If you want a high sum assured, you might not get insurance

Published in Mint on 28th January 2014, Written by Kapil Mehta

What is the ideal duration for a life insurance policy?

—Shikha 

I would recommend a term insurance until a person turns 65. That’s because most people retire by then. By 65, most would have created their financial assets and met family obligations.

For investment-oriented life insurance, a tenor of at least 15 years is required. This allows you to benefit from the long-term appreciation in underlying assets and the forced savings each year.

On what basis does a life insurer refuse to provide a policy?

—Ketan Shah
There are four reasons why an insurer may refuse life insurance. These are ill health, over-insurance, lack of insurable interest and creation of a moral hazard.

If you are not in good health, insurers will classify you as a sub-standard risk that’s too high to take. If the sum assured you want is too high, more than 25 times your annual income, the insurer may refuse life insurance. Such high sum assured requests can indicate that the insured is aware of a potential health issue or, worse, contemplating suicide. The insurer will not provide life cover if you want to insure someone on whom you are not financially dependant, say, a good friend. Finally, insurers are extremely careful with insurance for children and housewives. This may sound pre-historic but dependant children or housewives are vulnerable if too much insurance is placed on them.

When my endowment plan matures, will the maturity benefit be automatically paid to me?

—Anna D’Cruz
Don’t count on it. I suspect that there are large sums of money in suspense accounts because nobody has stepped forward to claim maturity or death proceeds. You should reach out to the insurer when your policy matures. Make sure that your bank details are recorded when you buy it.

I plan to buy both life and health insurance for myself. Do I need two separate medical tests or can the same tests be used by both insurers?

—R. Kapur
The life insurer will insist that you do the medical tests at centres approved by it. This is because the financial implication of incorrectly placing life insurance can be severe. Health insurers are more likely to accept these test results but you need to specifically take their approval first. The best solution may be to find a lab that is on the panel of both the insurers.

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