surrender of a part of deposit amount in specific plans. In group life, it can be surrender of specific sub-policies(certificates).

67.

What is Paid up? What are the different types?

Paid up of a policy means making Premium Paid Up. It is an option which can be exercised by the insured, when he decides not to continue payment of premium. Only policies having cash value can be made paid up. Paid up of a policy results in reduction of sum assured. This reduced sum assured is calculated by re projecting the cash value line for the remaining term by assuming no premium shall be fed in. Paid up is Proportional to {(Current cash value * Interest accumulation for remaining term) Risk premium for the unrealized interest} Paid up can be With Profit Paid Up - WPPU, where bonus is given along with paid up sum assured. No Profit Paid Up NPPU, where policy forfeits bonus benefits.

68.

What is Extended Term Insurance(ETI)?

CTI (Conversion to Term Insurance) is a better describing acronym than ETI. ETI is utilizing the cash value of the policy to buy term assurance for the same sum assured. Insured can opt for ETI option, when he feels the need for the same insurance sum assured but cannot continue payment of premiums for the policy. As the premium for term insurance is less, the cash value of the policy is calculated and checked if it is sufficient to give cover for the same sum assured till the end of the policy. If the cash value is not sufficient, then the term is reduced suitably. If the cash value is more than the premium needed for term insurance, the excess cash value is either paid back immediately or projected as a paid up sum assured.

ETI results in a endorsement with a change of status of the policy and does not result in issue of a new term policy.

69.

What is Policy Renewal?

Is applicable for all types of insurances, but is not significant in individual life. Renewal in individual life is done by payment of installment dues to keep the due date and keep the policy alive. Renewal is mandatory in Individual life. It is more of a mandatory due than a option to the customer. In group and General insurance, Renewal carries significance as the policy is issued only for one year, and it needs to be renewed every year, with a fresh policy(principally) issued at every renewal.

70.

What is a Policy Loan?

Customers can take loans with the insurance companies at competitive interest rates on their insurance policies having cash value. The maximum loan given by insurance companies usually range from 90 to 95% of the prevailing cash value of the policy. Policy loans usually can be taken any number of times in the policy term, provided the cumulative loan due amount does not exceed 90-95% of the prevailing cash value.

71.

What is Loan Excess?

Term used in LIAS/NATOs. When the customer repays loan, and the repayment exceeds the loan due + interest, then, the excess amount is kept in as loan excess, which can be refunded.

72.

What is New Entrant?

Applicable in group insurance. Entry of a individual inside the group policy after commencement of the contract and before renewal is treated as a New Entrant. A new entrant comes inside the policy when a new employee joins the client company. If the product has unit rate applicable, then unit rate is applied, or if the product does not have unit rate applicability, then premium from tables will be calculated. The exact premium amount is arrived on a prorated basis, wherein, the yearly premium obtained is appropriated for the remaining number of days in the policy year.

73.

What is Exit?

Applicable in group insurance. If a individual resigns and quits the client company, it is intimated to the insurance company and it results in removal of the individual from the group policy.

The exact premium refund amount is arrived on a prorated basis, wherein, the individual policy premium is appropriated for the expired number of days in the policy year, and the balance is refunded.

74.

What is Policy Cancellation? Different types?

Cancellation can be of the following types Cooling off cancellation : Usually can be done within 15 or 30 days after policy issue. It results in refund of full premium by withholding any medical expenses. Cancellation by customer: Usually not entertained in individual insurance, but exists in group and general insurance. It results in refund of un-expired premium, or withholding short term premium for covered period and giving the balance. Cancellation by company(also called making policy void.) : The insurance company finds problem with customer health (which was prevailing at the time of policy issue), and this health problem was either innocently or intentionally concealed by the customer. If it is innocently concealed, then insurance companies will refund premium, and if it is proven as intentional concealment(fraud), then nothing is payable(penalty to customer).

75.

What is cooling off cancellation?

Usually can be done immediately after policy issue within a specified period called cooling period. There are some instances, where agents force a sell by tricks to customers without assessing their needs. After policy issue to the customer, he has a option to withdraw from the contract and get back his money within a specified period. If no withdrawal is made, then, the policy stands accepted.

76.

What is Unexpired premium / Future Premium?

An insurance cover is only given by collecting premium in advance. In principle, this collected premium is consumed on a day to day basis for covering the risk. At any point of time before due date of the policy, the total premium collected for the policy can be divided into CONSUMED(EXPIRED) premium for the elapsed period and UNCONSUMED (UNEXPIRED PREMIUM) for the future till due date.

77.

What is Policy Alterations or Policy Endorsement? Different types

There may be quite some changes which may be requested by the customer after policy issue till closure. These changes or alterations result in a formal endorsement issued to the policy by the insurance company. Alterations can be classified into those which result in premium change and those which do not result in premium change. Alteration which does not affect premium change. Change in Name of customer. Change in Address Change in race or religion. Change in policy payment method. Alterations which affect premium changes are Change in Plan of the policy. Change in frequency. Change in sum assured. Change in Age Change in Sex Change in Frequency Modification of rider terms Addition or deletion of riders Change in policy term.

78.

What is Nominations/ Beneficiary?

Nomination is a activity in which the insured nominates beneficiary who can take the proceeds of the policy in case of death of insured. There can be multiple nominations for the policy, but the cumulative share of all nominees shall always be 100.

79.

What is Policy Assignment?

Insurance policies can be used as a surety in mortgage loans. But such surety agreement should be intimated and registered with the insurance company. This is called assignment of policy. When a individual takes a loan with a institution or a individual by keeping his insurance policy as one of the surety, then, upon intimation, the insurance company assigns the policy to the lender in its records. Any further claim proceeds of the policy shall go to the assignee, until the policy is reassigned back to the insured.

80.

What are the different status of a policy? What is its significance?

PROPOSAL : The policy is in its proposal stage or is being underwritten. Insurance cover has not yet started for the policy. Awaiting Premium : Policy is still in proposal and is awaiting first premium in full for issue. Note that no cover can start, unless the first premium is paid in full. INFORCE : Policy is active with all premiums paid till date. Risk is fully covered LAPSE : Premium due date (Paid to date) of policy is crossed, including the grace period, then, if the Non-Forfeiture check fails for the policy, it will be lapsed. No claim is entertained for the lapse policy. SURRENDER : Customer terminates the policy in between by taking back the cash value, the status is changed to surrender. PAIDUP : Customer wishes to make the policy Paidup by reducing the sum assured. Upon claim, the paidup sum assured is taken instead of the original sum assured. ETI : Customer wishes to buy term insurance with the cash value. Either the term is reduced or the excess CV amount is projected for paidup sum assured. WAIVER OF PREMIUM (WP): Customer is totally and Permanently disabled, and the claims underwriter marks for WP. Then the system tracks for the policy for due date and adjusts the premium by withdrawing from Claim Account.

81.

What is Revival?

A policy which is lapsed can be revived by payment of all the premium dues along with interest. The policy becomes inforce after payment. This process is called revival. Insurance companies allow auto-revival of policies within a specified period after lapse(usually 6 months). In auto revival, money is collected at receipt counter and the policy is immediately revived. If the lapse period crosses the specified duration, the insured is subjected to reunderwriting, with declaration of good health from insured.

82.

What is Experience Refund?

Applicable in Group and General Insurance. If the insurance company finds good claim experience for the policy (Premiums collected for the policy is more than the claims paid for the policy), then the insurance company shares the profit with the customer

company by refunding a percentage of profit. This refund is called (Good) experience refund.

83.

What is Bonus? What are the different types of Bonus?

Bonus is applicable in case of policies based on participating plans. There are different types of bonus payment as follows. Simple Dividend : Every year, insurance company valuates its investment returns in the market, and declares a dividend percent. This dividend percent is applied on the reserve value of the policy to get the bonus amount for the policy. This bonus can be immediately released to the customer or can be appropriated for next premium due based on customer consent. Reversionary Bonus : Similar to dividend, but cannot be released to customer immediately. This amount is accumulated during the duration of the policy and can only be payable on Death, Maturity, Surrender of policy. Only this bonus amount can be forcibly taken by client which is called a partial surrender. Terminal Bonus : Insurance companies give a additional bonus on maturity for the polices which have completed the term successfully.

AGENCY MANAGEMENT
84. Who is a Agent?

An agent is a person or a entity, who is knowledgeable of insurance and insurance products, insurance need analysis. Agent is the person who approaches, educates the customer and gets business for the insurance company. It is mandatory that an agent should have license from the insurance regulatory authority of the respective country. A traditional agent is tied to a company and gets commission for the premium he gets.

85.

What are the different types of Agents? What is a channel?

There can be various types of entities who can get business for the insurance company. These types of entities are called channels. Agents (Tied Agents) External Agents(Brokers) Staff of insurance company having selling license. Institutions (Banks and other financial institutions can direct their customer for insurance and charge commission for the services rendered) Etc.

86.

What is Commission?

Selling insurance and giving personalized service to the customer is the job of the agent. An agent does this for a income, which is called commission. Commission is calculated as a percentage of the received premium which is predefined at product level (or negotiated on a casewise basis in some of group and general insurance policies.).

87.

What is First Year Commission and Renewal Year Commisson? Or What is Commission Year?

Commissions generated for the policy on receipt of premiums for Policys first year is called First year Commission. Commissions generated for the policy on receipt of premiums for 2nd and subsequent years is called Renewal Year Commission.

88.

What is a commission standard?

Maximum Commission rates payable are defined at the product level and is decided by the actuary at the time of product development. But, the actual commission rate paid differs and usually depends on the channel of the person who got business. A tied agent, not only gets commission on monthly basis, but also will get bonus and other benefits from the insurance company at specified periods. Hence, he may be paid at a lower rate. A external broker will only get business if the commission rate is attractive. Hence, he needs to be paid at best possible rate. There is no periodic bonus payable for him To address the varying needs of rates depending on channels, various standard rate sets are setup for each product and the standards are selected when the new business comes in.

89.

What is a overriding commission?

In case of tied agents, usually, there will be a hierarchy of a Manager, Officer, Agent (3 level) (or) Agent Leader and Agent (2 level). Number of levels vary from company to company. It is the agent who usually gets the business, but the personnel up the ladder have the responsibility of grooming their team. Hence, they also get a part of commission which the people under them get. This is called overriding commission.

90.

What is commission shares?

In cases, if more than one agent is involved in selling a policy, the commission amount to be given is shared by all the agents in specified ratios as negotiated among them.

91.

What is commission claw back?

Commission is generated as soon as the premium for the policy is received. Any abrupt termination of the policy results in refund of premium, which necessitates revoking or claw back of commission. Commission claw back occurs in the following processes. Cancellation of the policy. Exit of a individual from group policy in group insurance.

92.

What is Agents Persistency?

Persistency is to assess the business retention capability of the company (or specific agents policies). How many policies are In force compared to the total policies issued within a specified period. Premium is taken as a factor for calculation of persistency as it gives a direct measure of money retention. Definition : What percentage of In force Premium we have compared to the total premiums we were expecting for the specified set of policies issued in a specified duration? The premium considered is the annualized premium, which is nothing but (x12) for monthly, (x6) for half yearly and so-on. Persistency = Total In force Premium / Total Premium.

CLAIMS
93. What is a Claim?

When the risk event as defined in the policy occurs for the insured, the insured or his beneficiaries shall claim for the promised benefits as per the policy.

94.

What is a Intimation or Claim Intimation?

When the risk event occurs, it is intimated to the insurance company. It is called claim intimation. The person who intimates is called intimator.

95.

What is a Discharge Letter or voucher?

In case of claims, the process requires that a consent is to be received from the customer to release the payment. Discharge letter is sent to the customer for sign and return, so that payment can be released.

96.

What is Provision Accounting?

Surrenders and claims results in payment of large amounts. Hence, as soon as the intimation is received, the finance department of the insurance company needs to be intimated in advance of the likely liability so that they can make the amount ready at the right time. There is a need to get the cumulative immediate liabilities. Hence, the system passes provision accounting. Provision accounts are temporary accounts which work both on debit and credit side. Example : On Intimation of Death Dr. Death Claim Cr. Unpaid Death(Provision account) On payment of claim amount to customer Dr. Unpaid Death(Provision account) Cr. Bank(or Customer)

97.

What is a Deduction or Recovery?

Whenever there is a payment for death or surrender is to be made to a external entity(individual or company), the system checks if there is any due from the entity to the insurance company. If there is any due, this is adjusted with the payment amount before releasing. It is called deduction or recovery. This should not be confused with terms Bank deduction or Salary Deduction, which are premium payment methods opted by the customer.

98.

What is a Refund?

Refunds means giving back any excess amounts of the customer held with the insurance company. Refund is applicable in the following cases. When there is excess money is policy suspense account as OVERPAYMENT. When customer has repaid the loan amount in excess(LOAN EXCESS).

99.

What is a Penalty Clause in Claims?

It is the responsibility of the insurance company to pay the claim amount after it is proven valid. In some countries, the insurance regulatory authorities stipulate a penalty payment to the customer if the insurance company delays payment beyond a specified period. But, this penalty is not applicable when the delay is due to customer not submitting specified documents in time. Example of Penality rules: If (Date of Payment Date of Intimation) > 30 days Penality interest of 12% charged on Payable amount from intimation date. End if;

100.

What is LIEN?

Sometimes, when the risk is suspected but with no current evidence to prove it, the loading, instead of underwriting , is deferred on to the claim by adding a clause over a stipulated period. This is called lien. Lien is typically applicable for children, and is defined along with the product. Children below age of 5, though they appear healthy or highly vulnerable. Since Loading is impossible on all children, a reduction of claim amount is specified for claim cases. For adults, in suspected cases, the underwriter will explicitly specify the lien period and percentages applicable. Example of child lien is as follows.

For children, based on Age at entry, and the age of death, lien can be entered for each age. Lien specifies, fixed or percentage amount to be held from the sum assured.

Age Entry 1 1 2 2

Age at Claim 1 2 2 3

%LIEN 80 70 80 70

As per above, if the child age at entry is 2 years, and age at event is 2 years then, Lien is 80%. Hence, only 20% of sum assured can be paid.

101.

What is Claim Ratio?

The ratio of Sum of Claims paid for all policies to the sum of premiums received for all policies gives a measure of claim experience for the company. Claim Ratio = Sum of Claims Paid ------------------------Sum of Premium Received.

102.

What is claim rejection? What is cancellation after death? Why it happens?

A death claim can be rejected for some of the following reasons The cause of death is either excluded in the plan or policy. The cause of death is suicide and it is committed by the insured in nth year (usually 1st year only) of the policy. Beneficiary has intentionally murdered the insured for insurance. It is proven that the insured died due to a cause(ex :cancer) and it is proven that the cause existed at the time of policy issue and was intentionally concealed by insured. The status of the policy is not INFORCE at the time the death event occurs. In some countries, the insurance authorities prescribe refund of collected premium when the claim is rejected for some of the above cases.

103.

What is Ex-gratia Payment?

When the claim needs to be rejected, the insurance company can resort to ex-gratia payment as a sign of maintaining good image. This Ex-gratia amount is decided and keyed in by the respective claim officer.

REINSURANCE
104. What is Reinsurance?

The process in which an insurance company, insures itself for the high risk events it covers, with another company (Reinsurance company) is called Reinsurance.

105.

What is a Risk Category?

A set of similar Product-Event combinations, which Come under the same treaty Have same retention limit Same Reinsurance Process. Same Reinsurance operators and Arrangements.

106.

What is Sum at Risk (SAR)?

It is the risk which the insurance company is exposed to for the event. In most cases, it is the sum assured as in the policy, but may differ in the following cases. Decreasing Sum assured plans Increasing Sum assured plans Events where double indemnity is specified.

107.

What is a Treaty? How do we classify from systems view?

In GISS and TAKAFUL products treaties are classified as follows for clear comprehension. Principle Treaty : This is the treaty considered in programming. It may be either a Quota Share or a Surplus treaty. It can have multiple arrangements with sum of shares for arrangements equal to 100. This treaty key is applicable for a single risk category only. Paper Treaty (Original Treaty) : The original treaties as signed by insurance companies consists of multiple Principle treaties involving multiple Reinsures covering multiple risk categories and different retention limits. Hence, a group of Principle treaties make a Paper Treaty as signed by the insurance company with various reinsures. Consideration of a paper treaty in the system is mainly for report purposes and has no programming implication.

108.

What is a arrangement?

A Principle treaty may consist of multiple ARRANGEMENTS involving various reinsurers with the cumulative share of all arrangements equal to 100. Example of a arrangements under a treaty T1 based on quota share is

Treaty(Principle) T1 T1

Arrangement A1 A2

Rein surer MUNICH-RE SCOR-VIE

TYPE SHARE SURPLUS 70% SURPLUS 30%

109.

What is a Quota share treaty?

An agreement which covers for sharing of risk within the defined retention limit of the ceding company for the Product. Quota Share consists of Min Amount for QS : Minimum amount above which Quota Share is applicable. Default to zero. This minimum amount is only a deciding factor. Amount considered for QS is the total sum assured, not the amount above the Min amount for QS. Retention Limit : Maximum sum at risk the ceding company can bear for the event. Quota share is applicable for sum till the retention limit of the ceding company. In other words, if the sum at risk for the policy is above retention limit of the ceding company, Sum assured till retention limit is considered for Quota share, and sum above the retention limit is may go for facultative or surplus.

110.

What is a Surplus Treaty?

Surplus treaty comes into force, when the Sum at Risk exceeds the ceding company Retention Limit and/or Reinsurers retention limit of the policy. There can be various levels of surplus treaties for the same risk category, set up in sequence addressing increased sum at risk . Each level of Surplus treaty can have multiple operators, with specified shares.

111.

What is Excess of Loss (XOL)Treaty?

Applicable for General Insurance. It is a treaty signed between Insurance company and Reinsurers for specific lines of business, where some catastrophic claims result in heavy loss. XOL is considered only when the claim amount is exceeding a specified limit.

112.

What is Retention Limit?

Maximum sum at risk(SAR) the ceding company can bear for the event.

113.

What is Corridor Amount?

It is a tolerance amount for retention limit. For example, if the retention limit is 50,000 and the sum at risk is 50,500 , then it is preferred not to go for Reinsurance for 500. To avoid such border cases a corridor amount is specified for each retention. In the above example, if a corridor amount of 2000 is specified, then it will not go for Reinsurance till the sum at risk reaches 52,000. But if the sum at risk is 53,000 , then, the complete 3000 is passed on for Re-insurance.

114.

What is Facultative/Manual Reinsurance?

The excess of Sum at Risk(SAR) above the retention limit of the ceding company is considered for Reinsurance. If the company has defined treaties, then the Excess SAR is allocated for treaties. In some cases, the SAR may be so high that the treaties will be full and still amount remains. This excess left over is setup for facultative or manual reinsurance setup, wherein the allocation for reinsurance is handled by a underwriter manually.