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.
I purchased an endowment life insurance policy from a private life insurance company two years ago. I had to undergo a medical test, but I didn't disclose that I was a chain smoker. I had also stated my parents were in good health, though my mother had high BP and had had a mild heart attack. If any claims arise in the future, say 15-20 years down the line, can the insurance company reject them, saying I withheld information?
All life insurance companies follow the principle of good faith, that is, the insured must disclose all medical facts required for policy issuance. In case the
insured hides a fact which is material to the assumption of risk by the insurers, and it comes to light at a later date, the life insurance company may cancel the policy or reject the claim, depending on the circumstances.
I would like to clarify here that disclosing medical facts may have the impact of changing your premium amount but may not make you ineligible for life insurance. So, it is advisable to disclose your current health status and family medical history with complete honesty to avoid problems in the future.
I am 39, and earn Rs35,000 per month. I have five life insurance (endowment) policies worth Rs5.6 lakh, with an annual premium of Rs32,000. Can the existing policies cover my insurance requirement?
The concept of human life value (HLV) can help in deciding the life cover an individual should opt for. The HLV of a person at your age should be around 15-20 times the annual earnings. This is a thumb rule internationally. Basically, the sum insured should be equal to an amount which, if invested, should fetch a regular income for dependants so they can maintain a lifestyle they’re used to.
The life insurance plans taken by you are endowment (savings in nature). I would recommend you take a pure term policy which will cost you around Rs8,500 per annum and will give you a cover of close to Rs15 lakh for 25 years. Assuming that you have kid(s), then you also need to invest in an insurance plan with a savings component which can cater to the needs of the child, or education, as and when required.
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.