ASK US: On investments

Q. I am a 40-year-old central government male employee married and with two children. I was lured into a life insurance plan that makes me pay about ₹8,500 per month (since 2019) for a not-so-lucrative sum assured. Having learned about investments recently, I wish to discontinue the endowment plan and switch to a term plan that has a much higher sum assured for a lesser premium. Please advise. I have a home loan. So, I am not in the plan for tax benefit

SREEJITH S S

A. This is the sad story one hears all the time. Taking the wrong policy due to a combination of pressure from the salesperson, insufficient research at the right time and maybe, time pressure to catch a tax deadline is common. Mixing risk cover and investment is inefficient and your idea of discontinuing the endowment and going in for a term policy is a sound strategy. Here are some inputs for you to carry this out:

Understand the term policy concept first. You get only death cover, there is no maturity value at the end of the policy term. Miss a single instalment and the policy is gone. You will get a higher premium commensurate with your age if you start a new policy.

Take the term policy first before discontinuing your endowment so that your security is, well, secure.

If you have paid a pre-determined number of premium instalments, your endowment policy would be eligible for surrender/ becoming paid up. The former means your coverage ceases and you can get a residual value of your premium back. The latter means you need not pay any more premiums but the coverage continues for the policy period at a proportionately reduced sum insured. Consider paying premiums till the policy acquires this status. If not you lose the premiums already paid. Whatever you lose, please don’t lose the lesson that research is better done before buying a policy rather than after.

Q. I work in a PSU bank and have corporate health insurance for ₹3 lakh provided by my employer. I have purchased family floater health insurance for ₹10 lakh for me and my younger brother and have a separate individual top-up of ₹10 lakh from same insurance company with a deductible of ₹3 lakh. Please clarify the following:

1) How to claim for top-up if ₹10 lakh sum insured of primary insurance (family floater) gets exhausted

2) As under both the policies (top-up and family floater), claim should be intimated with 24 hours in most cases, how can I know how much amount will be spent on expenses.

3) If I intimate a claim for top-up and family floater at the same time, but if claim doesn’t exceed ₹10 lakh, will the insurance company consider my top-up policy as no claim or, since as I intimated the claim will it be considered as claimed and hence affect my no-claim incentive under which for every claim free year my sum insured increases by 10%?

I also want to know whether just intimation of claim without any expenditure or payment by the insurance company and also due to the deductible on my policy, will lead to losing out on my no claim incentive

4) Can I show the family floater in tax savings?

SRINATH INUGANTI

A. On hospitalisation you can intimate your insurer of an imminent claim under the basic policy, ie the ₹10 lakh family floater. During the course of the treatment, when you see your expenses are getting close to your sum insured, say at ₹8 lakh, you can intimate the insurer about a possible claim under the top-up policy.

Your no-claim incentive, which will reflect as an enhanced sum insured on renewal, will be affected only if a claim is paid. Mere intimation of a claim will not trigger this. In fact, should you prefer a claim and it is repudiated in toto, even then your no-claim incentive will be intact.

Tax benefit under Section 80 D of the Income-tax Act, 1961 is available only on premium for self, spouse, dependent children, parents and parents-in-law.

Q. I am 27 years old. I joined government service a year ago. I am trying to buy health insurance for my parents but am confused which type of insurance I should opt for.

My parents are in the 50 plus age bracket. Should I buy separate insurance for them or joint? Will I get tax benefits or not? Please guide me

PRAMOD K. R.

A. To begin with, please enrol your parents under your employer’s health insurance scheme. Based on the coverage it offers, you can take further insurance covers with commercial insurance companies.

As for the insurance company plans, taking a joint policy for your parents and a separate one for yourself (in which you can add your spouse and children) is advisable.

This is because in a family policy the premium is determined on the basis of the eldest family member.

So, it is better to isolate older members into a separate policy and preserve better rates for the younger members of the family.

You will get Section 80 D benefits for premium you pay for your parents also.

(The adviser is a business journalist specialising in insurance & corporate history)