On analysing an application form of insurance, if the officer finds an extra risk on the life insured, which could affect the company, then he can impose lien.
Say, the life to be assured just came out of a major surgery and applied for new life insurance policy for Rs. 10,00,000/-. Knowing that he came out of major surgery and recovering well, the officer feels the customer will come out of risk zone only after two years.Now he can issue a policy of Rs.10,00,000 Sum assured with lien stating that for the first two years the risk coverage will only be for Rs. 5,00,000/-
After two years, the sum assured of the policy automatically converted to Rs.10,00,000.
Lien can also be imposed at decreasing rate. Take the above said example. After first year, the sum assured can be be increased by 50% to Rs. 7,50,000 and after second year, the lien will completely go off.
Liens are imposed on risks that are expected to diminish over time.