Published in Mint on May 03 2016, Written by Abhishek Bondia
Can a policy holder have a life cover in both electronic and paper form?
You can choose to keep your policy either in de-materialised (demat) or hard copy form, but not in both. But you can opt to keep some policies in demat form, while others in hard copy format. The demat account will reflect only the policies that have been converted into demat, and not the ones that continue to be in the physical format. Do note that having a soft copy of the policy in email is different from keeping a policy in demat format.
In a life insurance contract, it is mandatory to submit the hard copy of the policy at the time of making a claim. Only if the policy is in the demat form will the requirement of a hard copy be waived. If you lose the original policy copy, there is a set procedure that you need to follow to have a duplicate issued.
I had bought two endowment life policies from Life Insurance Corp. of India (LIC) five years back. I pay an annual premium of Rs.40,000 for both the policies and will get the money back in 15 years from now. But I have realised that term plans are a better option. I will not be able to afford paying higher premium than what I already pay. Should I stop the existing policies and start a new term plan? Would I lose all the money paid till now?
You should definitely buy a term plan since the death benefit here is likely to be much higher than the traditional endowment plans you have. But the decision of stopping your existing insurances is a more difficult one. Generally, traditional insurances levy a large surrender penalty if you close the insurance, which means there is an immediate loss of value.
However, if you continue the insurance you are accepting a 2-5% return over the next 15 years. This is lower than inflation, which means that in real terms the value is decreasing. You will need to check the specific surrender penalty in your insurance. As a rule of thumb, I would suggest that if you get an amount equal to all the premiums paid you are better off surrendering and investing a part of that into term insurance. When you buy the term insurance, take a death cover that is at least 10 times your annual income.
How do I reduce the cost of buying life insurance? I have heard that it goes up with age.
The way to reduce the cost of life insurance is to buy term insurance. Term plans are pure risk covers and the coverage terms and conditions standardised across insurers. You can compare the cost of term plan across insurers and choose the insurer with low costs. While choosing the insurer, do ensure that its claim settlement number is over 85%. You can see these numbers in the insurer’s public disclosures or the Insurance Regulatory and Development Authority’s (Irdai’s) annual report.