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Very often we come across few questions that are left unanswered most of the times when we think of Term Insurance. How does claim settlement work in case you have more than one term insurance policy? Does term insurance provide cover outside India? What if I suffer from some major illness or start smoking after buying a term insurance policy?

  • Do Term Insurance pay in case of Accidental Death ?
    Yes, term insurance pays in case of an accidental death. The sum assured or cover taken under the term plan will pay the claim if the death has occurred due to any reason, be it natural or accidental death, or death due to some illness.

    There are certain riders (additional benefits) such as accidental death benefit, permanent disability rider and critical illness rider.

    By buying/adding these riders to the policy, a policyholder can ensure that his nominee will get an amount over and above the basic sum assured (due to any of the rider-related incidents).
  • Does Life Insurance covers death outside India ?
    Yes, term plans cover death outside India provided the policyholder has updated this fact with the insurance company.

    He needs to mention that he now lives outside India. Just like change of phone number, address or nominee, there is a facility in the policy service form where the policyholder has to mention that he is going abroad.

    However, if he is going to a country that is marked as unsafe like Pakistan, Burma, Somalia etc, then the company will decline this facility. Otherwise, this cover will be valid in other countries like US or UK. (Company specific)
  • To what extent Pvt Insurance companies investigates death compared to LIC ?
    There is a difference between early claim and normal claim. If a claim arises within the first two years of buying the policy (This period varies from company to company), the company investigates extensively before settling the claim.

    You can very well understand if someone has a cover of Rs 50 lakh by paying Rs 7,000 annually (And he has taken this policy on monthly basis, i.e. paying around Rs 600 monthly), then the company is at a great risk.

    Hence, the company will doubly check everything to settle the claim. In normal claim, premiums are paid regularly and the policy is in force for a long period, say 12 to 15 years.

    In these cases, there are not much issues in getting a claim, be it LIC or any private company.
  • If I buy a term insurance policy today, can its premium change in the future?
    Unless and otherwise it's mentioned in the policy document. Premium of a term insurance remains the same throughout the term of the policy provided everything remains the same with the policyholder.

    That is, the policyholder has not developed any illness or any smoking/drinking habit. On declaring any such thing, company might apply loading and thus the premium amount changes.
  • What if a person becomes a smoker after some years of taking the policies ?
    If the policyholder has developed any habit, like drinking or smoking, after buying the policy, he has to disclose this fact to the company as now he belongs to a different risk pool.

    The company may levy loading(increase in premiums) on the existing premium or even cancel the policy. This is necessary as violation of this term can result in decline of the claim in extreme cases.
  • What if a person was a smoker long back but not at the time of taking the policy ?
    Depends on the policy, but just for example, the Kotak Life Insurance proposal form mentions that the client has to declare whether he was a smoker or drinker earlier also even if he has left that habit long ago.

    However, I am not sure about other companies. Also, it depends on the company whom they consider as a non-smoker at the time of issuing a policy.

    For example:

    Max New York Life Insurance, for its Platinum Protect (term insurance), considers people, who have left smoking more than three years ago, as non-smokers. So please check the company's rule.
  • What kind of deaths are not covered in term insurance?
    Some important facts, which most of the people are unaware of, are that most companies exclude "Death due to Terrorist Attack".

    Although such claims are settled on humanitarian grounds later on when the nominee approaches Insurance Regulatory and Development Authority (IRDA) but such exclusion is there in most companies.

    Other important fact, which public at large is unaware of, is that insurance companies do not cover death due to war or natural disaster like earthquake/tsunami.

    Because in these cases, death toll is high and the claim to be settled runs in crores of rupees which is difficult to settle by the company all of a sudden.

    Therefore, these facts should also be kept in mind while buying a term insurance.
  • How to take care of claim settlement in case of more than two policies?
    The very first thing, in these cases, is to declare in the proposal form that you already have a policy from an XYZ company. (There is a column in every company's proposal form, which a client has to fill if he has an insurance policy from the same company or any other company).

    Once such information is provided, then at the time of claim, the usual practice is to submit the Death Certificate to the insurance company with whom the policy is running for the longest period.

    Other companies are then informed of the procedure due and an acknowledgment from the FIRST company is provided to them which is accepted by other companies.

    Moreover, of late, it has been reported that generally insurance companies do not ask for an original death certificate to settle the claims, even a photocopy of the certificate will do.

    So be alert while filling the form and provide all the information about your previous policies to prevent even a minor problem later on.
  • Can NRI's buy Term Insurance ?
    They can, but there is a catch. As a general rule, A person has to be resident in india to take up insurance policy from an Indian Company, reason being the documents required by the company like Address proof/age proof are to be for some place in India.

    Moreover, if the Sum assured required is more than 50 lakhs or so, customer is required to submit his financial papers such as last 3 years ITR or Form-16 which again should be done in India only.

    Last thing, medical tests would be done at some medical center affiliated to the insurance company near the address of the client which again should be in India.

    So these are reason why insurance might have been declined to some NRI.

    So one way which might work is this , If a NRI wants to take Insurance, then on his/her next visit to India he should submit his proof of residence, age, last 3 years ITR etc and get his medical done at his Indian address.

    This way he can get his policy issued very easily.

    However, there is no need to complicate it and incase you are out in some country and plan to be there for next couple of years , the best thing would be to take you can buy term insurance that time.
  • What should I look for before I decide to buy a policy?
    You must check and see whether or not there is availability of guarantee of return, what the lock in period is, details of premium to be paid, what would be implications of premium default, what the revival conditions are what the policy terms are, what are the charges that would be deducted, would loan be available etc.
  • What is the importance of a proposal and the disclosures made therein?
    The disclosures made in a proposal are the basis for underwriting a policy and therefore any wrong statements or disclosures can lead to denial of a claim.
  • What are special medical reports required to be submitted in Term insurance?
    In case of certain proposals, depending upon the age of entry, age at maturity, sum assured, family history and personal history, special medical reports may be necessary for consideration of a risk.

    For Example:

    if the proposer is overweight, special reports like Electro Cardiogram, Glucose Tolerance test etc could be required, while for underweight proposers, X-ray of the chest and lungs with reports could be required.
  • What is meant by Paid-up Value in Conventional Life Insurance Policy?
    After premiums are paid for a certain defined period or beyond and if subsequent premiums are not paid, the sum assured is reduced to a proportionate sum, which bears the same ratio to the full sum assured as the number of premiums actually paid bears to the total number originally stipulated in the policy.

    For example,

    if sum assured is 1 lakh and the total number of premiums is payable is 20 (20 years policy, mode of premium is assumed yearly) and default occurs after 10 yearly premiums are paid, the policy acquires the paid up value of 50,000/-.

    Paid up Value = No. of Premiums Paid / No. of Premiums Payable X S.A=10/20 X 100000 = 50000/-.

    This means that the policy is effective as before except that from the date the 11th premium was due, the sum assured is 50,000/- instead of original 1,00,000/-.

    To this sum assured the bonus already vested (accrued) before the policy lapsed, is also added.

    Example if the bonus accrued up to the date of lapse is 35,000/-, the total paid up value is 50000 + 35000 = 85000.
  • How is Surrender Value calculated in Conventional Life Insurance Policy?
    Surrender Value is allowed as a percentage of this paid up value. Surrender value is calculated as per the surrender value factor, which depends on the premiums paid and elapsed duration.
  • How is the Loan on Policy calculated under Conventional Life Insurance Policies?
    If the policy conditions permit grant of loan, loan is sanctioned as a percentage of the Surrender Value.
  • What are the requirements to be submitted in case of a Maturity Claim?
    Usually the Insurance Company will send intimation attaching the discharge voucher to the policy holder at least 2 to 3 months in advance of the date of maturity of the policy intimating the claim amount payable.

    The policy bond and the discharge voucher duly signed and witnessed are to be returned to the insurance company immediately so that the insurance company will be able to make payment.

    If the policy is assigned in favour of any other person the claim amount will be paid only to the assignee who will give the discharge.
  • What is meant by settlement options?
    Settlement option means the facility made available to the policy holder to receive the maturity proceeds in a defined manner (the terms and conditions are specified in advance at the inception of the contract).
  • What documents are generally required to be submitted in case of death of life assured while the policy is in force?
    The basic documents that are generally required are death certificate, claim form and policy bond, Other documents such as medical attendant's certificate, hospital certificate, employer's certificate, police inquest report, post mortem report etc could be called for, as applicable.

    The claim requirements are usually disclosed in the policy bond.
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