Bert PatersonThe 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 pension plan is maturing next month, but I am already getting a government pension. Is it possible to get the returns in bulk, so that I can invest the amount somewhere else?
Yes, such types of withdrawals are called commutation. Under this provision, you can withdraw up to one-third of the total pension amount—though not the whole amount—receivable under the policy. This amount would be tax-free, and you are free to invest it anywhere you desire. The balance is paid in the form of a monthly pension. However, should you wish to withdraw the entire pension amount, you will have to surrender the policy before the maturity date and pay a surrender penalty. This amount is taxable. You should contact your pension provider to discuss all the options available to you.
I am planning to take a loan against my endowment policy. How much loan can I take and what do I need to know before applying for a loan against a life insurance policy?
First of all, please check whether you have a unit-linked endowment plan or whether you have a traditional endowment plan. In the case of a unit-linked endowment plan, you will not be able to take a loan against your policy. These products are linked directly to the market and there is no guarantee on the final maturity amount in most cases. However, you can exercise the option of partial withdrawals, which will help you to meet your immediate needs. You can speak to your insurer for details on this.
If you have a traditional plan, then you can apply for a loan against the policy, if your policy allows this. You should check the policy terms and conditions for details on this. This advance is always less than the current cash value of the policy.
If the accrued interest on the policy loan is not paid, it is added to the principal amount of the advance or loan, and bears the same interest rate.
In case the total amount of debt is more than the surrender value of the policy at any time, the insurer has the right to terminate the policy after giving a month’s notice to the policyholder. This is commonly called foreclosure.
In case the policy matures, or a claim arises, the insurer is entitled to deduct the amount of the loan outstanding, along with the interest, from the insured amount. However, before you apply for the loan, please check the interest rate that would be levied on the loan.
I am 22 years old and earn a salary of Rs15,000 per month. I want to take a life insurance policy of Rs10 lakh and nominate my father as the beneficiary if I do not survive the term of the policy. Which policy should I take?
It is good to see that you are thinking about insurance at a young age. Before deciding on any insurance plan, it is advisable to undergo a financial health check. This is a need-based analysis that helps you determine your liabilities and income from other sources so that you can benefit from the best advice and plan your insurance investment wisely.
You could either opt for a term plan, which provides only a death benefit, or you could apply for an endowment plan which, in the event you survive the policy term, will give you a cash benefit on maturity as well as death benefit in case of premature death, before the policy term lapses.
Readers are welcome to write in with their queries to firstname.lastname@example.org. The questions will be answered by senior executives from leading insurance firms.
This week’s expert is Bert Paterson, managing director, Aviva India.