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Endowment plan charges are generally high in the early years, and surrender value low

LiveMint logoLiveMint 24-09-2017 Abhishek Bondia

How is the surrender value of a policy calculated? I have an endowment plan that I had bought about 15 years back. I had paid premiums for 3 years, and then stopped. The premium amount was about Rs8,000 per annum. Can I surrender now and recover some of that money? What would be the process to do so?

—Sanket Kathuria

Surrender value of an endowment policy is calculated uniquely for each plan. Such plans have a pre-defined surrender value table, linked to the number of years of premium paid. Charges in an endowment plan are generally high in the early years and surrender value low. You can surrender the plan now, but be prepared for a low surrender value.

My mother died a year back. Recently, I came across a life insurance policy that my father (deceased) had bought in my mother’s name. But I could find only one document. Can I approach the insurer for more details? What information would I need to be able to find out who the nominee was and the benefits due?

—Gayathri Rangarajan

If you have the policy number, you can use that along with know-your-customer (KYC) details of your mother to seek the policy details from the insurance company. Most insurers will be able to provide this information via their customer service helpline. Else, you could visit the issuing branch to get these details.

For death claims, the original policy document is required along with the death certificate, and proof of nominee relationship with the insured. If the original policy bond is not available, you will have to file for duplicate policy issuance. The process would include filing an FIR, if the document is suspected to be stolen. Some insurers will also accept an indemnity bond or declaration from you to issue a duplicate policy.

Is it useful to have a premium waiver facility in a life insurance policy? I am 50 years old, and would like life cover for only another 10 years. Does it make sense to pay extra to get this facility?

—Chirag Sethi

The waiver of premium feature is useful if you intend the life policy to mature at a certain date and have a specific use of the matured amount. So, child plans use this feature often, because the corpus continues to build up even if the parent dies. Sometimes, a waiver of premium can also become effective if you are diagnosed with a critical illness. I generally find waiver of premium a good rider or product feature to have.

How can I balance the need to take higher sum assured when my income increases and manage premiums in a reasonable range at an early age, as I want to minimise expenses?

—Susheel Khatri

There are life insurance plans available that offer higher sum assured with age. The increase may be pre-defined, say, 5-10% annually. However, generally such plans don’t tend to be the cheapest term insurance. An alternate way could be to buy separate plans at every 5-year interval. This could help adjust for rising income levels and allow you to buy the most cost-effective cover then. The downside with this approach is that if a medical condition were to arise, the insurer may not offer new plans or may offer at rates that are higher than the standard rates.

Do the recent initial public offerings (IPOs) of insurance companies have any bearing on my policy? As a policyholder, will I get any benefit?

—Usha Kulkarni

The IPOs don’t have any negative bearing on policyholders. Funds invested with life insurers are not connected with the IPO of the insurer. As a policyholder of a listed company, there are also no special benefits. The principal advantage is that the governance of the insurer will become more transparent, which is a good outcome.

Why are term insurance premiums charged by life insurers so widely different? Are there some unique benefits or clauses I should look for?

—Vishal Kaushik

Premium rates offered by insurers are dependent on their reinsurer arrangements, profitability expectations, operating and selling costs and assessment of risk. The insurer’s business strategy also makes a difference because some insurers proactively recommend term insurance as a lead product whereas others don’t.

Term insurance exclusions are standard across all insurers. The only exclusion allowed by the regulator in term insurance is suicide for the first year. You don’t have to worry about exclusions under life insurance. Some insurers have started to give in-built additional covers. For example, one insurer offers early sum assured payment in case the insured is diagnosed with a terminal illness. These add-ons make a difference to the premium amount.

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

Queries and views at mintmoney@livemint.com

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