Readers' Corner: General Insurance

Arijit Basu, managing director and chief executive officer, SBI Life

I had purchased a term plan in October. Can I add a critical illness rider now or while paying my next premium? 

Riders are additional benefits in a life insurance policy and are purely optional. In most cases riders are added into the policy at the time of buying the policy, they cannot be added later on. But some companies offer the facility to add riders during the policy term. Hence must check with your life insurance provider for details.

I have no dependents. What kind of life insurance should I buy? 

Life insurance is meant to protect an income stream and provide for those who are dependent on you. Even if you do not have dependents, you can invest in life insurance to plan for your retirement or build your wealth. Retirement plans or Insurance-cum-savings plans will help you in saving and build corpus for various stages in life.

Is there a maximum amount that I can buy as life insurance cover? If I don't get the entire amount in one policy can I buy more than one policy? 

Insurance companies would assess your need for amount of cover before agreeing to issue a policy. The amount of cover depends on your income, liabilities and age. The amount of cover that can be offered is considered together with other existing policies. Thus buying more than one policy may not provide higher cover.

What is the paid-up policy and how is the paid-up value of the policy calculated? 

When the premium for a life insurance policy is not paid and it lapses, then the policy may acquire a paid up value. In this case guaranteed sum assured of the policy is not paid to you but a reduced amount linked to number of premiums paid by you is payable to you. In most cases some minimum number of premiums may have to be paid before policy acquires paid-up value.

Calculation of paid-up sum assured

For policies where the premium is fixed, the reduced paid-up sum assured payable on death or on maturity is a minimum of the total period for which premiums have already been paid, divided by the maximum period for which premiums were originally payable multiplied by the sum assured on death or on maturity.

Paid - up Value = [(No. of paid Premium * Sum Assured) /Total No. of Premiums]

So if premium payment term of a policy is 20 years and premiums have been paid for five years, and sum assured is Rs 40 lakh, then reduced sum assured will be Rs 10 lakh. 

Are there any life insurance policies that give coverage till death? Are premiums for such plans very high? 

The whole life insurance policies give you the option of coverage till death. The whole life policies are designed to provide coverage on the insured’s entire life as long as premiums are paid and the policy has not been surrendered. For a given sum assured the premiums for whole life policies are higher than other savings cum insurance policies.

What is the best way to compare life insurance policies?

Select companies on the basis of their management, track record and parent group. Also look at customer feedback on services, performance of funds, and claims settlement record of the company. Analyse the features of the policy that best suits your needs, risks involved, contract terms, premium quotes, limitations and benefits.

The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in