Ask Mint | Policy needs time to develop cash value

Ask Mint | Policy needs time to develop cash value
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First Published: Mon, Jul 27 2009. 12 05 AM IST

Updated: Mon, Jul 27 2009. 12 05 AM IST
The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.
My financial adviser has recently changed his company and is asking me to drop the previous company’s policy and buy a policy from his new company. He says it’s better. What should I do?
A life insurance plan is an excellent investment option over the long term. However, it takes some time for it to build “cash value”. Thereafter, it grows into an excellent savings and protection product. That is why, even from a regulatory perspective, withdrawal options are allowed only after three years. When you have spent these three years with one product, and discontinue it to start another, you will have a similar three- to four- year “building” period with the next plan. This is not beneficial for you. Surrender or withdrawal options after three years are provided to allow access to cash in an emergency. Using these early exit options to start another policy is like buying two tickets for the same movie.
The insurance company’s letter, when forwarding a new policy, mentioned that I had a 15-day free-look period. I chose to discontinue the policy, as I believe it was a case of mis-selling. Am I right in expecting the company to respect my wishes? What charges will I have to pay?
For policyholders’ protection, the regulator has mandated some rules. One of these is the “free-look” period. While forwarding the policy to the insured, the insurer is required to inform the insured that he/she has 15 days from the date of receipt of the plan document to review the terms and conditions. The insured has the option of returning the plan, stating the reasons for objection. If he does, the policyholder will be entitled to a refund of the premium paid less deduction of proportionate risk cover for the period on cover and expenses incurred on medical examination and stamp duty charges.
Readers are welcome to write in with their queries to askmint@livemint.com. The questions will be answered by senior executives from leading insurance firms. This week’s expert is Rajesh Relan, managing director, MetLife.
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First Published: Mon, Jul 27 2009. 12 05 AM IST