Mortality rate for smokers is higher than for non-smokers

Published in Mint on 28 July, 2015, Written by Abhishek Bondia

What is the difference between a fund switch and premium redirection?
—Krishna

Unit-linked insurance plans (Ulips) have several underlying funds. These funds vary in terms of their debt and equity exposures. An insured person can choose the proportion of funds to be allocated to each of these depending on her risk-return expectations. Once the money is allocated to these funds, the insured can then change the combination any time during the term of the policy. A change in fund allocation for a corpus that is already invested is called a switch. Typically, at the time of policy issuance, a standing instruction is issued to allocate future premiums into various funds. The insured may want to change this allocation in future. The change in allocation of funds for future premiums is called premium redirection. Most companies offer a few free switches in a year. Generally, premium redirection is free of cost.

What is assignment of policy? And how do I go about assigning my policy? Is it important for a policyholder to do so?
—Bhargavi Munjal

Assignment of a policy refers to transferring all rights on your policy to a third party. After assignment, any benefit arising out of the policy will accrue to the assignee.
You can assign your policy by filling an assignment form and submitting the original policy copy to the insurer. The insurer will then record the assignee details in your policy. Any communication of benefit will then happen with the assignee only.
You need not assign your policy in usual course. It is typically required when you take a loan, and the lender wants to use your insurance policy as collateral. Once an assignment has been done, you cannot reverse it. Only the assignee has that right to do.

I quit smoking about 18 months ago. How much time should have lapsed before insurers would consider me a non-smoker for a term life insurance policy?
—Abhijit Basu

Insurers have varying cut-offs to consider erstwhile smokers as non-smokers. Some require that at least five years must have lapsed before a smoker could be considered as a non-smoker. Others have a more lenient rule, where they undertake a blood test to determine if the person could be considered a non-smoker. Even a single cigarette smoked a day before shows up in this cotinine blood test.
It is best that you make the declaration in the proposal form about your smoking history and let the insurer review and confirm the rates. If you are not comfortable with the insurer’s offer, you can cancel the policy within 15 days of the policy receipt.
The mortality rate for smokers is considerably higher than for non-smokers. However, if insurers are not willing to offer you non-smoker rates, I recommend you take a policy with smoker rates.

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