Insurers typically don’t allow hiking cover

Published in Mint on, Aug 29 2012, Written by Kapil Mehta

My father bought a whole-life insurance policy worth $1,000 (about Rs.55,000) in 1965. He passed away in January 1996. The insurance company contacted us with very little information about the amount. How will we know if they are paying the correct amount?
—Angela Baxter

I assume $1,000 is the sum assured. Typically, an insurance company announces an annual bonus that is added to the sum assured and paid when the policy matures or the policyholder dies. The bonuses vary depending on the product and company. However, if I assume that the average annual bonus varied between $5 and $10 per $1,000, then you ought to get between $1,200 and $1,400.

I want to surrender my 5-year old participating life policy. What is the process? Can the company refuse to pay me back?
—Pradeep B.

The insurer can’t refuse to pay you back. You will need to write a letter to the insurer informing them of your intention to surrender the policy and send them the original policy document. Ideally, deliver these documents by hand and take a receipt from the branch.

I am 31 years old and my annual income is Rs.13 lakh. I have taken an endowment policy for an annual premium of Rs.16,500 and have no other cover. I have a home loan up to 2024 and a car loan. I am married and have two kids. I want to take a life cover. Which policy should I buy?
—Ananth M.

At your income, you should have Rs.1.3 crore of life cover, particularly since you have outstanding loans and dependants. If you were to die prematurely, it would significantly impact your family’s quality of life. I estimate that the life cover in your current policy is between Rs.2lakh and Rs.3 lakh. This is low and you should purchase term cover for about Rs.1.25 crore, which will cost you Rs.18,000-20,000 per year.
Do not buy a life cover with a money-back option. You will get poor investment returns and insufficient cover.

I bought a term plan four years ago. Now I would like to increase my cover. Can I do it on the same policy by paying additional premium?
—Shobha

Insurers do not typically allow increasing the cover once the policy has commenced. You will need to purchase a new term policy. Given the rate at which term rates have reduced over the past few years, I think you may find it cost-effective to purchase a new policy for the total cover you need.

I am 62 years old and plan to retire by 65. I would like to purchase a term cover for Rs.1 crore. What are my options?
—Abhijit

Unfortunately, only one or two insurers issue a term policy after the age of 60. Consult your insurance adviser to get details.

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