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Insurance Terminology

UIIC AO · Insurance Awareness

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Core Concept

Read this first — the foundation of the topic

🔑Formula

Total Premium = Basic Premium + Service Tax + Cess Policy: The contract between insurer and insured. It contains all terms and conditions. Sum Assured/Sum Insured: The maximum amount the insurance company will pay in case of a claim. In life insurance, it's called Sum Assured. In general insurance, it's Sum Insured. Maturity: When the policy term ends and the company pays the maturity amount. Surrender Value: The amount you get if you discontinue the policy before maturity

🔑Formula

Surrender Value = (Premiums Paid × Surrender Value Factor) - Policy Loans Bonus: Additional amount added to Sum Assured in participating policies

🔑Simple Bonus Rate Formula

Bonus Amount = (Sum Assured × Bonus Rate × Policy Term) / 1000 Nomination: Appointing someone to receive policy benefits after the policyholder's death. Grace Period: Extra time given to pay overdue premiums without policy lapse. Usually 30 days for monthly premiums, 31 days for quarterly/half-yearly premiums. Exam Pattern Alert LIC AAO consistently asks 3-4 direct terminology questions

→Common question types include

1

Identify given values - Sum Assured = Rs. 5,00,000 - Bonus rate = Rs. 45 per thousand per annum - Policy term = 20 years

2

Apply formula Bonus Amount = (Sum Assured × Bonus Rate × Policy Term) / 1000

3

Calculate Bonus = (5,00,000 × 45 × 20) / 1000 Bonus = 4,50,00,000 / 1000 = Rs. 4,50,000 Worked Example 2: Surrender Value Calculation Question: Premium paid for 5 years = Rs. 50,000. Surrender value factor = 30%. Calculate surrender value.

1

Identify values - Total premiums paid = Rs. 50,000 - Surrender value factor = 30% = 0.30

2

Apply formula Surrender Value = Premiums Paid × Surrender Value Factor

3

Calculate Surrender Value = 50,000 × 0.30 = Rs. 15,000 Exam Shortcut: The 3-2-1 Rule For quick elimination in MCQs: - 3 years: Minimum premium payment for surrender value - 2 years: Minimum for paid-up policy - 1 month: Standard grace period for monthly premiums #1 Most Common Trap Students confuse Sum Assured with Sum Insured

💡Remember

Sum Assured is for LIFE insurance (assured amount will definitely be paid). Sum Insured is for GENERAL insurance (maximum limit for claims). This confusion appears in 60% of wrong answers. Quick Memory Trick Use 'PLANS' for policy components: P - Premium (what you pay) L - Life Assured (who is insured) A - Amount (sum assured/insured) N - Nominee (who gets the money) S - Surrender (exit value)

🔑 Key Points

Premium is the price paid for insurance coverage, calculated as Basic Premium + Taxes
Sum Assured (life insurance) guarantees payment, Sum Insured (general insurance) sets claim limits
Surrender Value Formula: Premiums Paid × Surrender Value Factor - Policy Loans
Bonus Formula: (Sum Assured × Bonus Rate × Policy Term) ÷ 1000
Grace period is 30 days for monthly, 31 days for quarterly/half-yearly premiums
Minimum 3 years premium payment required for surrender value eligibility
Maturity amount includes Sum Assured + Accumulated Bonus + Terminal Bonus
Nomination can be changed anytime during policy term by the policyholder
Paid-up policy continues with reduced benefits after 2 years of premium payment
Policy lapse occurs when premiums are not paid even after grace period ends

📌 Exam Facts

Grace period for yearly premium payment is 30 days (1 month)
Minimum 3 consecutive years premium payment required for surrender value
Maximum 5 nominees can be appointed in a single life insurance policy
Service tax on life insurance premium is currently 18% GST
Paid-up Sum Assured = Original Sum Assured × (Premiums Paid ÷ Premiums Payable)
Free look period for individual policies is 15 days, for distance marketing is 30 days
Surrender value factor typically ranges from 30% to 90% depending on policy type
Terminal bonus is declared only at maturity or death claim settlement

🚀 60-Second Revision

Remember: Sum Assured = Life Insurance, Sum Insured = General Insurance
Formula: Bonus = (Sum Assured × Rate × Term) ÷ 1000
Formula: Surrender Value = Premiums Paid × Factor - Loans
Trap: Don't confuse grace period days - 30 for monthly, 31 for others
Key: 3 years minimum for surrender, 2 years for paid-up policy
Alert: Premium = Basic + Service Tax + Cess (if applicable)
Quick check: Maturity = Sum Assured + Bonus + Terminal Bonus

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