Maturity of child plan should be linked to important milestones

Child-oriented life insurances often have a waiver of premium option under which future premiums are paid by the insurer if the parent dies or contracts a critical illness


iStockPhoto
iStockPhoto

Are there circumstances under which a life insurance company might refuse to pay for claims?

—Ayush Khatri

One exclusion allowed in a life insurance contract is suicide in the first policy year. Apart from this, the insurer can deny a claim if there has been material misrepresentation such as on medical or smoking history.

The Insurance Laws (Amendment) Act, 2015, stipulates that a life insurance claim cannot be denied after it has been in force for three years. Any instances of fraud or non-disclosure of information have to be discovered before that and the onus is on the insurer to determine the issues. This is good because it reduces ambiguity around claim payment.

The best approach in life insurance is to fully disclose your medical history. Opt for a fully underwritten insurance so that the insurer can assess your health itself.

I have been advised to take a child care plan for my 10-year- old daughter. Is this a good option, or should I consider a unit-linked insurance plan (Ulip) in my name?

—Suresh Pant

The nomenclature of a life insurance plan varies considerably among various insurance companies. Some prefer to market plans as child plans whereas others position these as regular life insurances.

The two important considerations if you want to buy a plan for your daughter are: whose life is covered, and when does the insurance mature.

First, a plan that insures the child’s life is not useful. Instead make sure that your life is insured. If you die, then there should be a large financial sum available for the child’s future.

Second, the maturity of a child plan should be linked to important milestones in the child’s life such as her college education or marriage or setting up a business.

Child-oriented life insurances often have a waiver of premium option under which future premiums are paid by the insurer if the parent dies or contracts a critical illness. Follow these guidelines to buy an insurance plan for your daughter.

What are whole life insurance policies?

—Khatija Ansari

Whole life insurance policies are essentially traditional long-term endowment plans. Such plans mature after the insured reaches an age of 80-100 years. The benefit of these plans is that they encourage you to save lifelong. Over many years, the accumulated amounts can be substantial.

The flip side of these insurance plans is that returns are low. Most traditional plans earn between 2% and 5% per annum, which is less than inflation.

Another issue with some of these plans is that the surrender charges are high if you want to close down the insurance.

Whole life plans are popular in the US where they provide relief from estate taxes. Such taxes, however, are not present in India yet.

Queries and views at mintmoney@livemint.com

READ MORE