Claim can be rejected if you don’t disclose health condition

Published in Mint on Nov 19 2013, Written by Kapil Mehta

I have a unit-linked insurance plan (Ulip) from a private life insurer for which the annual premium is Rs.25,000. Till now I have made three annual payments. The policy period is 15 years and the premium period is 15 years as well. The fund value right now is only Rs.42,000. However, I can choose to cover continuance, wherein I stop paying the premiums and withdraw after the surrender charge is zero (i.e. after five years from purchase date). What should I do?
—Tamanna

The Ulips available today have standardized cost structures and features. The most material differentiation possible in a Ulip is investment performance. On that measure, your Ulip is a bottom performer. Its internal rate of return is less than negative 25 % per year. In comparison, the three-year category returns for large-cap equity funds is -1.7% and small- and mid-cap equity funds is -2.1% per annum. I would recommend that you stop paying premiums and invest your money elsewhere. Your Ulip fund will move into a discontinuance fund where you will earn about 3% per annum and can withdraw after five years have been completed.
A relative died due to a car accident. In the claim filings it was revealed that she suffered from hypertension that had not been disclosed to the insurer. The insurer has denied the claim. Can we contest this?
—N. Gupta

Non-disclosure of material health conditions is a valid ground for claim repudiation. In your case the situation is mitigated a bit as death occurred for a reason not related to the insured’s health. There is a slim chance that the claim will get paid if you approach the ombudsman and have a case that the level of hypertension was not significant or that the insurer would have underwritten the case even if the hypertension was known. The likelihood of a favourable decision improves if the insurer had conducted a health check-up prior to issuing the insurance.
I want to take insurance for my 10-year-old son. I have been told that I should take a child care plan. Which is more beneficial, a Ulip in my name or a child care plan?
—Deep Agarwal

Child care plans refer to the purpose of the insurance. Ulip and traditional policies refer to the product platform used to deliver insurance benefits. A good child plan meets the following three criteria. First, the life insured is the parent who earns. Second, it has a waiver of premium benefit so that if the life insured dies the policy continues unchanged. Third, since child plans tend to be long-term in nature, the insurance should have some exposure to equity. For these reasons I believe that equity- oriented Ulips with the parent’s life insured and a waiver of premium benefit are best.

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