In which assurance a sum is payable only if person dies in the given period?

Do you know what happens when the policyholder dies within the grace period provided after the due date of paying the premium. The answer might surprise you because there is a big myth around this topic.

Every life insurance company provide a grace period of 30 days for paying the premium after the due date is over. Companies send reminders on SMS and emails to make sure the customer pays their premiums on or before the due date. But if they forget to pay the premiums on time, still they get 30 days of grace period.

If premium are not yet paid after the grace period, then the policy is considered to be LAPSED and no death benefits will be given if the death happens after the grace period.

Do you get sum assured if death happens during grace period ?

And the answer is YES. As per the rules, if the death of the policy holder occurs on the due date of the premium payment or during the grace period, still the policy is valid and the beneficiaries will get the sum assured. But after deducting the the unpaid premium for the current year.

As a proof I am putting up a proof of what the website of Max New York Life Insurance says below. You can see the exact wordings below.

So if a person has taken a 1 crore term plan for a 30 yrs period with premium Rs 10,000 per year on 20th dec 2010 and imagine the policy has run for 3 yrs , and now its the 4th premium is to be paid on 20th dec 2014 . The grace period will be upto 20th Jan 2015 .

Now if the premium was not paid and the death happens on 25th Dec 2014 , then its during the grace period. How much will be the sum assured paid to the customer family ?

It would be Sum Assured – all unpaid premiums for the current year

= 1 crore – 10,090
= 99.9 Lacs

There have been a lot of cases, where a person just discontinued his policy for some reason and they faced an accident and died. Internet is full of these kind of cases.

A lot of times death happens during the grace period and because the family is not well educated on this aspect, they don’t know that they are still liable for a claim (we provide our clients family claim assistance service).

Conclusion

So make sure you do not forget to pay your premiums and make sure you do not wait for the reminders from the insurance company. You can set up your own reminders and be more alert and proactive on this.

A life insurance policy can play a key role in your financial planning by ensuring sound financial assistance to safeguard you and your family against the uncertainties of life.

The first step to getting suitable financial coverage from your life insurance is to understand the concept of sum assured, which determines the coverage level of your policy.  

Let’s dive into what sum assured is and its relevance when buying a life insurance policy. 

What is Sum Assured?

Sum assured is the fixed amount that an insurance company guarantees to a policyholder or their legal heirs on occurence of the insured event, in return for receiving premiums under a life insurance policy. 

This amount can increase or decrease over the policy tenure, depending on the terms and conditions of the policy plan that you sign up for. 

One can choose to get maturity benefits under specific types of life insurance plans. 

For instance, the increased uncertainty of health risk amid the Covid-19 pandemic is driving people to buy higher sum assured under health insurance. The average sum assured, which was usually in the range of INR 2-3 lakh has suddenly surged to INR 5-7 lakh and in some cases has even gone upward to INR 10 lakh and above.

Insured events for sum assured

Depending upon your choice of the life insurance plan, the insured event changes. 

• In savings-oriented plans: Two insured events, maturity of the policy tenure or death of the life insured, are considered. 

• In pure protection plans: The insured event is only death.

• In health-oriented plans: The insured event could be the survival post occurrence of the insured event such as a critical illness or a disability. 

Riders

In case you do end up choosing an insufficient sum assured due to any reason, you always have the option of increasing the sum assured by topping it up either with another life insurance policy or with available specific riders that may offer additional protection benefits. 

A rider is a separate contract that can be attached to a life insurance policy that adds benefits to your basic insurance policy. A few examples are: 

• Term rider (for all-cause death benefit)
• Accidental death and disability rider (to provide enhanced death/disability cover in case of an accident)
• Critical illness rider (upon survival and diagnosis of the listed illnesses)
• Waiver of premium rider (waiving of all future premiums under the policy in case of death or pre-defined critical illnesses)

How to Choose Optimum Sum Assured

An adequate sum assured will help your family deal with tough times without worrying about arranging funds at a time of any mishap such as sudden death or an accident by ensuring guaranteed financial protection. 

The key to choosing optimum sum assured is primarily undertaking proper research and considering these five factors. 

Age

Your age is a major determinant that helps you to decide the extent of coverage you require and the right sum assured. The younger you are, the more sum assured you should secure. 

There are two advantages to doing this:

1. The premium for a higher sum assured is lower when one buys life insurance at an early age. 
2. A younger person investing in the right sum assured can retire early (in case of endowment plans). 

So, age should be looked at as an advantage to buy a higher sum assured since premiums are comparatively lower.  With each passing year, your pure protection “term plan” could increase by 6% to 8%. Remember, the concept of sum assured is to look at a safety net rather than premiums payable.

Income

Your income is an important element while considering sum assured. Over a period of time, you can also plan to increase the sum assured if your income increases as the life stage need arises. 

Ideally, your budget should be the last factor to consider while choosing sum assured as a lower coverage can render you underinsured. It will further negate the concept of life insurance, and your family may suffer unanticipated financial consequences in your absence. 

Lifestyle 

Your lifestyle should be factored in while choosing sum assured to cover all the possible contingencies.

If you are employed in a job with high-stress levels, then you must consider: 

1. Greater protection in the form of a higher sum assured. 
2. Making sure you convey details about your habits such as alcohol or tobacco consumption to your insurer. This will ensure that the beneficiary doesn’t face any complications at the time of claiming the sum assured.

If you live a healthy lifestyle, then you must know: 

1. The chances are high that you will outlive the policy period. 
2. Since the basic life insurance plan like a pure term plan does not offer any benefits on survival, you can choose the return of premium cover (if you have opted for the return of premium rider) to get back the premiums paid as maturity benefit in accordance with the policy conditions.

Inflation

The inflation index of a country fluctuates each year and so do household, medical and education expenses. 

To fully factor in any change in your annual financial budget and your future finance planning for your child or your retirement, you should invest in a life insurance policy considering the inflation rate. 

Medical History 

An account of your past medical records are crucial from the point of view of selecting a sum assured that will cover related treatment charges in case one suffers from any chronic ailments. 

It is advisable to opt for a higher sum assured and include a critical illness rider if you or any of your dependents have had a medical history of serious illnesses. Doing so will help you pay for the expenses of treatment you may need while also covering for any unfortunate event of death.

How Much Should Your Sum Assured Be?

Various life insurance plans protect against death, disease and disability. What is most important while buying a life insurance plan is that it provides the right amount of sum assured. The factors you must consider include: 

Annual Income 

• Typically, a rule of thumb is your sum assured should be 10 times your annual income. 
• For younger individuals less than 30 years of age, sum assured 14-15 times of their annual income and for those who are older above 50 years, 7-8 times works well. 
• If computed in terms of expenses, it should be at least 12-15 times the annual expenses with debt obligations such as outstanding home loan amount, personal loans, etc. accounted for..

Have a Sum Assured Checklist

You should be sure not to make the mistake of blindly buying life insurance to merely get it off your financial protection checklist. 

If you are the sole breadwinner of the family, then providing financial protection to your family members is your responsibility. Your sum assured checklist must include: 

1. Selecting a sufficient amount of sum assured by paying a premium regularly to protect your family financially. 
2. Consider adding a critical illness cover to your life insurance plan to ensure coverage against various life-threatening diseases. 
3. Think of it as an added benefit that can help your family deal with future adversities such as a health crisis or depletion of income earning capability.
4. If you have already invested in a life insurance policy, ask your insurer about ways to increase the sum assured at different life stages.  

Bottom Line

Life as we know it has changed due to the pandemic. Safeguarding our health and that of our loved ones is important more than ever and having a life insurance policy would be of utmost necessity to meet the contingency needs of the future. 

Making the right decision on the sum assured — an important component of your policy, will help you win the battle of securing the financial future of your loved ones.

What is sum assured and sum assured on death?

In which policy death benefit is paid only if the insured?

In which type of plan the benefit is payable only if the life assured survives till maturity?

What is death sum assured and maturity sum assured in LIC?