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Published in Mint on 13th Jan 2015, Written by Abhishek Bondia

I wanted to buy term insurance of Rs.2 crore and paid a premium of Rs.16,606. But after the medical check-up, the insurer increased the premium by Rs.8,938. To my surprise, they cited the reason as tobacco consumption, which I have never done in my life. I’ve asked for a copy of the detailed medical report and am waiting for the same. What are my options in this case?

You have done the right thing to ask for the medical report based on which the loading has been advised. In this particular situation, you can refuse to accept the counter-proposal of the insurer. You will get a refund of the initial premium paid. Even if you decide to pay the premium, you will still have 15 days after receipt of the physical copy of the policy bond to cancel the policy. At that time you will still get a refund of the premium but after deduction of charges for medical tests, and administrative expenses.
Insurers do a cotinine blood test to determine if nicotine is present in blood. Apart from human error, your diet and work environment can lead to a positive test result on nicotine. Foods such as cabbage, garlic, almonds, and some others lead to high levels of thiocyanate. This could result in a false positive for nicotine. Also, people working in heavy metal industries tend to have high thiocyanate levels.
What is the difference between switching and future premium allocation?
—Shantanu Singh

Most unit-linked insurance plans (Ulips) offer multiple funds in which premiums can be invested. These funds vary in composition of asset classes, i.e., equity and debt.
Switching refers to transferring funds from one fund to another. Generally, a few free switches are built into every Ulip. Future premium allocation refers to determining share of funds in prospective premium. Future allocations are typically free.
What tax benefits is one eligible for if making a lump sum investment versus a top-up?
—A. Bodra

The tax benefits in life insurance are similar for lump sum, top-up or regular premium payments. Two conditions need to be fulfilled to avail these. First, death benefit should be at least 10 times that of the annual premium. Second, the plan should be kept in force for more than two years for traditional endowment plans and five years for unit-linked plans. If these conditions are met, the insured is eligible for two tax benefits—under section 80C (deductions up to Rs.1.5 lakh for annual contributions), and under section 10(10)D (receipt of the proceeds on maturity is exempt from income tax). Do note that for the 80C benefit, the death benefit criteria should be fulfilled in the year of contribution. But to avail benefit of 10(10)D, the death benefit during the entire term of the policy should be 10 times of maximum premium paid.