Life cycle of a Insurance policy

The duration from the purchase of a policy to its maturity is called the life of a policy. A policy passes through various stages of growth or changes before it finally matures or closed.

Purchase of Policy

A life assurance policy can be purchased through

Life Office
Insurance Broker
Independent Insurance Agents
Banks and Building societies
Direct Salesman

The new life assurance proposals are usually termed as New Business by the Insurance Company.
However, if the proposal is canceled at the very onset or before the start of the premium payment then the policy is termed as Not Taken Up.

Premium Payment

After issuing the policy, the policyholder will continue to pay the premiums at regular intervals (weekly, monthly, Quarterly, Yearly) until a claim arises.

The following are the common modes of payments followed

Conventional i.e. agents collect the premium
Regular payments deducted from Salary
Direct Debit from the bank account
Bank Standing Order

Customer Enquiries / Changes

The Customers will call the service line or approach life office to enquire about the status of their policies or to make changes to their policy details. These changes include changing the customer address, changing the mode of premium payment etc.

Changes to the Policy

Customers might call the life office and ask their policy to be changed to a different type of a policy. This is done depending on what kind of policy the customer originally has. The change could lead to recalculation of premium, Sum Assured etc.

Lapse of the Policy

The Policy will lapse if the customer fails to pay the premium for a specific period of time. If the customer is not able to pay the premium for a reasonable period then the insurer will work out a strategy where it will pay the premium for the customer and finally deduct that amount when the policy matures or close the policy and pay the customer whatever is due at that point.

Paid-up Policy

This is another way of converting the policy. In this the reduced sum assured will be paid in the event of a claim. The reduced amount being calculated by multiplying the original sum assured by the number of premiums actually paid and dividing by the total no of premiums that would have been paid over the term of the contract. Appropriate calculations take account of bonus additions on with profits policies and on whole life contracts which do not have a fixed term. No further premium would be payable.

Surrendering the policy

This is an option where the customer can decide in the middle of the policy term, to surrender the policy and get whatever amount is due at that point. He could stop paying premiums and cancel the policy by accepting its current value in cash which is called the surrender value. The surrender value is the part of the reserve built up under the policy. It is very low in the early years of a policy but increases steadily as the policy nears maturity.

Cancellation of the policy

The customer can cancel the policy at the middle of the term and claim whatever is due to him at that point of time.

Death of the Policy Holder

If the policy holder dies in the middle of the policy term then the insurer will pay the beneficiary mentioned in the policy, the sum assured amount and any bonuses that have accrued.

Taking a Loan

The customer can take a loan from the insurance company, using the policy as security and assigning it to the insurance company. The amount of loan available is proportion of the current surrender value of the policy. Interest will be payable on the loan outstanding. When a claim arises, will be deducted by the insurance company before the policy proceeds are paid.

Maturity of the Policy

If the policyholder pays the premium till the end of the specified term, the policy is matured and the proposer receives the sum assured together with any bonuses in the case of with profit policies, or the value of units attaching for unit-linked policies.