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Published in Mint on 1st July 2015, Written by Abhishek Bondia

What is a return of premium term plan (ROP)?
—Karthik Shankar

Pure term plans pay a benefit if the insured person dies during the policy term. There is no maturity benefit. An ROP term plan has a maturity benefit. Typically, the total premium paid is refunded if the insured survives the policy term.
This proposition sounds appealing but is not. The underlying economics are poor. Typical investment return on an ROP plan after adjusting for mortality costs is less than 5%. You are better off buying a low-cost pure term plan and investing the remaining money elsewhere. Will a claim be rejected if the deceased policyholder had misrepresented some information in the form?
Will a claim be rejected if the deceased policyholder had misrepresented some information in the form?
—Mayank Shah

Insurers can reject a claim if a material fact is misrepresented. Section 45 of the Insurance Act allows a life insurance policy to be questioned by the insurer if material facts were made fraudulently or suppressed intentionally. Examples of material facts include history of prior illnesses or smoking habits. Over time, an insurer’s ability to reject a claim comes down. In fact, after two years, the onus of proving that facts were misrepresented shifts to the insurer. Insurers cannot reject a claim if a non-material item such as an address is not properly disclosed.
Insurance companies are well equipped to identify fraud. Claims in the first two years are most likely to be investigated. If a fraud is suspected, the insurer will deploy considerable resource to get to the heart of the matter. The safest approach is to be careful about all declarations made.
What are the conditions that are to be fulfilled to get a critical illness cover? I am a 32-year-old female.
—Christina D’Mello

The process for getting a critical illness cover is same as that of a life or a health insurance policy. You should have a filled proposal form, age proof and an address proof. Usually, companies do not go for a medical check-up if the prospect is under the age of 45, has a clean medical history and seeks cover for less than Rs.10 lakh.
Do I have to declare myself as a smoker, even if I have already quit smoking a month ago?
—Arun Dorjai

Yes. Smoking status is relevant not just on the day of filling the proposal but also for prior periods. Generally, you need to have quit smoking at least four years ago to be counted as a non-smoker. To be safe, clearly specify your smoking history in the ‘additional information’ section. It’s best to give the facts straight. Insurers can determine from cotinine and other tests if you are a smoker. The worst outcome can be a claim denied if it’s found that you misrepresented your habit.