Premium payment term is the regular cause of dispute among all grievances with Life Insurance. Life Insurance is a contract where the Insured agrees to pay a premium each year as per the payment term given in the Policy schedule and Insurer agrees to pay a sum assured in case of occurrence of insured event. However, premium payment term is not often discussed in total clarity and leads to confusion due to statements given below:
It is a Single Premium plan and need of regular premium is not disclosed. The plan is sold as replacement of fixed deposit
- It is a single premium and you pay further premium as per your convenience.
- You need to pay minimum of 3 premiums and you can get your money.
- You can terminate your policy at any time and get your money.
- You have a flexible premium payment term in ULIP.
Ragini was a 35-year-old housewife residing in Karnal, Haryana. She received Rs 5 lakh from her father. She had a savings account in Bank. She visited Bank to start a fixed deposit. She was sold 5 insurance policies with premium of Rs 1 lakh each. Her wrong mobile number was given so that verification was not done. Her Policy document was transferred to an e-account. After three years, she came to know that all money has been forfeited.
Mr. Verma had an account with the leading Natioalised Bank. He was running a successful business. Each year, he was sold a new policy of Rs 1 lakh as part of the overdraft limit. Mr. Verma was told that future premium need to pay as per convenience. After 5 years, Mr. Verma came to know that all his premium has been forfeited because he did not pay the regular premium.
Satish wanted to avail income tax benefits in January but he was not willing to make a long-term commitment. Satish was sold insurance with Premium of Rs 50000. It was a 20-year plan but Satish was told that he can discontinue after 3 years and reinvest for future tax rebate. After 3 year, he came to know that she would receive approx Rs 60000 as surrender value.
Rakesh was a young professional who wanted to invest Rs. 3 lakh in Mutual Fund. He was sold an ULIP with the promise of liquidity after 5 years, flexibility and return. He invested Rs 3 lakh for two year and waited for liquidity after 5 years. He was shocked that his money was kept in a discontinued fund offering an annual return of 3% and with no risk cover.
These are common stories due to which public suffers and see insurance with a tarnished image. Why do intermediaries play with premium payment term? Some reasons are given below:
- The commission is linked to the Premium payment term, longer the premium payment term higher will be the commission.
- The single premium commission is 2% and the regular premium commission will be over 20%.
- Freelook period of 15 days. You are told that the wrong premium payment term has been mentioned and it will be rectified. You wait for 15 days and come to know that you cannot cancel now.
- E Account – most fraudsters deposit your Policy document in e-account. It is very easy to tick E account and the company does not verify because it saves money for the Insurance Company.
- You are misguided because customers are not willing to agree for long premium payment term. Customers object to the Payment term hence they are told a lie because intermediaries are interested in their commission and 15 days free look period.
So it is necessary that you discuss the premium payment term clearly and agree only after understanding the implications as given below:
- Insurance is a contract of long term and Insurance Company calculate sum assured on the basis of total money to be received during the term. For example, you agree to pay Rs. 50000 for 20 years then your sum assured will be approx Rs 10 lakh. So if you terminate the contract then you shall get a surrender value which will be minimum 40% of premium paid and increases with each renewal premium.
- If you do not pay premium then your policy go in lapsed condition without any bonus and with reduced cover on prorata basis. Surrender value is generated after two years of premium.
- Lapsed ULIP policies go in the discontinued fund and do not remain inactive fund choices. You get only 3% interest
- If you terminate a traditional plan before the agreed term, then you get surrender value which will always be lower than your paid premium.
So do not fall in any stories of Premium payment Term. Commit if you can pay the full premium for full-term else commit money which you can afford today. Do not over-commit because the future is uncertain. Your intermediary earns more commission at your cost. Always check the Policy schedule. Verify facts by calling the Insurer Toll free number
Buy the right insurance with a 100% understanding of full terms and conditions, you will never regret your decision.