Is it possible to take a loan against an insurance policy? What are the conditions of repayment? How will it affect the premium payment?

—Manoj Jha

Several endowment policies offer loan facility, but unit-linked insurance plans and term plans do not. The rate of interest varies by insurer and is revised periodically. Generally, the loan sanctioned is a proportion of the surrender value. Advancement of the loan and repayment has no bearing on the premium amount. If you don’t repay the loan then the amount is recovered from your insurance.

I took a term insurance plan online for a sum assured of 26 lakh in 2010 for 25 years. Recently, I took another term plan from the same insurer for 1 crore for 54 years after medical check-up and self declaration. My first policy was accepted without any check-up—I also forgot to mention about my surgery in 1996 (hip joint because of avascular necrosis) and about Bell’s palsy (partial paralysis of face) in 1994 from which I have recovered. I have declared these in my new policy, which was accepted without any condition or loading of premium. Can the insurer repudiate the claim for my first policy on the grounds of non-declaration of the two medical conditions?

—Alok Kumar

You have a strong case for the initial insurance to be valid. It is now 8 years since you bought that and current laws do not allow repudiations after the third year for new policies; you did declare the medical conditions to the insurer in your second policy so they had an opportunity to re-evaluate, and the second policy was issued even after you declared the illness, suggesting that the insurer can accept these risks.

But in life insurance, you need to be absolutely certain that the claim will be paid. That is why you should write to the insurer clarifying the issue and highlighting the points I have made. Keep a record of your correspondence. Most likely the insurer will take note and continue the policy. They may ask for a declaration of good health at this time. If the insurer objects, then buy a new policy.

I bought a traditional policy in 2005 for 20 years with a sum assured of 3 lakh at an annual premium of about 15,000. Is it advisable to surrender the policy at this stage and invest the annual premium amount elsewhere till 2025?

—Asha Srivastava

Ensure that you estimate the expected returns by including bonuses. If this is also low then ask the insurer to let you know the surrender value. The analysis that you need to do is compare the returns of investing the surrender amount elsewhere with the overall returns of continuing the insurance. In your specific case, the expected returns do seem very low. So, if your surrender value is more than the premiums paid, it may make sense to close this policy.

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

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