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Coverage is immediately applicable in term life insurance

Term life insurance policies have no waiting period; the only exception is that suicide is not covered in the first year

My brother-in-law had bought a term plan insurance on the 1 July 2017. All formalities had been completed and the policy had been accepted by the insurer. However, the policy document had not reached us yet and sadly on 14 July 2017, he passed away. Can we still claim the policy?

—Navin Sharma

Yes, the policy is considered to be in force in your situation. Receipt of the hard copy of the policy is not a prerequisite for risk cover to be effective. Term life insurance policies have no waiting period. So, coverage is immediately applicable. The only exception is that suicide is not covered in the first year of the policy.

Insurer is likely to conduct an investigation into the circumstances of death especially to rule out suicide and non-disclosure of any pre-existing health condition. After that, you would get your insurance claim amount after both the above points are ruled out satisfactorily.

I had bought an endowment policy 4 years ago. I am not really happy with my insurance policy and now I want to surrender it. My insurance agent says that if I wait for 2 more years, I will get a better surrender value because the special surrender value in the plan that I have taken will be much higher than the minimum guarantee. What should I do? Kindly advise.

—Shyam Chandra

It is true that generally surrender value of endowment policies increases with tenure. A decision on whether you should delay surrender should be based on the net outflow for the next 2 years. If the premium payment term is over, then you only need to compare the current surrender value with the increased surrender value after 2 years. If the increase is more than the return, you can generate by investing the current surrender value in bank deposit, then you should stay invested.

However, if you have to continue paying additional premium for 2 years, then you should base the assessment on net increase in surrender value, that is, increased surrender value less additional premiums to be paid.

I had bought a life insurance policy 10 years ago. Now I want to change the names of the beneficiaries. Can you please tell me how I can do this? Is there an online process for doing it or will I necessarily have to go to the insurer’s office?

—Lalit Kale

Nominees in a life insurance policy can be changed anytime while the policy is in force. Insurers ask to fill a nominee change request form. They may require proof of the relationship with the new nominees. Typically, this process has to be done offline via hard copy forms available at the branches of insurers.

My brother and his wife died in an accident and the vehicle was totally destroyed. They have no children. I am the nominee in their insurance policy. However, when I lodged a claim, the insurer asked for a legal heir certificate. Can you please guide us in this matter?

—Name withheld on request

Under new insurance rules, concept of a beneficial nominee has been introduced. A beneficial nominee is a spouse, child or parent of the insured. In case of death of the insured, the beneficial nominee is the ultimate beneficiary of the proceeds irrespective of other legal heirs to the deceased’s estate. Nominees other than beneficial nominees are only custodian of the legal heir. However, insurers are expected to pay the claim to the nominee. If the nominee is a beneficial nominee then they retain the money otherwise it is their obligation to distribute to the legal heirs. I see no reason why the insurer is asking for the legal heir certificate, particularly if the nomination is clearly stated. If you do have this certificate, please share it but if you don’t then do explain that it is not mandatory.

What is the ideal sum assured in a term plan? What are the other things to be kept in mind while buying such a plan?

—Kartkeyan P.

I generally recommend that an individual take cover of at least 10 times her annual income. This should be further adjusted upwards for major liabilities such as home loans that she may have.

Apart from the sum assured, you should consider three more aspects. First, take a cover up to the age of 65. This will cover your active earning life. By 65, you will also settle most of your responsibilities and liabilities. Second, evaluate the various riders available with term plan especially critical illness. Third, consider insurers with over 90% claim settlement ratio.

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

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