On what basis do insurers grant life insurance?
Once the prospective buyer of a life insurance policy fills up the proposal, the documents go to the underwriter of the insurance company for scrutiny and acceptance of risk. The underwriter examines the proposal in the light of declarations made with respect to the health condition, age, income, tenure of the policy, amount of sum assured and many other factors regarding the buyer.
Generally, proposers within a specific age bracket are not required to undergo any medical examination. However, while scrutinizing the proposal, if the underwriter comes across a doubtful medical condition, he may ask the proposer to undergo specific medical tests before accepting the proposal.
The underwriting that takes place after taking into account the results of the tests is generally known as medical underwriting. Based on the medical reports and other inputs, the underwriters will decide whether to accept the proposal at normal rates, load the premium to a certain extent or to deny the proposal itself.
What is the ideal duration for a life insurance policy?
The selection of duration of the life insurance policy depends on a number of factors unique to every individual. Ideally, one should insure oneself for as long as one is the crucial earning member of the family. Investments at the right time in the right kind of insurance policies help one maintain the kind of lifestyle one had earlier even after retirement. In case one has dependants whom one needs to support financially for a longer period (for example, in the case of physically challenged children), it is advisable to go for a whole life cover.
I am a 50-year-old salaried employee. I want life cover for Rs7-8 lakh for a period of 10 years. What is the best option?
If insurance is the main consideration, you should go for a term insurance plan. The premium for these policies is equal to the mortality premium, which is quite cheap. For a sum assured of Rs8 lakh in the option where you do not want the premium back, the annual premium would be around Rs6,500. If you opt for a policy for the same sum assured with return of premium at the end of the term, you pay Rs10,200 or so, depending on the insurer.
I plan to invest in a unit-linked insurance plan (Ulip). What are the potential risk factors of investing in their growth option?
When you choose a growth plan for investment you should be aware that the investment is subject to market and other risks and there can be no assurance that the objectives of any of the plans will be achieved. The scheme’s performance depends a lot on equity and debt markets and may also be affected by changes in the general level of interest rates.
You must also bear in mind that the past performance of other plans of the company is not necessarily indicative of the future performance of any of these plans. Normally, such plans do not offer a guaranteed or assured return. Further, all benefits payable under these plans are subject to tax laws and other financial enactments. Another disadvantage is that in case the unit value is not enough to cover the insurance company’s charges, the life cover under the policy automatically terminates.
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