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You can designate your life insurance proceeds towards home loan repayment

You can designate your life insurance proceeds towards a home loan by assigning the first right to proceeds

I am a single parent and I have a home loan that I am paying regularly as EMIs. Both my children are minor and there are sufficient investments and support structures already in place for them in case of an unforeseen eventuality. However, is it possible that I can designate the proceeds of my life insurance towards repayment of the home loan, in case something happens to me, as I don’t want my children to bear the burden of repaying the home loan?

—Akshara Gupta

Yes, you can designate your life insurance proceeds towards a home loan. This process is called assignment. Assignment is done in the name of the financial institution that has extended the loan. When a claim arises, the assignee gets the first right to proceeds before the nominee. It is possible to do partial assignment of policy. Under partial assignment, only the designated amount is paid to the assignee. Rest of the proceeds are paid to the nominee. If your expected insurance proceeds are more than the loan amount, you should opt for partial assignment.

My father is 52 years old. A few years ago, because of certain setbacks he faced, he started consuming more alcohol than usual. I firmly believe that this situation is getting bad to worse. He has life insurance, which will be adequate for him. If god forbid, his death is caused due to alcoholism, will the claim still be valid or will the insurance company refuse to pay the sum assured?

—Gunjan Preet

A life insurance policy does not exclude claims linked to alcohol or substance abuse. This exclusion is common in health and accident insurance. So, in case of an unfortunate event, your father’s claim will be payable.

The reason why your insurer can dispute the claim is incomplete disclosure at the proposal stage. If your father had disclosed his accurate health status and alcohol intake in the proposal form, then insurer cannot reject the claim.

I recently found out that insurance claims can be rejected if death is caused in war or war-like conditions. My family’s ancestral home is along the country’s international border. News of people dying there due to cross-border firing is becoming increasingly common. I already have a life insurance policy. Does this mean that if something should happen to me while I am visiting my relatives there, the insurer could somehow reject or not honour the life insurance claim?

—Vikram Pandita

War is a standard exclusion in most general insurance policies such as health, and home insurance. However, war is not an exclusion under life insurance policies. So, your claim will be honoured, in case it arises due to war.

Also, life insurance policies typically have a worldwide coverage. So, any inadvertent crossing of border cannot be a basis for claim rejection.

I recently applied for a life insurance policy with critical illness rider. The insurance company made me fill a proposal form and undergo medical check-up. My medical reports were completely normal. However, the insurance company suggested a 100% loading on premium and refused to give me critical illness cover. Can they do this? Is it fair? The only reason they cited was that I am overweight. Shouldn’t they have told me before taking through the medical tests. I weigh about 130 kgs, and 6’3" in height.

—Prashant A.

Insurers are allowed to accept or reject a proposal during the underwriting stage. In select situations, they can issue a counter-offer to the customer. It is at the discretion of the customer to accept or reject the counter-offer. Insurer cannot mandate the counter-offer on the customer. In your case, you can reject their counter-offer. Or, you can apply for reconsideration. Your reconsideration request could be supported by either similar cases issued at lower rates or with a rationale to be considered as a standard case. Depending on the case, insurers at time do taper down the loading in a counter-offer.

Over-weight is identified as the root cause of several chronic and critical illnesses. Insurers thus tend to be conservative in policy issuance for overweight proposers.

It seems your case was not that of outright rejection. So, insurer would have taken you through the medical tests. Insurers typically issue only one counter-offer, and do not revise it at various stages of underwriting. So, they may have waited for the entire process to be completed before making a counter-offer.

Abhishek Bondia is principal officer and managing director, SecureNow.in

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