Purchasing a life insurance policy is not a small decision. In fact, it is one of the most important decisions you can take during your lifetime, and also one which has the power to have a significant impact on the lives of your loved ones. Life insurance is essentially a long-term contract between an insurer and the insured which involves the insurer providing life insurance protection to the insured for a specific period. The cost of getting life insurance cover is known as premium which is to be paid by the insured based on a pre-decided mode or frequency.
Major Reasons Why People Buy The Wrong Insurance Policy
When it comes to purchasing a life insurance policy, plenty of information already exists on the topic, which most insurance buyers do take into account before buying a policy. However, there are also many others who end up buying a policy that is unfit for them and their needs. The best example of this is the tax season when people make a beeline for buying insurance policies to save on tax, without giving much thought to their needs. Due to this, they often end up buying a policy which they may be of little, to no use to them.
Another major reason why people end up buying the wrong insurance policy is due to mis-selling by insurance agents. Often people take help from an insurance agent who assists them in selecting the right policy. These agents are usually associated with a particular insurer, and end up pushing policies which would get them the most commission. In doing this, they tend to sell the wrong type of policy to a buyer, who is least likely to get any benefit out of the policy.
In addition to this, people also tend to buy life insurance based on a friend’s or family member’s recommendation, someone who may have benefited from the policy. However, one must always remember, that because no two individuals are the same, their needs and requirements will not be the same either. And this is the reason why, the same policy might be highly suited for one individual, while for another, it may be completely useless.
Now, the topic in question is, if you have purchased the wrong life insurance, what options do you have to get out of the situation? There are actually, not one, but five options that you can choose from, depending on the type of insurance policy that you have taken. Read on to find out.
Amp up the coverage of your plan
If your insurance plan is unfit because it provides insufficient coverage, you always have the option to increase plan coverage. This can be done easily, by purchasing a second plan which will help make up for the gap in coverage and provide you with the amount of sum assured that is adequate for your needs. When buying additional life insurance coverage, it is important to keep in mind that different types life insurance plans charge different premiums. Considering this, it is often most recommended that if you are looking to get additional coverage on an existing life insurance policy, it is ideal to go for a term insurance plan, which offers a high amount of cover at an affordable cost.
Another option which you can consider to increase your plan’s coverage it to take add-on covers. Add-on covers or riders are designed to provide added cover for risks which may not be covered under the policy such as critical illness, accidental death, etc.
Halt your premium payments
If you have a term insurance plan, you would be well aware that these plans do not offer any survival benefit. They also don’t do not accumulate cash value. Therefore, if you have a term insurance plan which is not suited to your needs, you have 2 options. First, you can discontinue premium payment on the plan which will cause your plan to lapse automatically after a certain period. The other option is applicable only if your plan is still in its free-look period. In this case, you can place a request to return the plan, following which, you will receive a refund of the premiums which you have already paid towards the plan, after the deduction of certain charges. If your plan is not in the free-look period any more, you can also discontinue the plan by not paying the renewal premium.
Surrender the policy
Besides a term plan, most other types of life insurance plan offer policyholders the option to surrender their policy. Policy surrendering basically means that if the policyholder terminates their policy before it reaches maturity, the insurer will pay the former the cash value which the policy has acquired during the period it was active. This cash value is known as policy surrender value. So, for instance if you have an endowment policy or a ULIP (unit-linked insurance plan), both of which have surrender value, then you can exit the policy by surrendering it to the insurer.
Once you have surrendered the policy, the insurance cover shall cease and the insurer will provide you the surrender value which your policy has accumulated over the years until surrender. Also remember that insurers have certain terms and conditions for policy surrender. A policy will typically have to have been active for a certain number of years, with all due premiums paid in full for the term, before it can be surrendered.
Make the most of the policy’s free look period
If you have purchased a policy which you soon realize (after having bought it) that it is not suited to fulfil your needs, you can return it and get your money back. Keeping the interests of life insurance policyholders in mind, IRDAI (Insurance Regulatory and Development Authority of India) has made it mandatory for insurers to provide a 15 day free look period on all policies. The concept of free look period is applicable to life insurance and health insurance policies. The free look period begins from the day that the policyholder receives the policy document. To cancel or return a policy during the free look period, the policyholder must put in the request to return the policy in writing, to the insurer. Following the receipt of the request, the insurer will then proceed to refund you the value of premium which you have paid towards the policy after making certain deductions such as proportionate risk premium for the cover period, stamp duty charges, medical examination charges, etc.
Convert to a paid-up policy
If you have an endowment insurance policy or a ULIP, and wish to exit the plan, you can do so by converting your policy into a paid-up policy. Utilizing this option will depend on whether or not your insurer has given you this option on your policy. What is a paid-up policy? A policy acquired the paid-up status if the premiums have been paid for the minimum number of years and discontinued thereafter. In this case, the policy will continue till it reaches maturity, but the benefits payable under the policy will be reduced in proportion to the premiums that have been paid. If you have an endowment plan, you must make annual premium payments for a minimum number of 3 years (5 years for ULIPs) to be eligible to convert your policy into a paid-up one.