Term Insurance 411 views June 13, 2019

12 Questions to Know Before Applying for Term Insurance Plan in India

Buying a term insurance plan is certainly not child’s play. Ignorance of the term insurance concept coupled with a misunderstanding of related terms and associated policy conditions have resulted in many people often opting for a term plan that is short in coverage or expensive in terms of premium rates.

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However, costly mistakes while buying the right term insurance cover can be avoided by asking yourself some important questions. These include:-

1. Are the premium charges fixed throughout the policy period or are they subject to change?

Answer: Unless explicitly mentioned in the term policy document, insurance companies in India continue to charge the same amount on premiums throughout the policy tenure. However, this rule is subject to the condition that the policyholder seeks no changes in the policy or does not develop harmful lifestyle habits that make him or her vulnerable to critical disorders in the long run. On the declaration of chronic disorders or harmful habits, the insurance company may levy additional premium charges, also called loading corresponding to an increase in risk, and charge higher premium rates.

2. What if I start smoking or drinking a few years after buying the term life insurance policy?

Answer: An insurance policy must be signed by both the parties in utmost good faith. This means that the policyholder is liable to disclose smoking or drinking habits developed after buying the policy. Since these lifestyle habits can have a reducing impact on the policyholder’s life expectancy, the insurance company faces greater risk than before. Informing the company about the change in habits or development of such damaging habits may result in higher premium charges. However, keeping the insurance company uninformed about the same may result in the insurer cancelling the policy.

3. Do smokers have to pay more premiums for their term policies?

Answer: The answer is “Yes”. Before selling any policy to a customer, every insurance company inquires if the customer smokes, chews tobacco or drinks alcohol. Habits like these are known to possess health risks, thus, having an adverse effect on the policyholder’s life expectancy. Since the quantum of risk covered by the life insurance company is more, smokers are charged higher premiums than their non-smoking counterparts.

4. Do you have to pay more premium charges if you have a smoking history?

Answer: Different term insurance policies sold by life insurance companies in India are subject to varying terms and conditions. For example, Kotak Life Insurance Company requires its customers to disclose when they had been last smoking or drinking. Similarly, the Max New York Life Insurance Company deems its customers to be non-smokers if they had not smoked during the last three years. As insurance companies’ rules differ, it is important to go through the terms and conditions published in fine print in the policy proposal before signing on the dotted line.

5. What are term insurance riders?

Answer: For customers looking to buy the ultimate form of financial security, nothing suits better than term insurance. However, life insurance companies in India have now gone one step ahead and introduced rider options also called add-on benefits that serve to enhance the policy cover and effectiveness. Common add-on riders available that one buy by just paying premiums over and above the basic premium charges include Accident Cover, Critical Illness Rider, Waiver of Premium Cover, etc.

Buying an Accident Cover ensures that the nominees get an additional amount over and above the sum assured in the event of death by accident. Similar is the effect of Critical Illness Rider wherein the nominee gets an additional amount other the predetermined amount of death benefits. Paying extra for “Waiver of Premium” ensures that premium charges to be paid by the policyholder are waived off in the event of permanent disability due to accident or the effect of chronic disorder.

6. Will the insurance company hand over the death payouts to my nominee in the event of my accidental death?

Answer: Irrespective of the nature of death, your life insurance company is liable to disburse the amount of sum assured as predetermined while buying the policy. It does not matter if the death is due to an accident, natural or after prolonged critical illness. However, if you are concerned about the financial security of your family in the event of accidental death, you may choose to opt for add-on riders like accidental death benefit rider.

7. Is my life insurance policy still valid in the event of my death outside the Indian territory?

Answer: Death outside the Indian territory does not render your life insurance policy invalid. However, it is important that the policyholder must inform the insurance company about his or her intent to stay outside the country. In addition to mentioning personal and contact details in the policy proposal, the customer must also state details if he or she plans to go or stay abroad. However, many insurance companies defer this facility in case the insured plans to go to or settle in a war-torn country like Pakistan, Afghanistan, Somalia, Burma, etc. It is important to read the policy details to know the names of the countries that insurance companies do not consider safe or reject the policy claims if the insured has died in that country.

8. Does the insurance company give nothing in case I survive beyond the policy period?

Answer: The idea of buying term insurance is to ensure complete financial security to your dependents in the event of your sudden death. This means that your life insurance company is liable to pay the amount of sum assured to your nominees in the event of your unfortunate demise during the term policy period. However, many insurance companies are now offering their customers the “Term Return of Premium (TROP)” benefit. According to this, policyholders get back the entire premiums they had paid in case they survive the policy period.

9. Will, my nominee(s) face problems during claim settlement if I buy multiple term insurance plans?

Answer: The claim settlement process has nothing to do with the number of policies you have bought in the past. However, while signing the proposal form for a new policy it is important to inform the insurance company about any term insurance plan having been bought in the past. Every insurance proposal form has a separate column requiring the customer to fill details of any term insurance policy bought from the same or a different insurance company. Also at the time of making the policy claim, the nominee(s) has to submit the death certificate of the policyholder to the insurance company from whom the earlier policy had been bought. The other insurance companies can be informed subsequently.

10. Do insurance companies in India investigate the cause of death?

Answer: Not many people are aware that every insurance company considers early claims distinct from natural claims made. Almost every insurance company in India investigates the cause of death that has taken place within two years of buying the term policy. This period may differ between the insurance companies in India. Any death occurring within this period is thoroughly investigated by the insurance company. This is because term insurance is bought as an essential measure against financial risk. In the event of normal claims, the insurance company settles the claim amount after the nominee has filled in all necessary details and submit all necessary documents as evidence.

11. Does an insurance company cover all kinds of deaths?

Answer: Surely, buying a term insurance plan secures against the financial distress stemming from sudden deaths. However, it does not imply that all kinds of deaths are covered under term insurance. Though exceptions are always there and every insurance company in India settles claims as to the company’s terms and conditions, there are certain deaths that are not covered by any life insurance company in India. For example, deaths due to terrorist attacks or natural calamities or deaths due to sexually transmitted diseases are not covered under any term insurance policy. However, different life insurance companies in India have different policies concerning death by suicide or self-inflicted injuries.

12. My friend is an NRI. Is he eligible to buy term insurance?

Answer: Insurance companies in India accept term insurance proposals from NRIs subject to the condition that they have evidence of having lived in India. For this, the NRIs must submit documents of evidence proving your friend’s place of residence in India. Also, online insurance web aggregators have made it possible for NRIs to buy term insurance online instead of going to the concerned insurance company in India and submitting documents in person.