Either you are buying insurance policy online or through an agent, getting a better understanding about it will always be beneficial for you, says Harjot Singh Narula
Illustration: Dominic Xavier/Rediff.com
Many people make the big decision of buying a life insurance policy, but only few are able to take the advantages provided by their policy. While buying life insurance plan offline, many agents hide facts related to your policy for their one sided benefit.
Even when you buy a life insurance policy online, you may proceed with your purchase by looking at the highlights of the policy. But you need to know that instead of these highlights, there are other advantages and limitations on your policy which can change your perspective.
So, following are the 10 things which you should know about your life insurance policy:
1. You can take a loan against your life insurance policy
If you have a life insurance policy and you need a loan, then you don't need to worry about your credibility or conceding of assets because a loan can be taken against your insurance policy easily.
You don't even need to surrender your policy for taking a loan. The amount of the loan varies from company to company and so does the interest rate.
Loans cannot be taken against term plans and ULIPs (unit linked insurance policies).
Most of the saving-cum-endowment plans offer 70 per cent to 90 per cent of the surrender value as loan against the policy (surrender value is the amount you receive from your policy in case you voluntarily discontinue the insurance policy, the amount varies from company to company). You can a avail a loan if your insurance policy is active.
Life insurance policy is like an asset which can be used as a collateral security in many cases while applying for a loan.
2. Life insurance gives you tax benefit
Under section 80C of the Income Tax Act 1961, the premiums paid towards life insurance policy are tax deductible. You can get a tax benefit up to Rs 1.5 lakh under this section.
Not only the premiums, but the bonus added to your coverage amount and maturity benefit received at the end are also tax deductible under section 10D.
But to be eligible for a tax deduction, your sum assured should be ten times the annual premium.
3. Commission is charged by agents from the company
You must be always thinking the reason behind low rates of premium offered by online insurance plan in comparison to the policy offered by your agent. The reason behind it is the commission charged by your agent.
Sometime the agent will try to sell you a plan which will give them the highest commission.
But with every plan they sell, they get a commission. The rate of commission varies from company to company and plan to plan.
4. You get a discount for opting high sum assured
If you go for a high sum assured policy, a certain percentage of discount on premium rate is offered by the company. This feature is generally available as 'high sum assured rebate'.
The percentage of discount varies from company to company for their product portfolio.
5. Policy doesn't get cancelled even if you miss the due date of payment
If you don't pay the premium after the due date, your insurance plan doesn't get cancelled immediately. There is an availability of grace period during which you can pay your premium after the due date.
The grace period is generally given for 30 days after the due date and 15 days for the monthly mode policies. The benefits of the policy are active in the grace period.
6. You can cancel your policy, even after the purchase
If you have bought a policy and you aren't satisfied with it, then you can easily terminate the policy during the free-look period without any loss.
Free-look period set by the regulator is 15 days which begins from the date of receipt of the policy document within which you can cancel your policy and get a refund of your premium paid.
The premium refund will be adjusted for proportionate risk premium for the period on cover, expenses incurred by the insurer on medical examination and stamp duty charges.
7. Your policy can be revived
If you fail to pay the premium before due date and even miss the grace period provided by the company, you still have the option to revive the policy. You can revive your policy during the period given by the company before maturity by paying due premiums and interest on due premiums.
Revival of the life insurance policy is subject to underwriting guidelines of the company.
8. Your policy can be assigned
If an insured person wishes to assign her/his policy to a different person then s/he can easily do so.
The person who assigns the policy is called an assigner (policyholder) and the person to whom the policy has been assigned is called an assignee.
After the assignment, all the rights of the policy are transferred to the assignee.
9. You can have multiple nominations under your policy
A nominee is a person who is entitled to get the benefits of your policy. You have the option to choose multiple nominees in your policy.
In case of multiple nominees, the sum assured is divided between the nominees while in case of a successive nominations, the first nominee is preferred over the second.
10. Your policy can be surrendered
If you are in extreme need of funds and there is no way to get the required funds, then you can surrender your policy. But you can surrender your policy only if you have paid premiums for the required period of time for consecutive 2, 3 or up to 5 years from the policy inception or as mentioned in the policy contract.
On the surrender of your policy, you get the percentage of premiums paid, bonus (if any) and guaranteed additions (if any).
Either you are buying insurance policy online or through an agent, getting a better understanding about it will always be beneficial for you.
Don't hesitate in asking questions and try to get your queries resolved. This will help you in knowing those different aspects of life insurance policy which generally go untold.
Harjot Singh Narula is founder and CEO, ComparePolicy.com