Published in Mint on Feb 27 2017, Written by Abhishek Bondia
I have a unit-linked insurance plan (Ulip) that I had bought in 2009. I have a family situation where I need to help my brother to pay his son’s college fees. Can I borrow against this policy? Will it be of the same value as the policy or will there be any deductions made? Is it advisable to do take a loan against the policy or should I take an education loan on my brother’s behalf?
—Ramesh Pawar
Ulips that are issued now do not offer a loan facility. However, as your plan was issued in 2009, it is possible that your policy may have a loan feature. You could check with your insurance company about this facility, its rates and availability. Typically, insurers offer 50-70% of the current fund value as loan, depending on the equity-debt exposure.
The general interest rate charged by insurers is in the range of 9-15%.
You might be better served to take an education loan rather than a loan on the policy. An education loan is generally extended on preferential interest rates, and is eligible for some income tax deductions as well .
I am taking a term plan of Rs1 crore and want to make my son (who is 6 years old) a nominee. However, my insurance company is insisting that I name a relative as an appointee, as my son is still a minor. Is it compulsory for me to add an appointee?
I just want to ensure that the money reaches my son and is not misused even by the appointee, in case of my demise. What more can I do to ensure that my son is the recipient?
—Rishi Gujral
An appointee needs to be appointed if the nominee is a minor. In case you die while the nominee is a minor, the sum assured will be paid to the appointee.
As an additional safeguard, you can instruct the appointee by way of a Will to take care of the money for your intended nominees.
If the nominees turn adult at the time of the policyholder’s demise, the sum assured will be paid directly to them.
You could also select term insurances that pay an annual income rather than a one-time benefit.
These benefits will be paid to your son automatically when he turns an adult. This way, the possibility of the money being misused by the appointee is lesser because the benefit is staggered.
Is there any life insurance policy where I can receive money during its tenure?
—Bhavya Tiwari
A traditional money back policy returns money during the policy tenure. It has pre-defined streams of payment that fall due before the maturity date of the policy.
These lump sum payments are expressed as a proportion of the policy sum assured. You must, however, know that absolute returns of such plans are low, usually between 2% and 5%.
Another option is to invest in a Ulip. These plans are market linked and you need to carefully select the funds to invest in, based on your risk preference and the fund’s performance. After 5 years, you can withdraw money from your fund value in these insurances. Ulips allow partial withdrawls.
I am a non-resident Indian (NRI) staying in London. Can I get a life insurance policy in India? Do I have to visit India for issuance?
—Gerson Thomas
Yes, you can get a life insurance policy from India, despite staying abroad. Some insurers do provide support for completing issuance formalities for foreign residents. The in-person intervention is required primarily for medical check-up. Insurers may either allow you to conduct the health check-up at identified clinics and hospitals overseas or define a criteria for eligible doctors.
Typically, for policyholders staying abroad, insurers issue restricted coverage. These restrictions include sum assured being capped (typically at Rs1 crore) and riders such as critical illness are not offered.
Can I port my life insurance policy from one insurer to another?
—Manisha Adlakha
The principle advantage of portability is to transfer the accrued waiting period from one plan to another. Life insurance plans do not have such waiting period. In fact, the mortality risk covered under life insurance has no exclusion except suicide. Suicide is also covered under life insurance after the first year.
Therefore, portability has limited advantages for life insurance. As a result, insurers and the insurance regulator has not introduced portability for life insurance.
