Insurance queries answered by Anjali Malhotra, Aviva India

I have two life insurance policies with premiums of Rs 4,000 and Rs 2,000. My friend says I should surrender them because returns are low. He asked me to instead go for one with a money-back plan. If I surrender my policies now, I will incur a loss of Rs 80,000. Will I gain in the long term if I surrender them and take a new one?
Insurance is a tool to create and save. Every insurance product has a basic cover (sum assured) attached, which provides financial security. As soon as you buy a life insurance policy, you create a corpus for yourself and your family, which is to be paid on survival till maturity or death, whichever is earlier.

From the question, I am assume that the premium you have mentioned is quarterly, half yearly and looking at the figure of loss mentioned by you, I assume your policies are about 5-7 years old. If this is assumption is close to the actual, then my recommendation would be to continue with the policies. Insurance policies are long-term contracts and benefit the best when they are held till maturity. If you switch to a new policy by surrendering existing policies, you will not only incur a loss, but also enter into a new policy with a fresh lock-in period and an extended date of maturity.


Is there any annual income-based limit on insurance cover of term plans an individual can have?
Yes. Life Insurance is designed to mitigate the financial risk arising out of loss of life or illness. Hence, the amount of life insurance should be related to the earning capacity of the insured. The multiple of income depends upon age (the higher the age, the fewer earning years left) and typically ranges between 5 and 22 times the annual income.

I removed my tonsils surgically 20 years ago. How will an insurance company check this fact at the time of claim if I don't disclose it while buying?
When you buy an insurance policy, you sign a declaration, stating that all the information mentioned in the form are true and accurate. Insurance companies create a pool of money paid as premium by the policyholders which is used to pay out the claims.Hence, it is fair to the community of policyholders that only genuine claims are paid. It is important to disclose all material information in the proposal of life insurance. In case material information is not disclosed, it may impact the claim payout if an evidence is established at that time.

(Please send your queries on Insurance to et.insurance@timesgroup.com.)