Readers' questions on life insurance plans answered: From nominees to risks

Am I free to make anyone my nominee in a life insurance policy? In case of my death, will this person get to retain all the money? Can legal heir challenge if my nominee receives the funds?

Yes, you can appoint anyone you desire as a nominee for your life insurance policy. Section 39 of The Insurance Act, 1938 enables the holder of a life insurance policy to nominate a person or persons to whom the money shall be paid in the event of his death, while purchasing the policy or at any time before it matures for payment. The nominee holds the money in trust for the actual legal heir, if any. Yes, in case you have a legal heir, he or she can challenge the funds received by the nominee.

Is it possible to assign my life insurance policy to anyone I wish? What is the procedure?

Yes, as a proposer you are the owner of the policy, and you are eligible for assigning the policy through conditional or absolute assignment to anyone. You can get in touch with your insurer and post filling up the assignment form, and as per your request, the policy can be assigned to the person of your choice.

What exactly are convertible life insurance plans? How do they work and who should opt for them?

Many term life policies are convertible. Such a plan allows the policyholder to convert their term life policy into an endowment plan at a later date in the future. The existing policy can be converted for the same sum assured with an associated increase in premium, in case it is applicable during the policy term. You should first check with your insurance provider if they are offering such policies. A convertible life insurance plan provides the benefit of obtaining less expensive term plan at the beginning while maintaining the option to convert the same to an endowment plan in the future, as the insurance requirement and financial resources change for a person.

When buying a life insurance policy, the insurer asks about smoking and drinking. I understand that smoking leads to a rise in the premium. But the insurer also asks for the frequency of smoking and drinking. Why? How does the frequency impact the premium?

Smoking or consuming alcohol impacts health adversely. Therefore to assess the risk insurers have categorised smokers and drinkers basis their habits and health condition. In case one falls in the category of low consumption or low risk, the proposer subsequently will not need to pay as much premium as compared to the person who falls in the high-risk category. Thereby, it impacts the premium. It is, therefore, right of the insurer to determine if an individual is a habitual smoker/drinker or an occasional one and thus evaluate the proposal form.

I am planning to travel to Europe soon and will undertake adventure sports. In case accidental death happens to me, will my term life insurance claim be honoured?

Death owing to adventure sports is considered as an exclusion in life insurance policies in India. Hence, your term life insurance claim will not be honoured.

My father has a term plan and has paid premiums for the past six years. He has retired and is unable to pay the premiums anymore. Can he stop paying the premiums and continue with the policy without surrendering?

You should check with your insurer if your father’s insurance policy has a reduced paid-up facility. Such a policy can be surrendered at any time by the policyholder for its cash value. The reduced paid-up life insurance also allows the insured to continue with the coverage without paying additional premiums; however, the death benefit of the original policy is reduced.

My salary is Rs 1.2 million a year, and I want to purchase a term plan of Rs 12 million sum assured. Will I be eligible for the policy? Is there any annual income based limit while buying an insurance policy?

Yes, you would be eligible for the policy with Rs 12 million crore sum assured. The annual income of an individual is a criterion for the issuance of policy. While there is no defined limit, the policy issuance also depends on factors like age, medical condition, lifestyle and the underwriting guidelines of the insurance company.

The writer is MD & CEO, Aditya Birla Sun Life Insurance. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in