Convertible plan of insurance are plans which provide in its terms and conditions, that it can be changed to another plan after, or within, a certain period after commencement. For example a convertible term insurance plan can be converted into a whole life policy or an Endowment policy, within a period specified in the original plan.
This period may be, not later than two years before the expiry of the original term. In other words, if the original term insurance cover is for 6 years, the option to convert should be exercised before the end of the fourth year. In some plans, the option can be exercised at any time, but before age 60. A convertible whole life plan can be converted into an endowment plan. If the clause says that the option has to be exercised at the end of say, 5 years, it will have to be done during the fifth year, but before the sixth year begins. If the option to convert is not exercised, the policy will continue on the original terms.
The advantage of such convertible plans is that, when the right of conversion is exercised, there would be no further underwriting decision to be made. There would be no medical examination at that time. So, even if the insured has an adverse medical condition at that time, the policy of his choice will not be denied to him. Such policies are usually taken by persons in the early stages of their careers, who expect their financial conditions to improve soon, but would not like to delay the benefits of insurance till then.
#With Profit and Without Profit Insurance Policies
Without profit or non participating policies are not entitled to bonuses, which are declared after actuarial valuations. With profit or participating policies pay a slightly higher premium for the right to participating in the progress of the insurer. With profit policies are popular because the bonuses are expected to be more than the extra premium paid. With profit policies, where the premium is payable for a limited period, will continue to participate even after the premiums have ceased.
#Joint Life Insurance Policies
Two or more lives can be covered under one policy. Such policies usually cover married couples or partners. The SA is paid on the death of any of the insured persons during the term or at the end of the term. Some plans also provide payment of SA. On the death of one life and the policy is continued to cover the second life till maturity, without, without payment of further premium.
#Children’s Insurance Plans
Insurance can be taken on the lives of children, who are minors. The proposed will have to be made by a parent or a guardian.
In these plans, risk on the life of the insured child will begin only when the child attains a specified age. Practices vary widely. The time gap between the date of commencement of the policy and the commencement of risk is called the deferment period. If the child is 6 years old when the policy is taken and insurance cover is begin when the child is 15 years old, the deferment period is 9 years. The date on which the risk will commence, at the end of the deferment period, is called the deferred date. The deferred date will be a policy anniversary. Ages are reckoned as next birthday, nearest birthday, as per the practice of the insurer.
There is no insurance cover during the deferment period. If the child dies during the deferment period, the premiums will be returned. Risk will commence automatically on the deferred date, without any medical examination. The main advantage of these plans is that the premium would be relatively low and cover will be obtained irrespective of the state of health of the child.
These policies have conditions whereby the title will automatically pass on to the insured child, on his attaining the age of majority. This process is called vesting. The policy anniversary after attaining the age of majority, that is 18 or any later date as may be chosen, will be the vesting date. After vesting, the policy becomes a contract between the insurer and the insured person.
The vesting age cannot be earlier than 18. This is because there cannot be a valid contract with a minor. The deferred date however, can be fixed without any such limitation. The deferred date and the vesting date need not be the same.
With regard to the deferred date, various options are available. In some plans, children between the ages of 5 and 12 are insured, with risk commencing at age 12. In some other plans, policy can commence when the child is between 0 and 12 years old and risk will commence 2 years after policy commences, but not earlier than age seven.
In a plan offered by the LIC the insurance is taken on female children. The risk cover is extended to the husband three months after the insured child gets married or one month after intimation of marriage or on attainment of age 20 by the life assured, whichever is the latest. The sum assured is paid as survival benefit on the deferred date. And again on the death of the life assured before maturity, but there is no survival benefit on maturity.