Smokers need to do medical tests to assess nicotine intake

Published in Mint on, Mar 05 2013, Written by Kapil Mehta

I plan to buy an online term plan. I have researched a bit online and seen that insurers ask whether I am a smoker or not. But there is no limit. I smoke maybe a cigarette a week. Will I be considered a smoker? What are the parameters?
—NM

Most insurers will ask you how many cigarettes you smoke a day and since when. You will need to declare that accurately. Follow-up action varies by insurer and the sum assured selected. A few insurers have the same rates for smokers and non-smokers. These insurers are likely to issue you the policy on standard terms.
Insurers that follow differential pricing will go deeper into the case because their experience has been that applicants tend to understate smoking and drinking habits. Most likely the insurer will have you do a cotinine medical test. This simple test identifies the amount of nicotine intake over the past three or four days. Insurers will classify you based on the results.
Smokers sometimes stop smoking for a week or so to pass the cotinine test as a non-smoker. That is a mistake because if you were to die due to any reason that can be linked to smoking, the insurer could repudiate your claim. So describe your smoking habit accurately or, better still, quit smoking completely.

What are children plans? I have heard that I as a parent can buy it as an insurance policy to pay for my child’s education. Is that possible?
—Ram Mohan

A child insurance plan can help build a corpus for the child in two ways. First, it forces the parent to save some money each year. Second, if the parent were to die early, the insurer contributes premium into the policy. When you purchase a child plan set the maturity date to synchronize with your child’s milestone. For example, the policy should mature when the child turns 18 if it is meant to fund college education. Make sure you buy a waiver of premium rider. This will ensure that the savings continue even if you die early. Since you would like your premium to earn good returns, look at how the insurer invests your premiums and select an option that you are comfortable with. Traditional plans typically have lower but more certain returns of 3-6%. Equity-oriented unit-linked insurance plans (Ulips) can have higher returns that beat inflation but are more uncertain. Over a 10-year period, I have a personal bias for equity investments.

How can I surrender my Ulip?
—Bhan

You need to give a completed surrender form, the original policy document, a National Electronic Funds Transfer mandate and a cancelled cheque. In case someone else is depositing the documents at the branch, you should provide an authorization letter. These documents are readily available online or at the insurer’s branch.

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