Mar 16, 2009

7 Must-Know Points about Life Insurance Policies

Life insurance policy is a long term contract and involves substantial investments. Therefore, before buying life insurance, you should be aware of some basic features of these policies. This post lists out 7 such must-know points regarding life insurance policies:

1. Policy illustrations
According to IRDA, no life insurance company can show you an illustration projecting returns in excess of 10 per cent. Besides, the company has to specifically mention that those returns are not guranteeded.

So, if any insurance advisor approaches you with an illustration depicting more than 10% returns or verbally assure you high returns, just show him the door without any further argument.


2. Riders
Riders provide you options to customize your policy as per your needs at a small additional cost. There are various riders available with the life insurance policies which includes waiver of premium rider, major surgical assistance rider, disability benefit rider, accidental death benefit rider, guaranteed insurability option rider and critical illness rider. However, the total premium for all riders put together can’t exceed 30 per cent of the premium for the base policy.


3. Nomination
You are recommended to nominate a person while buying a life insurance policy. The purpose of nomination is to authorise a person to receive the amount if anything unfortunate happens to you. If you wish you can change the nomination at any time subsequently.

However, remember that while nominee gives valid discharge to the insurance company, he doesn’t acquire the absolute right over the policy proceeds in case there are other legal heirs.


4. Free-look period
Do you know that even after purchasing a life policy, a period of 15 days (from the date of receipt of policy document) is available to you during which you can review the policy and if found unsuitable, return it back to the insurance company and get a refund.

As per IRDA regulations, it is mandatory for all insurers to grant at least 15 days of free look period to the insured after the date of receipt of policy.

So, always make it a point to go through the detailed terms and conditions of the policy document by reading the fine-print and satisfy yourself that it meets your requirements and if not, then just dump it and get a refund. Furthermore, if you find any details missing or any wrong information, you should return the policy.


5. Grace Period
Additional period of time after the due date provided to the insured during which premium can be paid is called grace period. Usually, a grace period of 15 days is allowed in case of monthly payment of premium and one month in case of all other frequencies (i.e., quarterly, half-yearly or annual payment of premium).

The policy remains in force during the grace period. In other words, claims made during grace period are payable but after deducting the unpaid premium. Besides, no interest is charged for making premium payment during the grace period.

So in case you ever fail to pay your premium with in due date due to any reason (cash crunch or could not remember the due date) make sure to pay it with in the grace period allowed so that your policy doesn’t lapse.


6. Policy Lapse & Revival
If you ever forget to pay the premium within the due date or the grace period permitted by the insurance company, your policy lapses. In case of Ulips, rules are a bit different. For further details, please read “How to Get Rid of Life Insurance Policies”.

However, even in case of lapse of life insurance policies there is a way out. Usually, a period of six months from the due date – including grace period – is allowed during which you can revive the policy by just paying the overdue premium along with interest. Furthermore, even after the period of six months, you can get the policy reinstated but generally insurance companies insist on fresh medical check up.


7. Suicide Clause
If you commit suicide within one year from the date of issue of policy, you are not entitled for any life insurance claim. For example, in case of a term plan, nothing will be paid back to your nominees and in case of Ulip only the fund value will be refunded.

Thus, if you’re contemplating suicide make sure that you commit it only after the first policy anniversary date. Hey, just joking, please don’t take it literally.


RELATED POSTS:
1. Amazing Fact about Life Insurance – Term Plans
2. Ulips – Top 5 Secrets
3. Ulips Vs Traditional Plans
4. Section 80C – A Complete Guide

5. 5 Common Life Insurance Myths
6. How to Get Rid of Life Insurance Policies

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