Life insurance: Pricing of insurance policy, risk assessment based on disclosures

Suresh Agarwal Posted online: Tuesday, Feb 25, 2014 at 0000 hrs
I filled up the standard proposal form for a term policy a few weeks ago. Now I am told it wasn’t required. Can I withdraw the disclosures I made?

— Akash Kumar

It will depend on the disclosures you have made. If they have an underwriting impact, it may not be possible to withdraw them, nor would it be advisable to do so. An insurance contract is based on the principle of ‘uberrima fides’ or utmost good faith — so, correct, proper and complete disclosures are central to the insurance promise and important to avoid any hassles later. The pricing of a policy and the assessment of risk are based on the disclosures.

In a pension scheme, is it mandatory to take annuity from the same life insurer after the end of the accumulation phase?

— Prabhakar Parikh

Yes. As per revised guidelines by Irda, it is mandatory to take annuity from the proceeds of a pension plan from the same insurer.

Can I take a top-up cover for a 20-year term policy? How much would the premium be for the top up?

— Kunal Gupta

Yes. Several term plans offer a step-up option. In such plans, one can purchase additional cover at specified milestones, such as policy anniversary, marriage, birth of child, etc., as may be specified in the policy contract. This helps the cover better reflect the individual’s changed life priorities and income needs, at different life stages. Refer to your policy contract to check if the option is available with your plan. Such plans are usually priced at a slight premium because of the additional mortality risk involved.

Can I make a claim from more than one health insurance policy when the claim amount is more than the sum assured of any one policy?

— Nagender Agarwal

Yes, you can invoke more than one policy for claim as long as your total claim does not exceed the hospitalisation cost incurred. Claim the part-amount you want from the first insurer, obtain a claim settlement summary and present it to the second insurer for remainder of the claim.

Irrespective of the claim amount, all bills will have to be presented to the first insurer in original. A hospital-attested photocopy of the same will have to be presented to the second insurer. Where the cost is predefined, you can fill two separate authorisation forms at the time of treatment initiation, which the hospital can send the insurers for direct settlement.

What kind of returns do endowment policies give at the end of the term. Is it better to go for a unit-linked policy for higher returns?

— Samar Singh

The choice depends on your investment objectives and risk appetite. Unit-linked insurance policies (Ulips ) offer professionally managed exposure to equity, debt or balanced fund and they focus more around generating higher investment returns.

They are normally opted for by investors willing to take calculated risks. They offer a choice of funds based on one’s investment needs and risk appetite. Investors with lower risk profile often choose traditional plans. Traditional plans are feature-based products that normally have a larger insurance component than Ulips.

They provide higher death benefits and moderate growth of investments over the policy term. In these plans, it is the insurer who, as per relevant regulations, makes the investment choices.

Traditional endowment policies will return at least the sum assured chosen. They may also declare bonuses year-on-year depending on the performance of the insurer.

* The author is executive vice-president, Kotak Mahindra Old Mutual Life Insurance

* Send your queries at fepersonalfinance@expressindia.com