As in most investment decisions, certainly personal investment decisions, and most certainly insurance within that, the basic principles are widely known, easily overlooked and seldom followed.
Investing in time
Before you invest money, invest your time. Insufficient research can lead to bad purchase decisions, things get messy and the cause may be lost. I believe we touched upon this in an earlier instalment of CoverNote and even quoted Tirukkural to that effect.
And then, there are wrong purchases because of mis-selling, misrepresentation of a life policy’s benefits or costs, or selling an unsuitable policy.
Some measure of protection is already there under insurance regulations for this pitfall and there is always a wish for improvement.
IRDAI’s Master Circular
Insurance Regulatory and Development Authority of India (IRDAI) has issued a Master Circular on Life insurance in mid-June this year that compiles past circulars and also makes significant changes in the way life insurance is offered.
Let us see two of them in this instalment of CoverNote. You have bought a policy and mention it to your brother-in-law.
As you explain it to him, it dawns on you that you have overlooked something in the whole scheme that does not suit you at all.
You can request for the policy to be cancelled and premium returned to you (with some deductions) within 15 days of receiving the policy document.
This time for changing your mind, called the free-look period, has now been expanded to 30 days from the date of receipt of the policy document, a customer-friendly move that rescues you from continuing with a bad solution.
Surrender value
Another measure in the Master Circular is about the surrender value of a policy.
The circular says that “insurers shall ensure reasonableness and value for money to all types of policyholders, including surrendering policyholders and continuing policyholders,” while stating that the company itself should minimise surrender and lapsation by curbing mis-selling and misrepresentation.
It also says that the Special Surrender Value, the value the insurer offers, usually better than the guaranteed surrender value reflecting the accrued bonuses etc., ‘shall ensure that such SSV shall be at least equal to the expected present value of the paid-up sum assured on all contingencies covered and paid-up future benefits (such as income benefits) and accrued/ vested benefits, duly allowing for survival benefits already paid.
This will now be payable after completion of first policy year provided one full year premium has been received and even earlier for policies with limited premium payment term of less than five years and single premium policies
Accordingly, some policies, even if surrendered within the first year, should fetch some surrender value and the premium you paid should not be a total washout, which is the situation now.
An entire instalment of CoverNote was dedicated to options you should consider before surrendering a life insurance policy. Nevertheless, if surrender is your way to go, you have better options now.
While both these are useful measures and does underline the system’s support of the policyholders’ interests, I would like to go back to an oft-repeated piece of advice in CoverNote. Please do your research BEFORE you buy, or BEFORE you alienate your life insurance policy.
A far sighted investment to safeguard your loved ones certainly deserves your attention before taking the plunge rather than frantic efforts and bitterness after a mis-step.
(The writer is a business journalist specialising in insurance & corporate history)