If you have just got your life insurance policy and are feeling on top of the world that your family is covered, then you are entitled to that feeling. However, an insurance policy is often referred to as a contract of
"Utmost Good Faith
", in which the company issues a policy coverage based on the assumption that you have disclosed all relevant information in good faith. A policy is not just about the coverage amount and the premium payment but also about the fine print. There is some key life insurance policy information that you need to be aware of, especially with respect to the key features of life insurance. Here is why you should know about your life insurance policy in granular detail. We have identified 6 key things you didn
't know about your life insurance or were probably too wary of asking someone.
1. The devil of the life insurance policy lies in the fine print
Like in most cases, even in a life insurance policy, the devil lies in the details. You get a policy document with a plethora of terms and conditions written in extremely small print. You may find it redundant to read these terms and conditions but that is where most of the disputes arise when it comes to claims settlement. The contract with the terms and conditions are the binding framework for the life insurance policy. As the insured, you are expected to read and inform yourself about the implications of the various terms and conditions. There could be conditions pertaining to the lapsing of the contract, conditions under which the claim can be rejected, cooling period during which cover is not applicable etc. Read these conditions carefully and if required seek clarifications from your financial advisor.
2. Life insurance is about managing risk not about investing
This is an important point that you need to be aware of. Traditionally, there was a propensity to buy endowment and money back policies. You need to remember that the primary aim of insurance is to cover risk and not to provide you investment returns. When you take insurance it is always better to take a term insurance with a pure risk cover as the premium will be substantially lower. For your investment needs you can rely on mutual funds to create wealth in the long run.
3. Your policy can get cancelled if you do not disclose health problems
If the over-enthusiastic insurance salesman promises you a life policy without health check don
't fall for it. The onus is on you, the insured, to ensure that all proper medical checks are conducted. Insist on it! In case you have blood pressure or diabetes or if you are a smoker or if you take alcohol, then you must disclose it and ensure that the same is mentioned in the form. Keep a copy of the form with all disclosures made to the insurance as your proof that all known problems have been disclosed to the insurance company. Also make a disclosure of past injuries, past accidents, past allergies etc. The more transparent you are in disclosing the facts; the easier will it be to process your insurance policy claim at a future date.
4. You can surrender your policy and it is not such a bad thing after all
There is normally a stigma attached to surrendering a policy but it is not such a bad thing after all. Normally term policies do not have any surrender value but all endowments and money back policies have a surrender value. If you have too many policies, it does make sense for you to surrender smaller policies and consolidate them into a larger one. Typically, if you surrender your policy after 7 years you will get back your entire principal. You can use this to take term policy with a higher cover. Surrender value is normally around 30
% of the premiums paid plus bonuses accrued and you can surrender a policy only after you continuously pay premiums for 3 years. But it is not a bad thing if you are actually using it to restructure your insurance portfolio.
5. The insurance company is not obliged to find your family
In the event of something happening to the insured, you need to understand that it is not the job of the insurance company to find the claimant. The claimant has to approach with the life policy documents and with all the necessary identification proofs to claim the amount. It is very essential that if you are the insured then you must disclose details about your policy and the concerned contact persons to your beneficiaries well in advance so that they do not face hassles in claiming the amount. Also if there are any outstanding premiums, then the insurance will still honour the death claim but the outstanding premiums will be adjusted. Of course, ensure that your policy has not lapsed in which case there will be no claim permissible, especially if it is a term policy.
6. Endowment policies can be leveraged to raise funds
Most of us look at our assets to raise money or we borrow personal loans to tide over a financial crisis. If you are holding endowment policies or money back policies, then you can actually borrow against the policy to the extent of 90
% of the surrender value. An endowment policy acquires surrender value only after 3 years of uninterrupted premium payment so you cannot borrow before that period. Your surrender value of the policy is normally around 30
% of the sum of premiums paid and bonuses accrued. At any time after the completion of 3 years, you can borrow up to 90
% of the surrender value. The interest rate is also much lower in this case.
You need to be aware of the various nuances of a life insurance policy. Above all, make it a point to read the fine print and communicate clearly about the policy to your beneficiaries.