Insurance policy
Also written Policy document · Insurance contract
The written contract an insurer gives a policy holder. It states the premium, the sum assured, and the conditions under which the insurer will pay a claim.
In plain language
You do not just buy insurance. You buy a promise, and the insurance policy is where that promise is written down.
When you pay your first premium, the insurer hands you a document called the insurance policy. It lists the conditions under which you will be paid, the events that are covered, and the amount you can claim. Read it once, in full, before you sign anything else.
The workbook is direct about this. The policy holder receives a contract that spells out the conditions and circumstances under which they will be financially compensated. The premium, the term and the exclusions all sit inside that one document.
How it works
The workbook groups insurance policies into ten named products, each with its own key-features table: Term insurance, Endowment insurance, Whole life insurance, Unit Linked Insurance, Personal accidental cover policy, Motor insurance, Health insurance, Travel insurance, Property insurance and Group insurance.
Whatever the product, the policy names two people. The insurer is the company that promises to pay. The insured, also called the policy holder, pays the premium and is protected. The premium is the periodic payment made in exchange for the insurer's promise of compensation for a specific future loss.
The workbook gives no single figure that applies to every policy — premium, sum assured and term are fixed product by product, not by the word "policy" itself. What is fixed by the document is the conditions-and-circumstances clause, and that clause is what decides whether a claim is paid.
A worked example
Anand buys a term insurance policy with a sum assured of Rs 50,00,000 and an annual premium of Rs 9,500.
The document he receives — the actual insurance policy — states the term (until age 60), the sum assured (Rs 50,00,000), and the conditions for payment: death during the policy term, subject to the exclusions listed inside it, such as suicide within the first year.
Two years later, Anand's family reads that document to file a claim. Because it names the insurer, the insured, and the exact conditions for payment, the family knows precisely what to claim and from whom, instead of relying on what an agent said at the time of sale.
Why NISM asks about it
Chapter 6 (Insurance Related Products) opens with the definitions of insurance, the insurer, the insured and the insurance policy before listing the ten named products with their key features. Expect the exam to test this vocabulary — insurer versus insured, and what the policy document itself is — ahead of any question about a specific product.
Common exam traps
- The insurance policy is the document, not the product. Term insurance, motor insurance and health insurance are all products; each is expressed through its own policy document.
- Insurer and insured are not interchangeable. The insurer promises to pay; the insured pays the premium and is covered.
- Buying insurance without reading the policy's conditions is the commonest reason a claim is later disputed — the workbook's own reason for naming the document separately from the product.
Check yourself
1.Who can claim under a property insurance policy and what does it cover?
- a)Only the owner of a structure, and only the structure itself
- b)The owner or renter of a structure and its contents, in the event of damage or theft — including homeowner's, renters, flood and earthquake insurance
- c)Only tenants, since owners are covered by construction warranties
- d)Only losses caused by fire
Show the answer
Answer: (b) The owner or renter of a structure and its contents, in the event of damage or theft — including homeowner's, renters, flood and earthquake insurance
"Policy that provides financial reimbursement to THE OWNER OR RENTER of a structure AND ITS CONTENTS in the event of DAMAGE OR THEFT. Property insurance can include HOMEOWNER'S INSURANCE, RENTERS INSURANCE, FLOOD INSURANCE AND EARTHQUAKE INSURANCE." Two assumptions usually stop families from buying this and both are wrong: that it is only for owners, and that only the building matters. A tenant's real exposure is the contents — the refrigerator, the television, the tools or sewing machine a livelihood depends on, the jewellery in the cupboard. None of that belongs to the landlord and all of it is destroyed by the same fire. Note too that flood and earthquake cover are named, which makes this the instrument for Chapter 3's requirement that a plan survive "natural calamities like flood."
2.Which of the following is NOT listed as a component of a comprehensive travel insurance policy?
- a)Emergency medical cover
- b)Personal liability cover
- c)Loss of employment cover
- d)Luggage cover
Show the answer
Answer: (c) Loss of employment cover
The chapter lists exactly five components: "Emergency medical cover; Losses incurred due to unforeseen cancellations or having to cut your trip short; Death and disability cover; Personal liability cover; Luggage cover." Loss of employment is not among them. The chapter also describes what travel insurance is for in general — "covering against travel risks such as LOST OR STOLEN LUGGAGE, CANCELLATION COVER (if you are not able to travel due to unexpected medical reasons) and MOST IMPORTANTLY, UNEXPECTED MEDICAL COSTS ABROAD." That emphasis is deliberate: luggage is the risk travellers think about, while an unplanned hospital admission in a foreign country is the one that can cost many lakhs and is the real reason the product exists.
3.In insurance terminology, who is the insurer and who is the insured?
- a)The insurer buys the policy; the insured provides the cover
- b)The insurer is the entity which provides insurance; the insured or policy holder is the person who buys it
- c)Both terms refer to the person covered
- d)The insurer is the agent and the insured is the company
Show the answer
Answer: (b) The insurer is the entity which provides insurance; the insured or policy holder is the person who buys it
"An entity which PROVIDES insurance is known as the INSURER. A person who BUYS insurance is known as an INSURED OR THE POLICY HOLDER." The remaining two words complete the vocabulary: the premium is "a periodic payment", and the insurance policy is the contract the insured receives, "which contains details like the conditions and circumstances under which the insured will be financially compensated." The agent, incidentally, is not part of this definition at all — the contract runs between the insurer and the insured. Health insurance uses the same word with a specific gloss: "the 'insured' is the owner of the health insurance policy or the person with the health insurance coverage."
Where this is taught
Free preparation for NISM Series SEBI-ICERelated terms
- Term insuranceLife cover for a fixed period: if you die during the term your nominee receives the sum assured, and if you survive it nothing is paid back. It is the cheapest way to buy protection.
- Insured / policy holderThe person who buys an insurance policy, pays the premium, and receives the insurer's promise of compensation for a specified future loss.
- InsurerThe company that provides insurance and promises to pay compensation for a specified future loss, in exchange for the premium the insured pays.
- Motor insuranceInsurance for cars, trucks, motorcycles and other road vehicles — also called vehicle insurance, car insurance or auto insurance.
- Personal accidental cover policyInsurance that pays monetary compensation for bodily injury, disability or death caused solely by an accident.
- Pradhan Mantri Suraksha Bima YojanaA government accidental insurance scheme for bank account holders aged 18 to 70, with a fixed annual premium auto-debited from one savings account.
- Pradhan Mantri Jeevan Jyoti Bima YojanaA government life insurance scheme for bank account holders aged 18 to 50, with a fixed annual premium auto-debited from one savings account.
- Pradhan Mantri Jan Aarogya YojanaA government healthcare scheme, also called Ayushman Bharat, giving free hospital treatment to families identified in the 2011 SECC database, with no restriction on family size, age or gender.
- Risk managementThe general practice of protecting yourself financially against loss — insurance is one tool for it, and spreading your investments is another.