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This article was first published 7 years ago  » Getahead » Five customer-friendly insurance provisions you must know

Five customer-friendly insurance provisions you must know

By Harjot Singh Narula
Last updated on: February 25, 2017 16:22 IST
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These offer great scope and flexibility when you fall upon hard times, says Harjot Singh Narula

Life insurance policy is a great tool to mitigate financial risks involved in one’s life. The life insurance policy offers a death benefit and/or maturity benefit, whichever happens first to get the financial indemnification against the risk. However, apart from the core benefits, there are certain provisions in your life insurance policy which enhance the overall benefits under your policy.

The provisions are customer friendly and offer a great scope and flexibility under life insurance policy contract. Let us get an insight into such provisions:

1. Free look period

As per IRDAI regulation, free look period is the 15-day window given to customers and it starts from the date of receipt of the insurance policy.

Life insurance policies sourced through the distance marketing channel (policy sold through telephone, internet or any other mode without involving any face to face interaction) allow 30 day window from the receipt of the policy document as free look period.

The provision allows the customer to cancel or get away with the insurance policy issued to him/her in those 15/30 days. The reasons could be that:

  • The customer wants to take another better policy
  • The policy has been mis-sold
  • The terms and conditions of the policy are not satisfactory
  • The customer wants to take a policy from another insurer, etc.

The policyholder has to inform the insurance company through a written request stating the reason for cancellation. Also, the customer has to submit the original policy document back to the insurer.

The premium amount is refunded after deducting the proportionate risk premium for the period on cover, administrative expenses, medical examination cost (if undertaken) and stamp duty charges.

It is advisable to read the fine print of your policy document once you receive it.

In case you do not like to continue with the policy due to any reasons, you may start early with the cancellation process and get your money back.

2. Grace period

Grace period is the extended period given to the policyholder to pay the due premium for the insurance policy after the due date. Grace period is usually 30 days time period after the due date of premium payment for annual, semi-annual and quarterly mode of premium paying policies.

For monthly mode life insurance premium policies, the grace period is generally for 15 days. The life insurance coverage remains active during the tenure of the grace period, but once the grace period has been surpassed the policy lapses if the premium is not paid even in the grace period.

It is prudent to pay the policy premiums timely either on the due date or within the grace period to avoid lapsing of the life insurance policy.

3. Guaranteed surrender value (GSV)

As per insurance regulations, you can get the guaranteed surrender value for an insurance policy in case of voluntary termination of the policy before maturity. The guaranteed cash surrender value gets generated provided the policyholder has paid premiums for continuous 3 year (for unit linked insurance plans it is for 5 years) since inception to be eligible to get the surrender value under the policy.

The cash surrender value is basically 30 per cent of (the total premiums paid minus the first year premium). The guaranteed surrender value may vary from plan to plan and insurer to insurer. There are certain surrender charges which are levied as per the year of surrender and are deducted before giving the final amount as guaranteed cash surrender value.

It is always advisable not to surrender, but to continue your insurance policy to avail the complete benefits under your policy contract.

4. Loans

You may take loans against your life insurance policy in case of any financial crunch. Loans can be taken for endowment plans and is not an applicable provision for unit linked plans and term plans.

The maximum loan amount ranges from 75 per cent to 90 per cent of your cash surrender value depending upon the insurance plan and the insurance company. So, it further implies that the policy is not eligible for a loan until it has acquired cash surrender value as the percentage of loan is of the cash surrender value.

5. Policy revival

As discussed earlier in the article, if a policyholder does not pay premiums on time, the policy lapses (after grace period). But there is a provision in your life insurance policy to revive the lapsed policy within 3 years from the due date of first unpaid premium.

The policyholder has to pay the outstanding premiums plus interest amount to revive the lapsed policy. The policyholder is to also give a declaration of good health (DCH) if the revival of policy takes place 6 months from the date of first unpaid premium due date.

The insurance company may ask the policyholder to undergo medical examination based on a case to case basis. The final decision to revive the policy is in the hands of the insurer.

These provisions are important to know and understand as they add value to your life insurance policy.

It is always prudent to read the policy document and understand the policy provisions before buying a life insurance policy. Life insurance is a long term contract and ignoring the fine print and provisions may turn surprising for the policy holder in the long run.

Photograph: Marina del Castell/Creative Commons

Harjot Singh Narula is founder and CEO,

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Harjot Singh Narula