Should I take the life insurance cover sold with home loan?

While taking a home loan, I was offered a life insurance cover. There were two options given and am not sure, which one works better. A flat level cover and a reducing term cover. What are the pros and cons of each?

Often a bank or an NBFC offers a life insurance cover along with a mortgage. The primary objective of such a policy is to cover the loan amount. In case of the death of the primary borrower, the insurance helps pay off the loan.

With time, the loan amount keeps coming down. An increasing amount of the EMI goes towards principal repayment rather than the interest cost. In a reducing term cover, the coverage amount roughly corresponds to the principal outstanding.

How they differ

In a flat term cover, however, the coverage amount remains the same irrespective of the outstanding loan amount. In case of the borrower’s death, the excess amount after settling the loan is paid to the borrower’s nominee.

Because of the lower coverage over time, the reducing term cover is cheaper than the flat cover. Other than that, there are no differences.

I would strongly recommend that you should buy a standard level term insurance that covers your overall needs, and not just the loan linked insurance cover. As a rule of thumb, one should carry a term cover of atleast ten times of one’s annual income.

I am a senior citizen, and have underwent a valve replacement surgery for ₹30 lakh. I have coverage from two policies, a personal policy of ₹10 lakh and another corporate cover of my son for ₹20 lakh. I raised a claim on both policies simultaneously, and fully disclosed this to both insurers. My personal policy has been running for more than 10 years. Now, I have submitted all my original documents with the personal policy, and they seem to have a technical issue. It has already been 2 months with the personal insurer. The corporate policy is asking for the original claim documents. How should I address the situation?

Your approach is sound. Both policies would respond and you are entitled to claim the full medical expenses, subject to the respective policy limits. The corporate policy can be used to settle your residual claim, which is the amount left after the initial claim is settled through the personal policy.

To process the residual claim, two set of documents would be required. First, a claim settlement letter from the first policy, which states the total bill amount, the claim settled and the balance disallowed. Second, is an insurer attested copy of the claim documents.

Put together, these documents establish that you have been indemnified only partially, and the claim documents are in custody of the first insurer.

Escalate quickly

Until the first claim is settled, the second claim cannot be processed. So, you must take it up with the first insurer and push for a speedier resolution.

Given the delay, you should escalate with the relevant senior team of the TPA or the in-house claims team of the insurer. If they do not address the issue, you should reach out to their grievance redressal officer.

Since there is no dispute on the claim admissibility, it is very likely that your claim would get addressed through this route. As per the rules, you would be entitled to penal interest from the first insurer due to this delay.

Abhishek Bondia, co-founder, SecureNow, an insurance broker