There are various doubts faced by customers when it comes to buying a term insurance plan. While some are confused about the CSR of certain insurers, some others are worried about getting cover outside India. Likewise, there are many questions that arise before someone buys a term plan as it is quite a huge financial decision. All the doubts and queries must be cleared prior to buying a term insurance.
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Therefore, in this article, we will discuss in detail these questions and understand the most feasible answers.
Term Plans
Below mentioned are the questions that one must ask before buying a term insurance plan.
Unless such a clause is specifically mentioned in the offer document, premium of a term insurance is to remain the same through the whole term of the policy; provided no change is brought up by the policyholder himself/herself. Simply put, the policyholder must not develop any disability or any (life threatening) smoking/drinking habit. On declaration of any such developments, the company might apply loading (Premium rise) and thus the premium would hence change.
If the policyholder has got into the habit of smoking or drinking or the habits that might reduce their life expectancy after buying the policy, they have to necessarily reveal this fact to the insurance provider as they are now part of a different risk pool. Otherwise, the company may impose loading (increase in premiums) on the existing premium or may even cancel the policy. It is important for the life assured to inform the insurer if he starts smoking after buying the term plan, as breach of this clause could lead to decline of the claim in extreme cases.
Varies from policy to policy, for example, the Kotak Life Insurance proposal form mentions that the client has to disclose if he was a smoker or drinker earlier also when was it that he left it. Max New York Life Insurance for its Platinum Protect (term insurance) accepts people, who have not smoked in at least 3 years, as non-smokers. Be sure to check companies' rules. Ideally, an insurance company charges extra if nicotine is found in medical reports, but terms and conditions differ from insurer to insurer.
Term insurance does pay in the event of an accidental death as well. Irrespective of what the reason is, the sum assured or cover amount would be paid on the life assured’s death (natural or accidental, or death due to some illness). There are various riders (additional benefits) such as accidental death benefit, permanent disability rider and critical illness rider that could give a boost to your term plan. By buying/attaching term insurance riders to the policy, a policyholder can be certain that his nominee will get an amount over and above the basic sum assured (due to any of the rider-related incidents).
Yes, term plans are very much valid, even if death happens outside India. The policyholder must have communicated this fact to the insurer. He should inform the insurance provider that he now lives outside India. Just like change of coordinates like phone number, address or nominee, there is a provision in the policy service using which the policyholder has to state that he is going abroad. However, if he is migrating to a country that is considered as unsafe like Pakistan, Burma, Somalia etc, then the company will defer this facility. Otherwise, this cover is valid in other foreign countries like the US or UK.
It is a general tendency of people to get upset on finding out about the no maturity benefit in their Term policy.
If it concerns you, then you must try to understand what changes your policy might go through when it nears the end of the term.
Premium rise - Many term policies do not experience any raise in the premiums for several years (10, 20 and even 30 years, for example). As soon as you approach the end of that term, you may get the option of retaining your policy. If you do, you can expect a great rise in your premium.
Less coverage - You always want your policy to cover you till the time you have liabilities to pay like a mortgage, or your children's college education. If those are your needs and you have no other obligations to worry about, you might not want to renew your policy.
Policy up-gradation - Most term policies offer a "conversion privilege". This lets you exclusively trade in your old term policy for a new permanent policy.
In such cases, it is primarily important to declare in the proposal form that you already possess a policy from an ABC company. (There is a separate column in every company’s proposal form, which a client has to fill if he has another policy from the same or a different insurer). The form should be submitted after providing such necessary information. Then at the time of claiming the policy, the general practice must be to submit the Death Certificate to that insurance company with which the policy has been running for the longest time. Afterwards, other companies must be informed of the procedure due and an acknowledgment from the FIRST Company should be offered to them and then accepted by other companies.
However, lately, it has been observed that the majority of insurance companies do not ask for an original death certificate to settle the claims; a photocopy of the certificate works well too. So be vigilant while filling the form and provide all the information about your previous policies to prevent even a minor problem later on.
There is a distinction between early claim and normal claim. If a claim happens within the first two years of purchasing the policy (This period is different for every insurer), the company does thorough investigation before settling the claim. It is essential as for the company too much is at stake. For e.g, if someone has taken a sum assured of Rs 50 lakh and pays Rs 7,000 annually (if he has taken this policy on a per month basis, he pays around Rs 600 monthly), then the company has a lot to lose. Hence, the company will doubly verify everything before settling the claim. In normal claims, premiums are paid periodically and the policy is in force for a long period, say 12 to 15 years. In these cases, getting a claim is easy.
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Many of the buyers are ignorant about the fact that “Deaths due to Terrorist Attacks” are not covered under term insurance. Such term insurance claim may get settled on humanitarian grounds later on when the nominee contacts the Insurance Regulatory and Development Authority (IRDA) but the clause is excluded in most companies. Another thing, natural calamities or acts of God like earthquakes/tsunami aren't covered either. As in such disasters, casualty is high and the claim to be settled runs in hundreds of thousands of rupees which is impossible to settle by the company at once. Therefore, one must remember to clear these facts while buying a term insurance.
Yes, NRI's can purchase term insurance plan but they need to be a resident of India as the insurance company requires certain documents like address/ age proof which should prove that you belong to some place in India. And for this purpose, the individual is not required to visit the company; he/she can directly purchase it online or through written communication while sitting in a foreign land. Also, he can purchase the policy and submit the documents, last 3 years ITR and medical test reports in his next visit to India. Death due to suicide is also an exclusion for most insurance companies.
The answers to these FAQs would help you all in deciding on a term plan. The above stated queries have been addressed and would therefore no longer be a deterrence in choosing and later on buying term insurance.
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Asking relevant questions regarding the term insurance plan that you wish to buy provides clarity on the policy's terms and conditions so that you make well-informed decisions and avoid potential financial loss. By asking the aforementioned ten questions before purchasing term insurance, you can make confident choices that will provide you with the protection you and your loved ones need and deserve. Additionally, you can always call the customer care service of the insurance company if you need to solve any queries or need extra information.