Frequently Asked Questions: Term Insurance

17) Have term insurance premiums reduced significantly?

Over a period, there has been improvement in mortality as observed by various life insurance companies. Most companies have passed this benefit to new clients by lowering the term plan premiums. Some companies have reduced their premiums by upto 50% when compared to premiums 5 years ago.

18) Should I discontinue my existing term plan to buy cheaper term plan?

Many people are tempted to discontinue the existing term plan in favour of new plan. You could do so provided your medical condition enable you to buy cheaper term plan. Most companies consider people with elevated BP and diabetes as non-standard lives; consequently, there is a loading on standard premium rates. In any case, you should not discontinue your existing term plan unless new cover is in place.

19) Will the insurance company pay out claim to my dependants if I die in any overseas country?

Yes, insurance company settles the claim even if the death occurs overseas. There are questions in proposal form related to frequent overseas travel. Details should be disclosed regarding overseas travel at the time of proposal. Insurance is not issued for some countries, which are considered high risk.

20) Is there an advantage in buying term plan from multiple companies?

No, companies offer high sum assured discount. It is not economical to split the policy from number of insurers. People for emotional reasons diversify .It does give emotional satisfaction that not all companies will reject a claim.

Some people split the sum with a view to avoid stringent medical tests. Instead of cover of Rs. 100 lakhs – some may go for 4 policies of Rs. 25 lakhs.

21) Are term insurance plans eligible for tax benefits?

Premium paid on term insurance policies is eligible for tax deduction under section 80C and death benefits are exempt u/s 10(10d) of IT Act, 1961. Furthermore, premium paid on critical illness rider is eligible for tax benefit u/s 80D of IT Act, 1961. Even in proposed Direct Tax code (DTC), there is unlikely to be any changes in tax status.

22) Can Life insurance policy be transferred to another person?

Life Insurance policy cannot be transferred to another person; however it is important that you nominate one of your financial dependants to receive the death benefits of life insurance policy.

You can use your insurance policy as collateral with a bank in which case you will have to assign your policy to the bank. This is called assignment and ownership of policy will be transferred to the Bank. After the loan is repaid the bank will assign it back to you.

In some countries you can sell your insurance policy in Exchange ((like stock exchange) before maturity and get better value than the surrender values. These are called TEP or Traded Endowment policy to be given to you by the life insurance company

In India there is a controversy whether you can assign your policy or sell your policy to someone who is not your dependent. We in Insurance Foundation of India feel that customers or policy holders should have the flexibility to decide whether he should assign the policy to some one or to surrender the policy back to life insurance company (which issued the policy).

23) My mother is 73 years old. I would like to take term plan for her but do not know which insurance company to approach. Is there any company which can offer term plan to her? Also can she buy health insurance? That customer or policy holders should have the to decide whether he should the policy to someone or to life insurance company, which issued the policy?

Yes you can buy Term insurance policy, for her form IDBI Federal Life Insurance which offers term plan upto entry age of 85 years. In the unforeseen event of demise in the first two years of the policy, 125% of total premiums paid shall be returned. After two years, she will be insured for the amount of sum insured for life. The amount of premium and cover remain the same throughout the life of the policy, except after age 90. At age 90 the premiums will stop, but life insurance cover will continue.

She can also buy health insurance. from Max BUPA the only company that provides health insurance to person of any age up to Rs. 50 lakhs insurance cover. Premium payable for coverage of Rs. 10 lakhs will be Rs. 81,747.

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