Published in Mint on OCT 09 2012, Written by Kapil Mehta
I suffer from diabetes and want to buy a term plan. Will there be a loading and how much will the premium vary? If a particular insurer rejects my case, will other insurers provide cover?
—Avinash
It is very likely that insurers will increase premiums for you. The increase can vary between 25% and 150%. Insurers consider several factors while loading a policy. However in case of diabetes, fasting blood sugar level is the key. Empirically, we have noticed that if sugar level is above 200mg, a case is likely to be rejected. The loading across insurers is similar. It is unlikely that an insurer will accept your case if it is rejected by another on medical grounds.
Some insurers will conduct a pre-medical test wherein they conduct the medical tests before you formally apply for insurance. This saves you the effort of completing your proposal form and paying the premium in advance. In such cases, most insurers will make you pay for medical tests but refund the money if your insurance is finally placed with them.
I am a 30 years old married person. I earn around Rs.12 lakh per year. I have a term plan of Rs.50 lakh. Should I increase the cover amount? I have another life insurance policy for a cover of Rs.10 lakh started two years back. Should I continue the policy?
—Rakesh
I generally recommend a sum assured that is 10 times annual income. This level of insurance broadly provides financial security to a family for 10 years if the main wage earner dies prematurely.
According to this rule of thumb, you should have Rs.1.2 crore of sum assured whereas you currently have Rs.60 lakh. I suggest that you purchase an additional Rs.60 lakh of term cover. This should cost you less than Rs.10,000 for a 30 year term.
Typically, it is expensive to discontinue a life insurance policy in the initial years. Surrender charges tend to be high. So, I suggest that you continue your second life insurance policy.
Can I buy term insurance for a 6-year-old or is it not advisable and why? How much should be the cover amount?
—Indra
You cannot purchase term insurance for a 6-year-old. There are two reasons for this, both of which I agree with. First, a child does not earn an income that needs to be replaced if the child dies. Second, selling insurance to children subjects them to what insurers call “moral hazard”. This means that there may be a possibility of the child being harmed to claim insurance benefits.
Instead make sure the parents are adequately covered with term insurance so that the child is financially secure even if an earning parent were to die prematurely.
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