You walk into a life insurance company and buy a life insurance policy for Rs. 7934/- per annum for a Rs. 1 crore sum assured. The company accepts the cheque and asks you to go for a medical test.
What are the scenarios that can happen?
Best case scenario, they can say, yes you are 28 years old (chronologically and physiologically, so here is the policy)
Next scenario – they can say, sorry you are chronologically 28, but physiologically you are 33 and so you will pay Rs. 9345 per annum.
Next scenario – they can say, sorry your medical condition is such that we cannot take a decision now, please come to us after 6 months.
Worst scenario: they can say, your life is not worth insuring, please take a walk.
the second situation of asking you to pay a higher premium is called ‘rate up’.
What would I do if I am told ‘Subra you have a health condition because of which the premium is Rs. 9345’ I would take the plan, IMMEDIATELY.
This is because my health could deteriorate quickly and I might become uninsurable (which means no loans, and high risk). Then I will work my butt off and improve my health.
One year later I will shop around again, and if I can, I will get a new insurer who will give me a cheaper plan.
Typically people get into a stupid denial mode and say ‘How can I be rated up’…blah blah…and give up this plan. That is the stupidest thing to do.
It also happens like this because the insurance company does not know how to convey the rate up. I hope I have done a good job.
I ask people ‘Yes I agree you will reduce your BP in 3 months, but if you were to die tonight, what would happen to your family?’ sadly the salesman cannot.
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