We often associate the word “clauses” with “reading things that’s full of professional jargon”. Due to this association, we dismiss to know what benefits us in an insurance contract. We tend to rely on our insurance agent to explain to us on the insurance contract details which may be impossible for them to go through a whole book of contract. After all, it is your responsibility to take the time to understand the contract. Members of FINPosts understand that the clauses can be a lot to take in. So, we took the liberty to make it simple for your easy understanding. Here’s 8 important insurance clauses that you must know!
As the clauses vary between the types of insurance plans, we will focus on investment linked in this article. We will cover the other type of plans in another article. Do check out our post on “5 Types of Life Insurance” to learn more about your insurance plans.
You are allowed up to 30 days from the premium due date to make your premium payment. This is called the “grace period”. During this period, your insurance contract is still valid and will provide the insurance as stated in the contract. So, don’t worry if you’re a few days late, there’s still time to make your premium payment.
If your contract has lapsed, you may reinstate the contract by putting in an application for reinstatement and providing the necessary documents to the company as requested. The benefit of reinstatement is that you’ll be able to purchase the same contract at the same premium. This is because if you opt to buy a new contract instead, the premium will be much higher as it is quoted based on your current age. Reinstatement can be done within one year from the lapsed date of your contract.
This clause guarantees that your contract will not lapsed within a number of years from the commencement date. As long as the premium payment are made promptly with no cash value withdrawal, the plan will not lapse even though the total investment value in the contract is less than or equal to zero.
Premium Increase / Reduction
As investment linked contracts are one of the most flexible plan in the market currently, it gives you the option to increase or decrease your premium at any time. Once the alteration is completed, it will take effect immediately on your next premium due date. Any decrease of premium would also cause the Sum assured to be adjusted. So, if you’re in a tight financial situation, try this option instead of full termination of contract and be exposed to greater financial risk.
Sum Assured Increase / Reduction
As mentioned above, the flexibility of an investment linked contract also allows you to increase or decrease your Sum Assured at any point of time. The changes will take effect from the next insurance charge due date. This means that it is not necessary to purchase new plans (which can be a similar plan) to increase your coverage. It is wiser to increase coverage in your existing plan as you don’t have to pay customary fees the company charges for a new purchase of plan.
A portion of your premium paid will be allocated to purchase unit funds as investments, hence the name investment linked contract. As time goes by, your investment value grows. This clause allows you to withdraw those investment value in a time of need without cancelling your plan. Just remain a minimum amount of investment value in the contract and your coverage will still be valid as usual.
This clause is a standard term in most insurance contract out there. This clause disallows the company to dispute on the validity of the contract after 1 year from the risk commencement date of the contract, unless there is fraud. As long as you declare honestly on your well-being upon the application and the company has accepted as it is, it is unlikely that the company will dispute after 1 year. This clause is to safeguard both parties, the company and the contract owner.
Many people thought that the insurance contract is just another piece of paper but it is the wrong perception. The contract is actually governed by the Laws of Malaysia. The Malaysia courts have exclusive jurisdiction for any dispute arising out of the contract. The insurance contract that you hold is a legally bound contract, hence do keep in mind to keep your contracts in a safe place.
We hope the above simplified explanations can help you understand your contract better. Do note that these are only general terms and it may or may not apply to your contract. To know more, check your contract and see if any of the above matches. Should you find a clause that you’ll need assistance with, just drop us a note. We’ll be delighted help you out.
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