Buying Term Insurance

10 Questions You Should Ask Before Buying Term Insurance

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There are various doubts faced by customers when it comes to buying a term insurance plan. They get unsure about how claim settlement would work in case they have more than one term insurance policy. Some are confused, whether or not they would get cover outside India. There are some who worry about the validity of their policy if they contract some critical illness or start smoking after purchasing insurance. These are some of the many questions that crop in our mind when we have to purchase a term plan.

All the doubts and queries must be cleared prior to buying a term insurance. Which is why, all of the above stated questions and a few more have been answered here, so that your buy is devoid of any confusions and suspicions.

1. Would the premium of a term plan bought today, change in the future?

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 in by the policyholder himself/herself. Meaning to say, the policyholder must not develop any disability or any (life threatening) smoking/drinking habit. On declaration of any such developments, company might apply loading (Premium rise) and thus the premium would hence change.

2. What would happen if a person starts smoking after few years of purchasing the policy?

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 insured to inform about any such changes to the insurer, as breach of this clause could lead to decline of the claim in extreme cases.

3. Would the policy cost more if a person has Smoking history?
 
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.

4. Is Term Insurance Claim Successful in case of Accidental Death?

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 insured'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).

5. Is Life Insurance considered valid, if death occurs outside India?

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 US or UK.

6. What If I don't die?

It is 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 to exclusively trade in your old term policy for a new permanent policy.

7. How does claim settlement work if a person has more than two policies?

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. After wards, 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 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.

8. How good are Insurance companies in investigating death?

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 claim, 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.

9. What are the deaths that term insurance does not cover?

Many of the buyers are ignorant about the fact that “Deaths due to Terrorist Attacks” are not covered under term insurance. Such claims 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 act of God like earthquake/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.

10. Are NRI’s allowed to buy 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 and the policy and submit the documents, last 3 years ITR and medical test reports in his next visit to India. 

The answers to these FAQ's 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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