Published in Mint on 12th March 2018. Written by Abhishek Bondia
My father is 58 years old. He had term insurance with a policy term till 60 years of age. Last year he suffered an accident and has been hospitalized since then. The doctors are now saying that he is brain dead. Can we file a claim on his term insurance policy?
—Navin Sharma
Standard-term insurance only covers death. The policy sum assured is paid after the person dies. However, if the policy carries a critical illness rider, and covers the concerned illness, then the critical illness sum assured would be payable. Now, a few policies also provide a terminal illness benefit. Herein, if a person is diagnosed with an illness that can lead to death within 6 months of diagnosis, then the policy will pay the full sum assured.
Unless you have one of these benefits in your policy, you will not be able to make a claim before the death of the insured.
I want to buy a traditional insurance plan and want its proceeds to go to my grandchild. Kindly tell me how can this be done. Can this be done while buying the policy or will I have to make this allocation in my Will separately?
—Palak Trikha
You can make your grandchildren nominees in your life insurance policy. If they are a minor, you will also have to declare an appointee. Insurance proceeds will be received by the appointee, while the nominee is a minor. If the nominee is an adult at the time of the insured’s death, then the proceeds will be paid directly to the nominee.
Since grandchildren are not beneficial nominees there is the possibility of the legal heirs claiming policy proceeds. To safeguard for this you can specify, in your Will, that your grandchildren are the intended beneficiaries of the traditional insurance.
I have Rs1 crore term insurance having a premium of Rs9,000. I was checking the Claim Settlement Ratio of my insurer and based on that I want to switch to another insurer, so I have 2 questions. Can I switch to another insurer as I have already paid premiums for more than 5 years? What would be the extra charge I have to pay?
—Chanchal Mantri
Term insurance plans do not have portability amongst insurers. When you sign-up with a new insurer, you would enter into a fresh contract. The premium would depend on your current age, smoking status, and duration of the plan.
With age, the premium for life insurance increases. So, there is a possibility that new rates would be higher than your current premium. Once you buy your new term insurance you can stop paying the premium on your previous term plan and it will automatically lapse.
How can I take a policy under Married Women’s Property Act? Is there a difference if I make my wife a nominee in the policy?
—Name withheld on request
There is a difference between making your wife as a nominee and buying a policy under Married Women’s Property Act. In the usual course, when a wife receives proceeds from a life insurance policy, creditors can lay a claim on such proceeds. However, if the policy is bought under the Married Women’s Property Act, then creditors cannot attach these proceeds.
While buying a life insurance policy, you need to specify in the proposal form that the policy should be under the MWP Act.
Considering the recent stock market fluctuations, should I buy a unit-linked plan or a traditional endowment plan is better? My objective is to get stable returns.
—Ved Yadav
A unit-linked plan provides an option to allocate corpus across equity and debt funds. Some of these funds, commonly known as ‘balanced funds’, have a combination of equity and debt. You can choose the proportion of allocation across various fund options available. Returns on equity funds tend to be more volatile than debt funds. The corpus of traditional endowment plans is largely invested in debt and insurers have the flexibility of deciding bonus rates each year. So, returns are less volatile and insurers tend to take on some of the risks. However, due to the high in-built charges of a traditional plan, returns tend to be low, around 3-5%. So, the costs are lower in unit link plans but there you also bear the market risk fully. If you want an insurance product, you could consider the debt funds of ULIPs as one option. However, there are several other non-insurance options such as mutual funds, and public savings schemes that should also be evaluated.
