How does an insurer decide to issue a policy? What documents do I need to submit?
The most important factor taken into account is the age of the insured. The probability of death increases with age and so insurers charge higher mortality premium for applicants at advanced ages. Thus, proof of date of birth is the most basic document needed. You may give your birth certificate copy or driving licence or PAN card or a copy of passport as proof of date of birth. Other factors include the present and past medical history of the person, family history of diseases and early deaths. The profession is also important due to related occupational hazards. Personal habits—such as smoking, drinking, drugs, hobbies and interests which increase the risk to life—are other factors considered. Usually, a medical report needs to be submitted as proof of good health. You may also have to give proof of income.
Can I reduce the premium on a policy?
No, the annual premium amount fixed in any kind of insurance policy cannot be altered after the policy has been issued. When an insurance policy with returns is taken, the premium amount is paid in order to remain insured for the term of the policy, as well as to get other benefits. This amount is pre-determined through an agreement and the insurer cannot increase or decrease it at a later stage. Though insurance companies allow the insured to pay top-ups to adjust against future premiums, it is not possible to decrease the premium amount in any case.
How do I choose between a Ulip and a pure term policy of the same tenure, premium and assured sum?
You need to compare the advantages and disadvantages of the two policies. A term plan is a pure risk insurance plan that covers your risk to life. The premium is equal to the mortality premium and offers no return. Term plans are ideal for those who seek a high insurance cover at low premium and want no return. On the other hand, a unit-linked insurance plan (Ulip) offers both insurance and returns. It involves long-term commitment to pay the same amount of money for a number of years. The amount invested is less than the premium amount paid as annual charges are deducted form it. The charges are higher in the initial years, may even be 50% of the premium paid. It also has a lock-in period of usually three-five years. If the policy is withdrawn before this period, you can even lose the principal money invested. Unit-linked investments are subject to market risks and only projected returns are shown. Actual returns can vary. Ulips are best for young people who are committed to pay for at least 5-10 years.
I have paid two annual premiums of Rs20,000 each for a Ulip that is now going in a loss. Also, its high charges weren’t explained to me. I want to cancel the policy. Can I get my money back? If yes, then how much?
When a policyholder wishes to encash his policy before its maturity due to any reason and returns the policy to the insurer, it is called surrender of policy or termination of the policy before the stipulated period. Policies can be surrendered if they were kept in force for the lock-in period, usually of three-five years. The surrender value of the policy is based on the number of years and the total premium paid in relation to the total premium that would have been paid till the policy’s maturity.
As you have paid only two years’ premium, please see your policy papers to know when you can surrender it. Policies surrendered before completion of the lock-in period do not have much surrender value. So, the policyholder receives nothing on its termination.
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