Reader's corner: Is it possible to take a loan against life policy?

I am 23 years old and have just started earning. I plan to purchase term life insurance for tax saving purposes as well as life cover. Is it wise to purchase a cover for up to only 70 years, or should I opt for a cover till 99 years?

You have made a prudent decision by choosing to opt for a term plan early in your career. At the age of 23, the plan will be much cheaper for you and therefore you can take the plan for a much longer duration. You should be aware that term life insurance policies are pure protection covers which act as an income replacement shield. Therefore, the duration of such plans solely depends on when you see yourself accomplishing your major financial goals. The thumb rule is to have your term policy active until your retirement age. Decide until when you see yourself working and select the duration accordingly. 

I have a seven-year old endowment policy with an annual premium of Rs 55,000. I am under financial stress and am not in a position to pay the premium. Is it possible to take a loan against my life policy? Or should I surrender it?  

Since you are in sudden need of money, and you own a traditional policy, you can definitely avail of the loan option. Get in touch with your insurer for more details. In case you surrender or break up the policy, you will get lesser amount compared to your original maturity benefit, as surrender charges will be applicable. Further, as you are unable to pay the premiums right now you can also pay all your due premiums in revival period – after two years - and continue with the policy. Alternatively, you can contact your insurer and opt for reduced paid up option and continue with the policy without surrendering it. 

If I purchase a critical illness rider with my term life policy, will the claim be paid at any stage of the illness, or only at a specified level of severity?

For critical illness riders, most life insurers pay the sum assured or the claim amount on diagnosis of the illness at a specified level of severity. These are survival riders and are meant for the purpose of treatment of the illness. They offer fixed benefit in lump sum and not reimbursement post treatment. Before you purchase the product do check at what level of severity the claim amount is payable.

When purchasing a policy online, is it better to purchase from the company website or through an aggregator?

At the time of purchasing a life insurance policy one should first evaluate his/her financial requirements, income, savings, liabilities and financial goals. To start with, refer to the websites of companies to read up product brochures, compare products on an aggregator portal, or reach out to a financial advisor for guidance. After understanding the product offerings and their suitability in your financial portfolio, you can opt for a suitable life insurance product either from a company website or through an aggregator.  

I am planning to buy a Cancer Care policy. However, I am confused if I should buy it from a life insurer or a health insurer. Kindly advise.

Most life insurers also sell health-related products like critical illness plans, cancer plans, etc, which provide lump sum benefits to policyholders. They are not reimbursement plans, as offered by health insurers. While, a plan by a health insurer only pays for the actual hospitalisation costs incurred, a cancer policy by a life insurer pays a pre-defined fixed amount, irrespective of the expenses one incurs for the treatment. This lump sum can be used for paying expenses not covered under mediclaim or indemnity plans. It can also be used for other miscellaneous expenses such as loss of income, minor hospitalisation bills, medicines, etc. Such products help by not only providing funds for timely treatment of illnesses, but also assist in keeping one’s financial responsibilities, goals and dreams shielded while the insured is focusing on the treatment.
The writer is MD & CEO, Aditya Birla Sun Life Insurance. The views expressed are the expert’s own.