There are several important terms used in a life insurance policy contract. Understanding these terms would help us understand our insurance products a little better.
Premium
This is the money policy-holders pay to the life insurance company for coverage.
There are four options of payment mode:
i) Annual – once a year
ii) Semi-annual – every 6 months
iii) Quarterly – every 3 months
iv) Monthly – every month
1) Participating policy
2) Non-participating policy
Participating Policy
Premiums paid are slightly higher as the life insurance company would share their profits with policy-holders in the form of:
i) Dividends or
ii) Bonus*
However, non-participating policy does not provide for the sharing of profits.
Note:
*Bonus - would be payable to customers on a certain amount (for every RM1,000 assured) under participating policy. But, insurance company can increase or decrease this amount, depending on the economic environment
Policy-holders and life assured’ Age
Age must be stated correctly. Although, insurance company may not cancel the policy due to incorrect age but policy benefit will be adjusted to the correct age.
This is the cash amount a life insurance company would pay customers when they cancel their policy.
Note:
Normally, policy-holders would lose if they surrender their policy before the maturity period.
Policy loan is granted as long as customer’s policy has a cash value. However, interest would be charge on such a loan.
Payment mode for the repayment of the loan and interest could be in:
i) Lump sum or
ii) Installments
Note:
Upon death or on maturity of policy, any unpaid portion of the loan taken (including interest), would be deducted from the proceeds.
Grace Period
Grace period is an additional period of time after the due date for the premium payment. (Please note that different insurance companies may have different practice)
Below are the grace periods according to different payment mode:
| Payment Mode | Grace Period |
| Semi-annual/Annual | 30 days |
| Monthly | 15 days |
Note:
If premium is not paid within the grace period, the policy may:
i) Lapse or
ii) Subject to “Reduced paid-up” or “Automatic Premium Loans”
(see below)
Reduced Paid-up
Customer can stop paying future premiums after their policy has acquired a cash value.
The policy would continue to remain in force but the sum assured is reduced.
Automatic Premium Loan
If customers do not pay their premium within the grace period (provided the policy has sufficient cash value), some life insurance companies would automatically advance to customer the premium amount.
Note:
Interest would be charge on the amount of premium loan outstanding. An automatic premium loan would reduce the cash value.
Suicide
Nothing would be payable to a “Nominee” if death was due to suicide within a period (usually one year - as stated in the policy).
Incontestability
The life insurance company cannot dispute the validity of a life policy after the policy has been in force for two years.
If the insurance company refuses to pay, it must prove that the policy was obtained through “fraud”.
Free Look
Customer may cancel their life insurance policy by returning the policy to the insurance company (subject to “15 days” after customer received the document).
The premium that customer have paid (less any medical fees incurred) would be refunded to customer.
Reinstatement
When customer’s life insurance policy has lapsed, customer may revive of reinstate it to full force.
However, it must be within a period of time and under certain conditions (such as declaration of customer’s state of health at the time of reinstatement).
Assignment
Customer may transfer their life insurance policy to another person or organization.
Note:
A written notice must be given to the life insurance company upon assignment.
Confidentiality of Information
All customers’ personal information (including medical information) is confidential.
Therefore, Life Insurance Company is strictly not allowed to divulge such information to third parties.
