Life insurance is a contract between the insured and the insurer, where the latter provides a death benefit to the nominated beneficiaries in the event of the death of the insured. Broadly, there are two types of life insurance plans; whole life insurance and term life insurance. In both the insurance the insured pays an amount to the insurer called as premium. While whole insurance provides not only a death benefit but also pays the sum assured along with accumulated bonus if the insured survives the term of the insurance. On the other hand, in term insurance the insurer provides death benefit, however if the insured person survives the term there is no payment to the insured whatsoever.
Being a financial matter bound in legal terms, it’s often recommended to read between the lines of whichever policy you decide to buy. Sometimes there are clauses well hidden between words you may miss, and make you lose money later on. These clauses may differ from insurer to insurer, however there are a few common facts that you must know before buying an insurance.
Facts about life insurance
1. You’re in full agreement to the policy terms as soon as you bought it
At the time you’re buying the life insurance, your agent will make you sign the form where the terms of the policy are mentioned. The terms can never be changed once the purchase is complete including the maturity date. So, if you decide later on that you want longer protection, you will have to buy another insurance policy.
2. You’re entitled to a loan against the policy
A very few people know that in times of need you can ask for a loan against your policy. Generally, an endowment plan offer loan against policy, however ULIP and term plans don’t. The maximum amount depends on the insurer and the policy plan and is a portion of premium paid and accumulated bonus. Interest rate can also vary between insurers.
3. Loan repayment
Normally, in a loan against policy you have the freedom to pay as per your desire as long as you keep paying the interest and premium on time. Loan has no effect on premium and unlike regular loan there are no EMIs. In case, you don’t repay your loan, it will be deducted from the claim settlement or from maturity payment.
4. Surrendering the policy
If for any reason you don’t want to continue the policy, whether due to financial constraints or to change for a better policy, you have option to surrender the policy which becomes available after a certain period of time as mentioned in the policy terms. The surrender value varies between policies and are mentioned in the policy terms. In ULIP you may get a full unit value upon completion of minimum five years since the surrender charges are nil in such a case.
[su_note note_color=”#efefef”]See also: What you need to know about critical illness plan?[/su_note]
5. Rule of Uberrima Fides
An insurance contract abides by the rule of uberima fides which means abundant faith. This implies that the insured is required to reveal all personal information including current health condition and any significant past health history. If the information is found false the chances of a claim rejection are almost absolute. The chances of successful claim increase with true information. The policy contract contains the list of the information insurer requires.
6. No Repudiations after 3 years
According to section 45 of Insurance act, the present law doesn’t allow repudiation of a life insurance after completion of a new policy.
7. Payments in a term insurance
If you purchased a term insurance, your nominee is entitled to receive the amount only when insured person dies. There are no maturity or survival benefits.
8. No nominee at purchasing the policy
If you haven’t set a nominee at the time of purchasing your policy, then the death benefit can be claimed by the legal heir of the policyholder. In such a case, the heir will require to furnish a succession certificate to determine beneficiary at the time of settlement.
Purchasing an insurance policy is a big financial decision as the financial security of your dependents may rest upon it. It is recommended to read all the points given in your policy contract carefully and ask your agent in case of a confusion. Never sign the contract blindly only to feel duped later on as these contract can be really tricky.
About Aegon Life:
Aegon Life Insurance Company Limited launched its pan-India operations in July 2008 with a vision to be the most recommended new age life insurance Company. Aegon is one of the world’s leading financial services organizations (providing life insurance, pension plans, and asset management) and Bennett, Coleman & Company (India’s leading media conglomerate) have come together to launch Aegon Life Insurance. This joint venture adopts a local approach with the power of global expertise to facilitate a direct to customer approach, leveraging digital platforms to bring transparent solutions to customers and to prioritize their needs