Frequently Asked Questions (FAQs)
Find answers to common questions and learn more about our services.
FAQs on Life Insurance
A life insurance agent is a representative of a particular life insurance company and can provide advice on the products marketed solely by that life insurance company. An agent who sells life insurance products is registered with the IRDAI and is required to pass a pre-contract examination, conducted by NSE.IT. Always insist on seeing agent's authorization card issued by IRDAI, before interacting with them.
A participating (or with profits) policy would enable the policyholder to share in the profits of a life insurance company, while a non-participating (or without profits) policy does not have this right. Profits that are allotted to the participating policyholders are usually in the form of reversionary bonuses or dividends. These bonuses or dividends are not guaranteed and can increase or decrease depending on the investments returns of the life funds.
The risk class or mortality of a policyholder is determined by an underwriting process through which a life insurance company would decide whether or not to accept a risk. The risk of death is determined by several factors such as age, sex, habits, personal and medical history, occupation, etc. The life insurance company's decision to insure your life is based on the information provided in the application form, the medical examination report (if required) etc. Be truthful whilst filling in your form so that the life insurance company can be fair in its assessment of the risks involved.
The policy contract provides for a 'grace period', which gives the policyholder an additional period of time after the due date for the payment of the premium. During this period, you can still pay your premium and the life policy still continues to be in force. For monthly mode of payment, the grace period is usually 15 days, while for other frequency of payments (semi-annually or annually), it is usually 30 days. When your life insurance policy has lapsed, you may revive or reinstate it to full force within a period of time and under certain conditions such as declaration of your state of health at the time of reinstatement.
Yes, under the free look period, you can cancel your life insurance policy within 15 days by returning the policy to the life insurance company after you have received the policy document.
Since buying a life insurance policy is a long-term commitment, it is not advisable to terminate your policy early as you will not receive the total amount of premium that you have paid because the surrender value is usually less than what you have paid. Replacing an existing policy with another is not in your best interest because the new policy is likely to be at a higher premium as you are older. There will also be an initial cost of writing the life insurance policy for a second time. Additionally, the two-year period of contestability will begin again. Furthermore, the present life insurance company can often make the changes that you want at lower cost to you.
When a life insurance policy is in force for a number of years (normally a minimum of five years) it would acquire a cash value. The cash value is the 'savings' portion of a life policy. It is derived when your premium payments are more than the cost of insurance, whereby the excess goes into a cash value account and draws interest. If you decide to surrender your life insurance policy, the life insurance company will pay you the cash value, also known as surrender value. You will suffer a loss if you surrender your policy before the maturity period.
A sales illustration is not a legal document. Legal obligations of a life insurance policy are spelled out in the policy itself. Therefore, a policyholder as the limits or exclusion clauses, before signing the contract.
You have the option of paying the premiums directly to the insurance company or through the agent. If you choose to pay through the agent, you must ensure that the cheque is written in the name of the insurance company. You must also ensure that you receive the receipt from the insurance company.
The amount of premiums paid depends on the insurance coverage you need. First, you must look at what current benefits your insurance policy provides whether you are opting for a rider. With some riders, you may stop paying premiums for your policy when you become disabled and still enjoy the benefits of life insurance protection. However, if your policy does not have this benefit and you are finding it difficult to continue meeting the premium payments, you should discuss with your financial adviser on other options which may be available for you to consider.
You typically have a 15-31 days grace period during which you can pay the premium with no interest charged. If you do not pay your premium within this grace period, and as long as your policy has sufficient cash value, the insurance company will automatically pay your overdue premium by taking a loan against the policy's cash value. This keeps your policy in force but you will have to pay interest on this loan.
You should fill out a claim form and contact the financial adviser from whom you bought your policy. You need to submit all relevant documents such as original receipts to your insurer to support your claim. If your insurer can settle your claim, you will be issued a cheque generally within 7 days from the time they receive all relevant documents. However, if your insurer is unable to deal with all or any part of your claim, they will explain to you in writing.
Traditional Insurance products consist of Term Insurance, Endowment and Whole Life Policies. You can benefit from such instruments as they have a cash value which increases every year as you pay premiums. Some traditional life policies are participating, meaning they issue dividends. You also get a tax benefits and more over the premium on traditional life insurance is level throughout the life of the policy.
FAQs on ULIPS
ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy which provides a combination of risk cover and investment. The dynamics of the capital market have a direct bearing on the performance of the ULIPs if the policyholder opts for investment in funds having equity element in it.
REMEMBER THAT IN A UNIT LINKED INSURANCE POLICY, THE INV ESTMENT RISK IS GENERALLY BORNE BY THE INVESTOR.The allocated (invested) portions of the premiums, after deducting all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders, are pooled together to form a Unit fund.
It is a component of the Fund in a Unit Linked Policy.
Most insurers offer a wide range of funds to suit one's investment objectives, risk profile and time span requirements. Different funds have different risk profiles. The potential for returns also varies from fund to fund. The following are some of the common types of funds available along with an indication of their risk characteristics.
From 01st September 2010 onwards all new ULIP pension/ annuity products sold shall offer a minimum guarantee, as specified by IRDAI from time to time. This guarantee return is applicable on the maturity date, for policies where all due premiums are paid. Investment returns from other ULIP products may not be guaranteed. 'In unit linked products/policies, the investment risk in investment portfolio is borne by the policy holder. Depending upon the performance of the unit linked fund(s) chosen; the policy holder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund.
In case of unit linked pension / annuity plans, no partial withdrawal is allowed during the accumulation phase. However in other ULIPs partial withdrawals are allowed from the 5th year onwards.
Yes, one can discontinue a policy if one wishes to. From the 1st of September 2010 onwards IRDAI has introduced a cap on policy discontinuance charge, basis the year of discontinuance and annual premium. This allows life insurers to charge only a small penalty on early surrender of policy
ULIPs offered by different insurers have varying charge structures. Broadly, the different types of fees and charges are given below. However it may be noted that insurers have the right to revise fees and charges over a period of time.
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Premium Allocation Charge
This is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses -
Mortality Charges
These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc. -
Fund Management Fees
These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV). -
Policy/ Administration Charges
These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate. -
Discontinuance Charges
A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions. -
Fund Switching Charge
Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge. -
Service Tax Deductions
Before allotment of the units the applicable service tax is deducted from the risk portion of the premium. Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units. Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units.
One has to verify the approved sales brochure for
- All the charges deductible under the policy.
- Features and benefits.
- Limitations and exclusions.
- Lapsation and its consequences.
- Other disclosures.
- Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the Life Insurance Council.
The full amount of premium paid is not allocated to purchase units. Insurers allot units on the portion of the premium remaining, after providing for various charges, fees and deductions. However the quantum of premium used to purchase units varies from product to product and year to year. The total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units
The policyholder can seek refund of premiums, if he disagrees with the terms and conditions of the policy, within 15 days of receipt of the policy document (Free Look period). The policyholder shall be refunded the fund value including charges levied through cancellation of units, subject to deduction of expenses towards medical examination, stamp duty and proportionate risk premium for the period of cover.
NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on the website of the respective insurers
The Sum Assured and/or value of the fund units is normally payable to the beneficiaries in the event of risk to the life assured during the term as per the policy conditions.
The value of the fund units with bonuses, if any is payable on maturity of the policy.
Yes, one can invest additional contribution over and above the regular premiums as per their choice subject to the feature being available in the product. This facility is known as 'TOP UP' facility. A part of the top up will be invested into the market while a small portion will be used to enhance the risk cover in the policy.
Yes. 'SWITCH' option provides for shifting the investments in a policy from one fund to another provided the feature is available in the product. While a specified number of switches are generally effected free of cost, a fee is charged for switches made beyond the specified number.
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Discontinuance within five years of commencement
- If all the premiums have not been paid for at least five consecutive years from inception, the insurance cover may cease as per the terms of the policy post grace period allowed for payment of premium. Insurers may give an opportunity for revival within the period allowed; if the policy is not revived within that period, the proceeds of the policy will be paid at the end of the lock-in period. As per IRDAI guidelines, from 1st September an interest of 3.5% is payable on account value till the lock-in period. -
Discontinuance after five years commencement
- No discontinuance charge is applicable. However, the Net Reduction in Yield would be more than what will be applicable if the policyholder completes the full tenure of the policy.
The Insurers are obliged to send an annual report, covering the fund performance during previous financial year in relation to the economic scenario, market developments etc. which should include fund performance analysis, investment portfolio of the fund, investment strategies and risk control measures adopted.
FAQs on New ULIP Guidelines
The changes and its effects are as under:
- Lock in for Five Years and Premium Payment Term: Minimum lock-in period has been revised from the current 3 years to 5 years and barring single premium policies, the minimum payment term has also been raised to 5 pay.
- Increase in Minimum Sum Assured: The minimum sum assured multiple has been increased to 10 times for age at entry below 45 years and 7 times for age at entry above 45 years. At no time can the sum assured be less than 105 percent of total premium paid including top-ups. All top-ups also must have life insurance cover built into them.
- Net Reduction in Yield for Every Year from Year 5:This new guideline stipulates the maximum net reduction in yield every year from 5th year. It is primarily an extension of the earlier stipulation of maximum net reduction in yield of 3% for policy term up to 10 years and 2.25% for policy term above 10 years.
- Cap on Discontinuance Charge: IRDAI has introduced a cap on surrender charge, now termed as policy discontinuance charge, basis the year of discontinuance and annual premium. This allows life insurers to charge only a small penalty on early surrender of policy.
- Modifications in Unit Linked Pension Products:Partial withdrawals in Unit Linked Pension products will not be allowed. On maturity, one third of the corpus could be taken as lump sum and rest must be used for buying annuities. This change will ensure a larger corpus is collected and used for retirement planning and not for other life stage needs.IRDAI has also made it mandatory that all unit linked pension products must offer minimum guaranteed return which would be specified by IRDAI from time to time.Even spread of charges during the lock-in period. The new guidelines stipulate that the overall charges in ULIPs should be spread evenly over the lock-in period of 5 years.
The new guidelines provide superior customer value proposition and ensure that life insurance is promoted as long-term protection and savings tool.
There is no change in terms and conditions of your existing ULIPs.
It is always advisable to remain invested in life insurance policies for the full tenure to get optimal benefits of protection and long-term savings.