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Published in Mint on 11th March 2014, Written by Kapil Mehta
The bank has offered me a life insurance cover with the home loan I had applied for. Should I opt for it?
—Naresh Gupta
It is important to buy a life cover equivalent to your outstanding loan. Buying from the bank itself is most efficient because documentation is done in one place and the premium is financed by the bank. These home loan life covers are typically sold under a group structure which makes them cost-effective. Banks often have insurance attachment rates of over 80% with their loans.
There are four important features that loan-linked covers should have. First, and most important, your family should be the nominee and not the bank. Second, if the loan is foreclosed, then there should be a provision to receive surrender value. Third, the bank should take the benefit of a group structure and waive off any medical requirements. Finally, the life cover should reduce in line with the outstanding to keep premiums low.
I had taken an insurance policy around seven years ago. I want to surrender it. Can I do so without losing money?
—Keshav Madhav
Surrender conditions and charges vary by insurer and product. If you read the policy terms and conditions, it will clearly specify the surrender cost. At a broad level, many of the insurances issued from 2006 to 2008 have a surrender charge today. Before you surrender, evaluate the non-forfeiture options in your insurance. These allow you to keep the policy active without paying any additional premiums. Reduced paid-up is the mandatory non-forfeiture option. In this the sum assured is reduced for the remaining term so that no additional premium need be paid. Some insurers also offer extended term insurance option in which you are provided a death benefit equivalent to the current sum assured but for a shorter term.
Will a cover get suspended soon after the due date of the premium payment?
—Gerard D’Mello
Generally, if you pay your premium annually, cover will get suspended 30 days after your due date. If you die within 30 days of the due date then the benefit will be paid after deducting the premium due. If you pay on a monthly basis, then the grace period is 15 days.
If you want to renew your insurance after the grace period, the insurer will ask for a declaration of good health and may conduct medical tests if needed. You may have to pay an interest cost on reinstatement. In short, renew on time if you want to retain your insurance.