Sum assured of riders and extent of cover tends to be less than in standalone policies

Published in Mint on 8th April 2018. Written by Abhishek Bondia.

 

Should I buy a term plan with riders, or should I buy all the insurances separately? Buying a combined product is convenient. If I take different covers, it means more work.

—Rahul Sethi

A life insurance policy offers several riders such as critical illness, accidental death, and disability. A single policy with these riders does provide convenience. However, more often than not, the sum assured of riders and extent of cover tends to be less than in standalone plans. For example, a standalone critical illness plan can cover up to 30 diseases whereas riders tend to cover fewer diseases. So, if you are looking for comprehensive coverage you may want to consider buying standalone policies for each cover.

Can term insurance be bought offline as well? Will there be a difference in features or price?

—Jigyasa Bhanot

The standard term plan has similar covers for both online and offline modes. A standard term plan covers all kinds of death, including natural and accidental. Suicide is the only exclusion, which gets covered after one year. Other than that, there are no permanent exclusions in the plan.

Insurers now differentiate their term plans with some add-ons. For example, a few insurers accelerate the payout in case the insured is diagnosed with a terminal illness. Some plans offer riders that are exclusive to offline channel, and vice versa.

In terms of the buying process, only a part of it is done online. When you buy an online plan, the proposal form and payment is executed online. The medical underwriting is done offline. In case of coverage amount of more than Rs50 lakh, it is likely that you will have to go through a medical check-up. You will have to visit a nearby hospital or clinic for this.

There are different approaches to pricing. Some insurers still maintain different rates for online and offline term plans with the online being cheaper. But increasingly, the rates are the same irrespective of the channel through which the insurance is bought.

My name in Aadhaar is slightly different from that in my insurance policy. What should I do to change the name? Do nominees need to have Aadhaar to receive the insurance plan’s money?

—Yash Kirti

You can apply for a name change request on your policy. You may approach the nearby branch of the insurer and fill a change request form along with supporting documents. The same can be done to rectify the nominee’s name.

Aadhaar has become a common KYC document. It is likely that the insurer would ask for Aadhaar at the time of disbursement of sum assured. You should ensure that the nominee’s name is correctly reflected in the policy to avoid any issues at the time of claim.

What does a lien mean in a terms of a life insurance plan?

—Tabassum

Lien refers to a reduced sum assured for a certain period. When the insurer puts a lien, coverage amount is reduced for a specified period. After the specified period is over, the full coverage amount is restored automatically.This is to manage risk when the insurer is uncertain about the health of the person being insured.

It is rarely used as a risk tool. Insurance companies prefer to offer less coverage, charge higher premium, or deny coverage completely.

Can I buy life insurance for my brother as a proposer and make myself a nominee?

—Mahima Goswami

You can be a nominee in your brother’s insurance. Ideally, this should be backed by a Will that entitles you to the sum assured if your brother dies. Your brother paying the premium is the most straight forward. But if you want to pay the premium, the insurer may ask for evidence that you are financially dependent on your brother or, have an insurable interest in his life.

How can I buy life insurance for my start-up, where in case of demise of my co-founder, the company’s cash flows do not suffer?

—Akash Thareja

The risk is described as keyman risk under life insurance. You can buy a keyman life insurance for your firm. Here, for select key employees including co-founder, and key managerial personnel, you can buy a life insurance plan. In case of their demise, the policy proceeds are paid to the firm. This ensures the firm to absorb the sudden impact of the employee’s departure.

The sum assured for keyman is based on the profitability of the company and also the annual income of the insured individual.

Keyman insurance has no bearing on personal life insurance plans of the employee. Sum assured underwriting for the plan is done independent of any personal coverage that the employee may have.

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