Published in Mint on April 23 2017, Written by Abhishek Bondia
About 2 years ago, I bought a term plan for Rs1 crore, but seeing the way costs are increasing, I want to increase this to Rs2 crore. Can I enhance the same policy, or will I need to buy a new one of Rs2 crore, or should I buy another one of Rs1 crore and continue the previous policy as well?
—Sivaji
Sum assured in term life insurance policies cannot be generally changed mid-term. If you are looking for an enhanced sum assured, you will have to either buy a new policy altogether or buy a supplementary cover.
You should get quotes for a new policy for Rs1 crore cover. If the cost of this new policy is cheaper, you can buy a single new policy of Rs2 crore and stop paying premiums on the old policy. If the cost of proposed new policy for Rs1 crore sum assured is higher, then you are better off continuing the old policy.
While selecting an insurer, you must look at their claim settlement track record. Select insurers that settled at least 90% of their death claims.
I have a money-back policy for which I had paid premiums for 3 years, and discontinued after that because the policy was not of much use. I had bought this policy long time back, almost 14 years. If I approach the insurer to surrender the policy, will I get any amount back? Also, should I approach the insurer, or the policy (and the premiums paid) would have lapsed altogether?
—Balaji
Since you bought the money-back policy 14 years ago, it is likely to be a traditional product. In these plans, the penalty for surrender is high, particularly if only a few premiums have been paid. Also, some of the early products had 3 to 5-year lock-ins or minimum premium payment so that you get a surrender value. So, be prepared for a small surrender value. You should approach the insurer who will let you know exactly what amount is due.
In my Will, can I redirect the proceeds of my life insurance policy to someone other than the nominee?
—Manish Dhawan
Until the Insurance Laws (Amendment) Act, 2015, was passed, a nominee in a life insurance policy was only considered a custodian of the policy proceeds. The real beneficiary of the proceeds was decided as per the legal Will defined by the insured. However, with the new rules being passed, a concept of ‘beneficial nominee’ has been introduced. So, if your nominee is a beneficial nominee, then you cannot redirect the proceeds to someone else through your will. If the nominee is not a beneficial nominee, you can do such redirection.
The new rules identify parents, spouse or children as the beneficial nominee of the individual. This rule is applicable for all insurance policies with a maturity date after March 2015. In case you want to redirect your funds to a new person, other than the one listed as nominee at policy inception, you can do that. You have to simply apply for a change of nominee. You can even have multiple nominees for the same policy. You would need to define the percentage share for each nominee. At the time of nominee update, you need to submit their name, address, date of birth, percentage share.
Can one have term insurance of amount worth 30 times of his gross annual income from a single insurer taking into consideration the future inflation and real purchasing power?
—Nishant Bhagat
Generally, insurers are reluctant to offer cover more than 20-25 times of a person’s annual income. If the proposer is young and requires relatively low sum assureds, they can go up to 30 times of annual income as well. You should apply for the insurance amount that you want. In case insurers turn this down, then take the maximum that they are willing to give and buy an additional term insurance after a year or two once your income increases.
