A life cover above Rs.15 lakh usually requires a medical test

Published in Mint on 24th Feb 2015, Written by Abhishek Bondia

My insurance policy says that charges will be deducted from the fund. How does this work?
—Pulkit Chandra

Your unit-linked fund value is estimated as number of units multiplied by the unit value. Unit values are updated each day by insurers. The way in which insurers deduct charges from fund is by cancelling a certain number of units to recover charges. This will be evident in the annual fund statement wherein the unit cancellation is transparently shown. The units can be cancelled on a daily or monthly basis depending upon the type of charge being recovered.

Are there policies that offer the flexibility of making lump sum investments as and when I have money?
—Nimit Agarwal

Yes, unit-linked insurance plans (Ulips) offered by several insurers offer flexibility of ad hoc contributions. Over and above the scheduled premium, you can make additional investment as lump sum contributions. These contributions are typically called “top-ups”. The premium allocation charges on top-ups are significantly lower. So, this is a cost-effective way to enhance investment. If investment surplus is erratic, you may start with a single-premium plan and future surpluses can be invested as top-ups.

Note that when you calculate adequacy of sum assured for tax deduction under section 80C or section 10 (10) D, top-ups will be considered as annual contributions.

What is a medical examination while buying insurance?
—Amayra

Medical examination is a part of medical underwriting by insurers. In this, insurers evaluate the mortality risk associated with your specific proposal. Using a medical exam, they identify if you have any pre-existing illness that could shorten your life. It also helps to verify the medical declaration you made in the proposal form such as smoking status. Insurers may reject a proposal altogether if they diagnose a major chronic disease such as high level of diabetes. In some cases, they may come back with a loading on the initial premium to accept the risk.
Every insurer has a medical examination grid. It lays down the tests required for a particular age group and sum assured. Above a particular sum assured (typically Rs.15 lakh), medical tests become mandatory. As age increases, the number of tests increases. For instance, people over 30 years are generally asked to undergo a treadmill test.

What is vesting age?
—Mihir V.

Vesting age concept is associated with deferred benefit plans such as pension plans. In such plans, premium contributions are made in the early years of the policy. The insured is eligible for benefit payout only after a particular age, which is called the vesting age.

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