Life insurance plans can stand as security against loans

A life insurance plan provides an excellent way to stand as a security against the loan received by the insured
The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.
I am a 40-year-old man and I have an auto components business. I have given a loan to my brother to start a new business. Can a creditor take a life insurance policy in the name of his debtor to secure the money given by him? If yes, then can his family claim any part of it in case he dies?
Yes, a creditor can take a life insurance policy on the life of his debtor as he has an insurable interest in the life of his debtor to the extent of his loan. A life insurance plan provides an excellent way to stand as a security against the loan received by the insured. The value of the policy normally does not exceed the amount of the loan. The general rule is that after the debt is repaid, the creditor loses all interest in the policy. After that, the benefits of the policy can go to the policyholder and can be claimed by his family on his death. In case the value of the policy exceeds the amount of loan, the balance money is paid to the beneficiaries ofthe insured.
I am a 30-year-old man and I am planning to upgrade my life insurance with a term plan. I already have an endowment plan. What is term life insurance?
A term plan is one of the first insurance plans that one should buy. In term plans, in case of the policyholder’s death during the period of the policy, his nominee gets the “sum assured” (or the cover amount, as it is commonly known). But if the policyholder survives the period of the policy, he gets nothing. Term plans have the lowest premium among various insurance plans and provide peace of mind against life’s eventualities.
Readers are welcome to write in with their queries to askmint@livemint.com. The questions will be answered by senior executives from leading insurance firms.
This week’s expert is Rajesh Relan, managing director, MetLife India Insurance Co.

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