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Last month I was reviewing a life insurance claim. The policyholder had died after paying premiums for several years. Unfortunately, as things turned out, the last premium was unpaid and the claim was denied. I was disappointed because the lost benefit ran into lakhs.

Often, insurers and intermediaries are seen pursuing policyholders at the time of renewal. However, for most insurance policies, the worst impact of lapsation is on the policyholder, not the insurer. There is a loss of cover but also a loss of many key benefits linked to renewal.

Lapsation has the most obvious negative impact on health insurance as discontinuity results in both waiting period and pre-existing disease exclusion period being reset. This is a setback because most claim rejections are during the waiting period and the sooner one gets past these two to four years the better. Last year the regulator added another reason for timely renewal—that insurers cannot reject a claim after it has been renewed for eight years. That in itself is sufficient reason to renew.

Life insurance products should also be renewed. The life insurance equivalent of the eight-year “look-back" in health insurance is three years. After this, claims cannot be rejected. In traditional life insurance, there is another major disincentive which is that surrender or lapse penalties are high and the relatively modest returns are further lowered.

An issue common to health and life insurance is that if there is a lapse then the insurer can decide not to issue the policy anymore. They will do this if your health has deteriorated since you first bought the insurance or if you have made a claim. But if you renew on time, the insurer can’t refuse.

Motor insurance, a large market segment, has no-claim bonuses (NCB) that reduce your premium after every claim-free year, provided there is no break in insurance. Buyers should be possessive about this NCB. The amounts can go to 65% of own-damage premium and is, typically, several thousand rupees in most mid-sized cars. You lose your NCB if there is a break in renewal: an expensive proposition.

Professionals, such as doctors, who buy liability insurance lose the retroactive date benefit if there is a break. This is the date after which claims get covered. It is when the insurance was first bought, provided you renew the insurance without a break.

The only two individual policies that do not have benefits accumulating over time are home and personal accident. In fact, in home insurance, you should increase the sum assured every few years as reconstruction costs increase. Simply renewing your policy without making a sum assured adjustment is not a good idea. In personal accident insurance, continuity does not impact any accumulated benefits. This does not mean that you should freely stop and restart these insurance policies. You are not covered for the primary risk when premiums have not been paid. Insurance policies lapse for many avoidable reasons. You could have bought the wrong product. Ideally, this research should be completed before the initial purchase. In fact, even after buying, you have a free-look period when you can go through the documentation and return the insurance if you want. Another frequent issue is that insurers cannot contact you. To prevent this, make sure you give insurers a permanent email, home address and phone number. Finally, you could lose track of renewals if the insurer or intermediary does not send a reminder. This is also commonplace and we are all guilty of such memory lapses despite having access to elaborate reminders. For several insurance policies, it is now possible to instruct your bank or credit card for automatic renewal. Select those options. A suggestion for insurers is to allow a change in renewal dates so that all our insurance policies renew at the same time. A friend has 10 different insurance policies renewing across the year and wanted to reset them all to one day, something we couldn’t do within the current framework.

So, the next time an insurer or intermediary chases you to renew, don’t procrastinate but make the payment.
The COVID-19 outbreak has changed how all of us view the world. Every part of people’s lives in India has been affected, along with the economy, politics, culture, and society. The official data released by the National Statistics Office (NSO) says that India’s gross domestic product (GDP) contracted 23.9 per cent in the April-June quarter of 2020-21 from that in the same quarter last financial year.

This was mainly on account of limited economic activity in the country during the quarter amid lockdowns to control the spread of the coronavirus pandemic. This was the first reported instance of decline in the economy in India in at least four decades. Moreover, this was the first ever GDP contraction reported since India began to publish quarterly numbers in the year 1996.

Challenges Being Faced by the Informal Sector

About 400 million people, which is 90% of India’s workforce, work in the informal sector in India and face deep job insecurity. The people working in informal sectors have been generally excluded from debates on the economic impact of the COVID-19 pandemic. As per figures released by the Centre for Monitoring the Indian Economy (CMIE), over 45 million businesspersons are estimated to have lost employment (or enterprise loss) during the various phases of lockdown.

For people who are self-employed, chances are quite high that they carry a heavy financial burden; be it in the form of working capital loans or other loans to manage the expansion of the business or sometimes even personal loans. Due to this, self-employed individuals often end up compromising on savings and investments in the short run and don’t ever think what if an untimely emergency strikes them. This pandemic has been an eye-opener in terms of telling us that future planning is a necessity. The COVID-19 crisis is not going to go away anytime soon, and thus, we must be prepared for the future. <

Secure Your Future with Term Plan
In order to make sure your family is financially protected against any outstanding dues or any other financial payments during uncertain times like death of the bread winner, you need to opt for solution that promises overall protection. This is where a term life insurance plan comes into action as it plays a major role in securing your family’s financial future in case of an unfortunate event like the sudden demise of the breadwinner. The self-employed working population of India and their families are exposed to higher financial risks than salaried individuals and, hence, they urgently need to consider term insurance. However, as per a recent report, self-employed individuals merely account for 20 per cent of the people who buy term insurance every year in India. Most self-employed individuals have an uneven source of income and they often compromise with savings and investments in the short run for big earnings in the long run.

Apart from household liabilities, a self-employed individual is often personally liable to debts and liabilities with respect to his business also known as business liabilities. A business can have different liabilities at various stages. This is why it is crucial that you have adequate financial insurance-backed protection for your family through a term life insurance plan.

A self-employed individual faces a plethora of more challenges than a salaried individual and this is why it is all the more important for a self-employed person to invest in term plan. A term plan provides coverage to the dependents in case tragedy befalls the life insured during the policy tenure. The monthly premium for a term plan is quite low. The premium depends on one’s age, gender, and medical history.

A 30-year-old individual can buy Rs 1 crore sum assured term insurance for as low as Rs 1,000 per month. Term life insurance plans are perfect for self-employed individuals, as the plans are cost-effective and hassle-free. Moreover, a few plans even promise the return of the ‘investment’ through Term Return of Premium plans. In addition, it covers the policyholder against uncertainties and sufficiently addresses the needs of the dependents.

Limited Pay Option in Term Insurance Best for Self Employed
The shorter premium payment term is especially beneficial for self-employed individuals with variable incomes. While your income is on the rise, you can pay off all premiums and enjoy risk protection until an advanced age. Moreover, as a self-employed person, you may continue earning beyond the usual retirement age of salaried people, i.e. 60 years. Thus, a longer risk coverage will be appropriate as an income replacement in your case. If you are 32 years old now, and pick a premium paying term of 10 years with a policy tenure of 38 years, your payments will be over by the time you become 42 years old. However, you will still enjoy life coverage till you turn 70.

In a limited pay plan, the premium payment term is complete within a few years. As a result, you can enjoy an extended coverage even if you lack the surplus income for servicing the policy later in life. This plan is useful if doubts about your capacity to pay the premiums to the full policy term are holding you back from buying term insurance. The payments end within a short duration, freeing you from the burden of premiums at an older age.

At least 80% (8 out of 10) Indians purchase life and health insurance products to safeguard future. Life insurance followed by health insurance is the top-most financial products bought with an intention to safeguard the family’s future.

At least 75% (7 out of 10) who don’t have a critical illness health plan, are planning to buy it within the next three months. The gap between insurance and other financial products is relatively high which underpins the consumers' trusts on insurance products for the financial security of its family.

Amid the novel coronavirus pandemic, a majority of Indians are working to build up their immunity levels and fell that stress of any kind is a challenge to this. Over 80% Indians are focussed on building their physical immunity, and 78% strongly feel that stress and anxiety affects mental and physical immunity. The survey further attempts to better understand the cause of stress, by enquiring about the top financial worries of the consumer today. The top three reasons for stress are attributed to (1) Financial Security against critical illness, (2) Family member getting infected by any lifestyle disease or Covid-19 and (3) Job or income loss. The reasons for financial worries cited by consumers underpin the stress caused by financial management of lifestyle diseases. Alarmingly, over 50 per cent Indians are not sufficiently prepared to face any financial emergencies related to lifestyle diseases.

For 62% of the respondents, financial immunity is equivalent to being financially prepared to tackle any uncertainty related to life and health i.e. safeguarding financial security and stability of the family lies at the core of financial immunity.

While personal and family safety is the biggest concern in the current situation, the pandemic has re-emphasized the importance of immunity for each one of us.

From October, your health insurance policies will receive a much-needed revamp and they will be re-introduced in accordance with the guidelines and specifications issued by the Insurance Regulatory and Development Authority of India (IRDAI). The revamped policies will come into effect from  October 1, 2020 and the new changes will be applicable on all existing and new health insurance policies. For customers, the revised policies will mean cover for more illnesses and procedures at affordable prices. The new guidelines were issued to insurers in a staggered manner over the last one year in order to make health insurance policies more standardised and customer-centric. Here is a closer look at the expected changes in existing policies.

Cover for New Ailments
The regulatory body has issued a list of guidelines that specify the various illnesses that will now be covered under a regular health insurance cover. In future, insurers will be barred from excluding illnesses contracted due to hazardous activity. Also, treatment for mental illness, age-related degeneration, internal congenital diseases and artificial life maintenance will be covered under a comprehensive health insurance plan. A few other common illnesses for which cover will be provided under your insurance plan include, behaviour and neurodevelopment disorders, genetic diseases and disorders and cover for puberty and menopause-related disorder. Apart from these, age-related illnesses that include cataract surgery and knee-cap replacements will also fall under the list of inclusions under your health plan. Also, factory employees working with harmful chemicals that impact health over the long term must be given treatment for respiratory or skin ailments that arise as a result of workplace conditions. The regulatory body has even standardised the exclusions in health insurance policies, which means that if an insurer does not want to cover some specific ailments such as epilepsy, chronic kidney diseases and HIV/AIDS must use specific wordings as defined by the regulatory body in the policy terms. Insurers have also been asked to specify a waiting period of 30 days to one year, after which the coverage would begin for the illness.

No Rejection of Claim After 8 Years
In June last year, IRDAI stated that if a health insurance policy has completed eight years, i.e., the policyholder has been paying premium for eight years continuously a health insurance claim cannot be rejected except for proven fraud and permanent exclusions. This means, a customer’s health insurance claim won’t be rejected from the ninth policy year unless you have indulged in fraud or are making a claim for a permanent exclusion. This is certainly a welcome relief for the honest health insurance buyers whose claim earlier was rejected even after paying premium for 10 years. The proposal refers to these eight years as ‘Moratorium period.’ However, if the policy has sub-limits, co-payments or deductibles attached to it, those will be adhered to as per the valid terms and conditions.

New Definition of PED
As per the guidelines issued in regard to standardization of health insurance policies, the definition of pre-existing diseases (PED) has to be modified to cater to the needs and requirements of customers. In accordance with the issued guidelines, any disease/s or ailment/s that is/are diagnosed by a physician 48 months before issuance of the health cover will be classified under PED. Also, any disease/s or ailment/s for which any type of medical advice or treatment was recommended by a qualified doctor 48 months before issuance of the policy will also be qualified under PED. Further, any condition whose symptoms or signs have resulted within three months of the issuance of the policy will also be classified under Pre-existing Diseases. To ensure that policyholders suffering from pre-existing diseases get adequate health insurance coverage, IRDAI has mandated that insurers include permanent exclusions only after due consent of the customers. Apart from a list issued by the IRDAI, no other exclusions will be allowed in the health insurance plans.  As per the guidelines, all health conditions and illnesses suffered after the issuance of policy will be covered under your health insurance. Some of the important and major diseases that must be added to the list include Alzheimer, Parkinson, AIDS/HIV and morbid obesity.

Paying health insurance premiums in EMIs
Amidst the ongoing COVID-19 outbreak, the Insurance Regulatory and Development Authority of India (IRDAI) came out with a circular in June for minor modifications in policies filed by general and standalone health insurers. As per the circular, the regulator allowed the payment of health insurance premiums in instalments. Of course, it is entirely up to the insurers to decide whether or not to offer the facility of paying premiums in instalments to the customers.  The premium mode (frequency) can be monthly, quarterly or half-yearly, as decided by the insurer. Hence, from here on, instead of paying an annual premium of, say, Rs 12,000 as a lump-sum, you will now have the choice of making the payment in equal instalments over regular intervals in a year.
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Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.