Various Policy Conditions

Every life policy bond carries a set of conditions that govern the rights and duties of the two parties during the life of the contract. A student of insurance should know the important standard conditions.

• Age admission. Because the premium depends on age, the policy states whether age has been admitted (proved and accepted). If age was not proved at the start and is later found wrong, the sum assured or premium is adjusted accordingly.

• Days of grace. Premiums fall due on fixed dates, but the policyholder is allowed a period of grace (commonly about a month for yearly/half-yearly premiums and about a fortnight for monthly ones) after the due date to pay without penalty. A claim arising within the days of grace is still paid.

• Lapse. If the premium is not paid even within the days of grace, the policy lapses — the cover stops. A policy that has run only a short time and lapses may lose all value, which is why paying on time matters.

• Revival. A lapsed policy can usually be revived within a stated period by paying all the arrear premiums with interest and, if required, giving fresh proof of good health. Revival restores the full benefits of the original policy.

• Paid-up value. Once a policy has run for a minimum qualifying period and then premiums stop, it need not lapse totally; it may become a paid-up policy for a reduced sum assured, calculated from the proportion of premiums actually paid. No further premium is due, and the reduced sum is paid on death or maturity.

• Surrender value. After the minimum qualifying period the policyholder may surrender (close) the policy and take its surrender value — a cash amount, always somewhat less than the premiums accumulated, that the insurer pays for early termination.

• Loan on policy. The insurer usually grants a loan against the policy's surrender value, so the policyholder can raise money without giving up the cover.

• Nomination. The policyholder may nominate a person to receive the policy money on his death; nomination can be changed during the term.

• Assignment. The policyholder may assign (legally transfer) the policy to another person, for example as security for a loan; assignment transfers the rights in the policy to the assignee. …