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 policy of the previous company and buy another policy from his new company. He says that this policy is better. What should I do?
A life insurance plan is an excellent investment option over the long term. However, it takes some time in the initial phase of the policy for it to build “cash value”. Thereafter it rapidly gains cash value and grows into an excellent savings and protection product.
That is the reason that even from a regulatory perspective withdrawal options are allowed only after three years. Now when you have spent these three years with one product, and you discontinue it to start another product, you will have a similar three-four-year “building” period with the next plan.
This is not beneficial for you. While most insurance plans have surrender or withdrawal options after three years, these are provided so that you can have access to cash in an emergency. Using these early exit options to start another policy is like buying two tickets to watch the same movie.
The insurance company’s letter, when forwarding a new policy, mentioned that I had a 15-day free look period during which I could modify the terms or discontinue the policy altogether. I chose the latter option of discontinuing the policy, as I believe it was a case of mis-selling. Am I right in expecting the company to respect my wishes to discontinue the policy? What charges would I have to pay to the company on termination of the policy?
In the interest of policyholders’ protection, the regulator in India has mandated some rules.
One of these is the “free-look” period or the cooling off period as it is called. Under this rule, while forwarding the policy to the insured, the insurer is required to inform the insured that he has a period of 15 days from the date of receipt of the plan document to review the terms and conditions of the plan.
If the insured disagrees to any of those terms and conditions, he has the option to return the plan stating the reasons for his objection. In such a situation, 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 firstname.lastname@example.org. The questions will be answered by senior executives from leading insurance firms.
This week’s expert is Rajesh Relan, managing director, MetLife.