Photo: iStock
Photo: iStock

It is possible to designate your life insurance proceeds towards a loan

You need to assign the policy to your financier. Once a policy is assigned, the right of proceeds goes to the assignee

I am a single parent and I have a car loan that I am paying regularly through EMIs. My daughter is a minor and there are sufficient investments and support structures already in place for her. But is it possible to designate the proceeds of my life insurance towards repayment of the car loan, in case something happens to me, as I don’t want my daughter to bear the burden of repaying the loan?

—Rishabh Saxena

Yes, you can designate your life insurance proceeds towards a loan. To enable this, you need to assign the policy to your financier. Once a policy is assigned, the right of proceeds goes to the assignee and not the nominee. You need to fill an assignment form with the insurer to get this implemented.

Assignment can only be revoked by the assignee. When the loan is paid in full, the financier would have to reassign the policy back to the policyholder.

My house in Chennai is insured against natural calamities and I have paid all premiums. I want to add two rooms and a kitchen to the second floor. Will my existing policy suffice? If I need to take a new policy, will I get any benefits for having had this policy for so long?

—Shyam Iyengar

Yes, you can use your existing policy to cover this extension. This can be done by endorsing additional sum insured in the policy. You should get this endorsement done after the construction is completed. Standard home insurance covers only completed construction. To insure building under construction, you should buy a separate policy called Construction All Risk. 

Unlike health insurance, home insurance policies do not have waiting period. So, there are no substantial benefits to be transferred from the old policy to the new policy. It will be easier for you administratively to cover the entire house under one policy.

I want to buy a life insurance but can I avail of a loan for it? I got an SMS stating loan facility as an exclusive benefit for a life insurance from a leading insurance company.

—Harsh Tripathi

Insurance companies do not offer loans to help buy a life insurance policy. Instead, loans are available against surrender value of life insurance policies. Even this facility is restricted to select endowment policies only. Loans are not available against term plans and ULIPs.

Abhishek Bondia is principal officer and managing director, SecureNow.in. Queries and views at mintmoney@livemint.com

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