Term Life & Keyman

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Published in Mint on 23 June 2015, Written by Abhishek Bondia

What is a free look period? Why is it important?

In a free look period, a policy can be canceled without penalties. Typical premature withdrawal or surrender charges associated with life insurance are not applied during the free look period. When a policy is canceled within this period, the insured gets a full refund of the premium paid less any proportionate risk premium for the period on cover, expenses incurred by the insurer on medical examination and stamp duty charges.
Freelook period is a consumer protection measure brought in by the Insurance Regulatory and Development Authority of India. It allows the insured to verify the detailed policy wordings, filled proposal forms and medical reports considered by the insurer after the policy has been issued. In case she finds any discrepancy, she can cancel the policy.
The free look period is 15 days from the date of receipt of the policy. The risk coverage start date is irrelevant to measure the free look period. The insured must give written notice to the insurer to initiate cancellation.

What are the important details required to be submitted if I wish to change or add another nominee?
—Shalini Mehta

To add a nominee, the insurer typically asks for the name, date of birth, residence address and relationship with the insured. Some insurers will ask for supporting documentation for the above details, especially in case of a change during the policy term.
My home loan financier is asking me to buy a term insurance policy from it along with the loan. When I resisted, the executive said it is compulsory.

Is it indeed mandatory to buy term insurance with a home loan? Who will be the beneficiary in case of death?
—Harish Bhatia

No, it is not compulsory to buy term insurance with every home loan. Several lenders insist on it but it is not compulsory by law. Though it is optional, I would recommend you to consider buying term insurance when you assume a major liability. In case of a sudden demise, family members could use the amount to settle the liability.
A few lenders give you the flexibility to choose an insurer of your choice as long as you assign the policy rights to them. Several others insist on buying insurance from their insurer partner. In case the lender pushes a particular scheme, you should evaluate if the plan sold is an individual plan or part of a group plan. The former is typically more expensive than alternatives available. Group plans can sometimes be more attractive than individual term insurance. A few lenders leverage their volumes to negotiate a better deal for the customer.
In case the policy is assigned to the lender, the beneficiary, too, will be the lender. In all other cases, the beneficiary will be the policyholder.
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