We all know that insurance occupies a prominent place in our lives. We talk of insurance, buy insurance, discuss with our family and friends about various kinds of insurance and their benefits, study and research a lot before laying our hands on insurance policies.
Term insurance is relatively new to most of the Indians so the frequency of questions would certainly be high as compared to other types of insurance policies. Questions like what is a term insurance? Why do we need it? Will term insurance cover us when we are outside India? Is it easy to claim it from a private insurance company or does LIC works best for claim settlement? Etc. These and many such questions keep cropping in one’s mind.
My personal experience says that if these answers are left unattended they not only delay your decisions pertaining to purchasing the most required insurance but also leads to insecurity, fear and dilemmas.
Today, I will try to address the most commonly asked question pertaining to Term Insurance. Please remember that the questions and their answers are strictly in context to term insurance and hold true for most of the companies that offer term insurance plans. These may, however, vary for some insurance companies.
Read on, you never know if that was the answer that you have been looking for.
Q 1. What is Term Insurance?
Term Insurance Plan is the purest form of protection plan and does not have any market risks clanged to it. When you pay a fixed amount of premium for a limited span of time you are heading towards purchasing a term insurance plan. It has a relevant term attached to it.
Once the fixed period expires, you are no longer entitled for coverage at the previous rate of premiums unless you obtain a new coverage for a new premium and term. You can also forgo the coverage. However, in the course of death of the insured within the period for which the term insurance has been obtained, the beneficiary receives the benefits.
Q 2. Is Term Insurance applicable in case of accidental death?
The answer is straight. Yes, Term Insurance is for sure applicable in the event of accidental death. The cover that you have opted for is applicable in the event of death, irrespective of the cause of death. Therefore, if death takes place due to accident or illness or naturally you will be entitled to receive the claim. Term insurance polices also come with the options of riders. Riders are the additional benefits that you can avail through your policies by paying some extra premium. You may opt for riders like permanent disability rider, critical illness rider or accidental death benefits. These would help you to get additional security over and above the basic sum assured for your nominee.
Q 3. Does death outside India fall under the purview of life insurance?
If you have shared this knowledge with you insurance provider then certainly your life insurance cover would be applicable even outside India. However, in the event of claim arising within 2 years of purchasing the policy (may vary from insurer to insurer) the claim is settled only after undergoing an extensive investigation.
Q 4. Is there a chance of premium change in future of the term policy purchased today?
Any scope of change of premium during the term is mentioned in the policy document. The policy premium of term insurance, however, remains unchanged throughout the policy tenure if things remain unchanged with the policyholder. This means that after the purchase of policy if you have developed any illness or you have started consuming liquor or started smoking then the insurer, on becoming aware of it, will apply loading. This loading would lead to change in premium.
Q 5. What are the kinds of deaths that do not fall under the purview of Term Insurance?
Many of you might not be aware of the fact that insurers do not include “Death due to Terrorist Act” under the purview of term insurance. If you approach the Insurance Regulatory and Development Authority (IRDA) then this may be addressed on humanitarian grounds. But by and large these are excluded by all companies. Death due to natural calamity like tsunami, earthquake, war etc do not fall under the periphery of term insurance.
Q 6. What will happen when the policy holder starts smoking after some years of policy?
If you own a term insurance policy and few years after buying the policy you cultivate a habit of drinking and smoking then it is important for you to reveal the same to the company. The company would apply some loading on your premium, thus, increasing the premium. Informing the company is important because now you have escalated yourself to a different risk pool. If you do not reveal this to your insurer then in extreme cases it may happen that your nominee is declined the claim. Your entire effort of getting a term insurance may go futile.
Q 7. is it possible for NRIs to buy term insurance?
It is very much possible for NRIs to buy term Insurance but that is subject to some conditions. Term Insurance would be provided to you only if your are a resident of India. Reason is that you will be required to submit documents like identity proof, age proof, address proof etc. you will also be required to submit financial papers that may include Form-16 or ITR of three years in case when the sum assured required by you is more than 50 Lacs. It goes without saying that medical tests form an inseparable part of term insurance. You will also have to undergo medical tests but at medical centers affiliated to the insurance company and close to your Indian residence. Thus, a number of times, NRIs may be declined term insurance on these grounds.
Q 8. How to settle claims of more than two policies?
It is important for you to make it clear to the insurer in the proposal form that you already have a running policy in your name under the flagship of ABC insurer. At the time of claim settlement the insurer with whom the policy has been running for the longest period is advised first and the Death Certificate to submitted to them. Other companies are thereafter informed about the process and an acknowledgement from the first insurer is submitted to the rest of the companies.
Going by the recent changes in the procedure insurers settle claims even with the photocopy of the death certificate and ask for the original only for verification of the photocopy. So if you need to sail smoothly then make sure that you fill your proposal forms very carefully and reveal all the minute details so as to avoid hassles later.
Megha Sharma works as a guest lecturer in Delhi. She holds an MBA & Doctorate from the UPTU. With extensive knowledge and experience in various financial products, she also works as a consultant in banking & finance domains wherein she offers advice to her clients in managing personal finance.
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