Monday, May 28, 2012

Importance of Disclosing Old Insurance Policies While Buying New Ones

Declaration of an old insurance policy while purchasing a new one is mandatory. Everyone studies this in maths class when they are in school, yet most of us conveniently forget it when we grow up.

While some people might simply be unaware of this rule, many others think that they can ‘befool’ both insurance companies, and collect a huge amount of money on the destruction of their property, or even their death.

However, it is vital for people to know that insurance companies are sticklers for rules, and thoroughly investigate all insurance claims. The ‘declaration of old insurance policies while buying a new insurance policy’ is a compulsory rule in the fine print of insurance companies, and is strictly followed. This is even if you are taking a life insurance policy with a small sum assured (maybe, 1 lakh); whether a term plan, a unit linked plan with insurance cover or a traditional insurance policy.

Case Study

Here is a case study to illustrate my point. Names of people and places have been changed.

Rahul was a 35 year old businessman from Pune in Maharashtra. When Rahul was working in a software company, at the age of 30, he bought a ULIP plan with insurance cover of Rs. 1 lakh to save tax. Three years later when he got married, he left his well-paying software job, and started a small offshore IT business. Initially, Rahul’s business did well, and he took out a term insurance plan of Rs. 1 crore, to secure his family. At that time, he did not think it would matter if he informed the insurance company that he had an old policy, or not.

However, later on, the recession proved bad for Rahul’s business, and he ended up heavily in debt. He also faced a lot of stress at home, due to which he sank into further depression, and gained a lot of weight. His family members were also not supportive of him, and constantly criticised him for leaving his job, and wasting their hard-earned money on his failed business.

As a result of the growing tension, Rahul suffered a massive heart attack at the age of 35, and passed away. After his death, his family members (old parents and wife) looked through his papers, and found the two insurance policies. They decided to go to the insurance company, and claim the amount. However, the insurance company conducted an investigation, and learnt that the deceased had not declared his old insurance policy while taking a new one.

Afraid that they were going to lose a huge amount of money, Rahul’s family members began giving a range of excuses, as to why they should still get the claim. However, rules are rules, and the insurance company stuck to its stand, claiming that rules had been violated. Rahul’s mother filed a case in court against the insurance company, but it was of no use, as the court also gave a verdict that was in favour of the insurance company. Rahul’s family never got any money.

Have you declared your old insurance policies while taking a new one?

Don’t make the same mistake as Rahul. If you have any insurance policy (be it a ULIP plan, an endowment/money back policy, a term plan or some other type of insurance policy), make sure you declare it while taking a new insurance policy. If not, then you can be sure that your family with not get ANY MONEY after your death.  Please give this serious thought.

In case you have already made this mistake, call up the customer care number of your insurance company, and ask them about ‘declaration of old insurance policies’. If you had not given them this information at the time of taking their insurance policy, give it to them now, and rectify your mistake.

1 comment:

  1. There are important considerations that you have to make when buying insurance. A little time to think about it to be able to evaluate your options will not hurt considering that its the future that is at stake.


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