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June 19, 2022 11:01 pm | Updated 11:01 pm IST

Q. I retired from a Central Government PSU last year after 34 years of service. My Public Provident Fund account will mature in 2024 with about ₹13 lakh in the credit.

On receiving retirement benefits such as Gratuity, I also invested in Senior Citizens Savings Scheme, RBI bonds and a life insurance policy.

Having observed I still have sufficient savings left, I recently invested in a long-term savings plan combined with life insurance. My annual premium on this is ₹1.25 lakh.

Now, I am wondering if I made a mistake in taking such a long-term policy considering I am 60 now. Please suggest withdrawal options.


A. The policy you mention offers life coverage through 20 years with premium being payable only for 12 years and annual money-back payments from the 12th to the 19th year. The money back is structured to be at a rate of 9.5% of your annual premium.

So, what you will get is life coverage until age 80, a pre-determined cashflow from age 72 to 80 and a survival benefit equal to the sum assured. Life insurance is best bought for risk cover only. Buying one combined with investment, savings or any of the other terms used just clouds the issue.

Is there a specific reason why you opted for life insurance at retirement age? Let us break down the benefits of this policy and see if this is the most efficient fit for your needs.

The first phase is, in effect, a 12-year interest-free recurring deposit equal to your annual premium. At the end of 12 years, it behaves like a fixed deposit that gives you 9.5% for the 8 years following. At the end of year 20, you get the survival or maturity benefit which is like the return of principal of your fixed deposit. The pluses are that all the payouts of this policy are tax-free. Plus, there is life coverage for 20 years.

If you need the life coverage, please research your insurer’s website for a term policy of similar sum assured with return of premium and limited premium paying term options. The premium undoubtedly will be much less. The difference between the two premiums fetches you the FD-like return.

Remember you don’t get any interest for 12 years, so adjust the equivalent of recurring deposit interest. If this return makes sense, retain the policy.

If you are otherwise well invested and don’t have anyone you want to support with a life insurance claim amount, you can come out of this policy. If you want the life coverage, buy a term policy and invest the differential premium elsewhere.

For ending the policy, there are three options with different levels of financial loss from your side. If you have paid a certain number of annual premiums, you can surrender the policy and get back a percentage of the premiums you have paid.

The other option is if you have paid a certain number of annual premiums you will get the option to make the policy ‘paid up’. You don’t have to pay further premium and the life coverage continues for the same term but highly reduced sum assured. Surrender and paid-up conditions differ from policy to policy and company to company, so please do your research. If you qualify for neither of the options above, stop paying premiums and the policy will lapse. You will write off the premium you have paid.

Q. My wife is 21. She has been suffering from acute pancreatitis from birth, which is an anatomical disorder. I am unable to purchase health insurance from private health insurance companies as they are declining my proposal citing underwriting guidelines.

Can’t a person with some health issues from birth purchase insurance?

Is purchase of health insurance totally based on the insurer’s decision? Kindly guide me.

If I purchase health insurance for myself and pay premium for three years, should I apply for tax deduction under 80D for total premium for 3 years or only the premium for current year as I had paid for 3 years at once?


A. Many medical conditions, acute or chronic, congenital or otherwise, represent an almost certain risk of high treatment costs.

Insurance companies’ business is to insure a contingency, not a certainty. That is, they can insure something that may happen, but not something that is almost certain to happen because it will lead to a loss. This is why they have pre-existing diseases exclusions and waiting times before some conditions and procedures/ treatments are covered and it all depends on medical history, morbidity patterns, treatment protocols available and outcomes.

The decision whether to accept a risk or not, called underwriting, is at the entire discretion of the insurance company and it is their business decision.

Specialised health insurance companies may have a more nuanced approach to underwriting such cases due to their experience, expertise and data. Please talk to them and they may even fashion a cover for you if you are lucky.

Regarding 80D benefits for health insurance premium, the income tax department has clarified that premium paid for multi-year insurance policies cannot be all claimed in one year. You can claim it only proportionally over the period of the cover. This is a point worth double checking with your insurance company or agent as well as your CA.

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

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