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Life Insurance

Must Know Concept And Terms Part 2

This section is in continuation to the must-know concepts and terms for life insurance. 


v. Term of the policy

The duration of your policy is known as the term of the policy. In other words, your life  is covered for up to a particular time period which is the term of the policy. So, if you paid a premium for a 25 year policy then 25 years is the term of the policy.


vi. Survival Benefits

Survival Benefit means the amount which is payable to policyholders at the end of specified durations. These amounts are fixed and predetermined. This is prevalent usually only in money-back policies.


Example : A Money-back Policy


Now the policy promised to give back a portion of the sum assured (10%, 15%, 20%, 25%) every three years. 


After 3 years: ₹20,000
After 6 years: ₹30,000
After 9 years: ₹40,000
After 12 years: ₹50,000


On maturity: ₹60,000. The amount received on maturity is called ‘Maturity Benefit’. This feature is present in all types of policies except for pure term plans.

Should you die during this tenure, your beneficiary will get the entire ₹2,00,000. Irrespective of whether or not you have been paid any amount till date. The amount received is known as Death Benefit.


vii. Surrender Value 

If you surrender your policy before completion of its full term , you can get back a portion of the total premiums paid after deducting some charges. This amount of money is called Surrender Value. Surrender Value is applicable only for those policies which are having a savings and investment component. Pure risk covers like term plans do not have any surrender value but traditional plans acquire this value. You will get a portion of your money only if you have paid consecutive premiums for two years (if premium paying term is less than 10 years), and three years (if premium paying term is more than 10 years). If you surrender before this, you do not get back any money. The policy ceases to exist after this payment has been made. It is important to understand that you will lose out on returns if you surrender (stop and withdraw) your policy before time. Different rules and terms and conditions apply for traditional and market-linked plans. 


viii. Paid Up Value

When you want to stop paying the premium but still want the policy cover to continue then you have an option that is converting the policy into a paid-up policy. When you do so then the policy cover size will be reduced and will be proportional to the total premiums paid. This sum assured is called paid-up value.


Paid Up Value = Original sum assured x (No of premiums paid/ No of premiums payable)




Default occurs after 12 yearly premiums are paid 


Paid up Value = ₹10,00,000 x (12 / 20 )

The policy acquires the paid up value of  ₹6,00,000/-. 


This means that the policy is effective as before except that from the date the 13th premium was due, the sum assured is ₹6,00,000/- instead of original ₹10,00,000/-. To this sum assured the bonus already vested (accrued) before the policy lapsed, is also added. 


So,if the bonus accrued up to the date of lapse is ₹50,000/-, the total paid up value is ₹(6,00,000 + 50,000) = ₹6,50,000. Note that only those types of policies can be made paid-up which are having a savings element.


Different rules and terms and conditions apply for traditional and market-linked plans. 

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