Insurance Guide
Content
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Disclaimer
This Guide is for Private Circulation only and not for sale, is only for information purposes and Quantum Information Services Limited (Personal FN) is not providing any professional/investment advice through it and, does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. Personal FN disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this guide, including without limitation the implied warranties of merchantability and fitness for a particular purpose. Personal FN and its subsidiaries / affiliates / sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this guide. Use of this guide is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. Personal FN does not warrant completeness or accuracy of any information published in this guide. All intellectual property rights emerging from this guide are and shall remain with Personal FN. This guide is for your personal use and you shall not resell, copy, or redistribute this guide , or use it for any commercial purpose.
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Index
Section I: Have you been betrayed on your Insurance? Approach of Indians towards Insurance Section II: Do you plan your Insurance? What is Insurance? 6 Need for Insurance 7 Insurance Need Analysis 9 Section III: How do you judge which insurance plan suits you? 4
Life Insurance 12 General Insurance 30 Section IV: How to select the right insurer? Insurers years of existence 43 Financial Background 43
Claim Settlement Ratio 44 Section V: How to select the right insurance advisor? Knowledge of insurance advisor 46 Quality of services 47 Section VI: If you are dissatisfied?
Cancellation / Surrender of policy 49 Grievance Redressal Procedure 53 Section VII: Regulating the Regulator: SEBI guides IRDA. Regulatory environment in India 55 IRDA‐Regulatory Body / Development Authority 55 Section VII: Insurance Screener Most popular Insurance policies 57
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I: Have you been betrayed on your insurance?
“Good afternoon sir I’m calling from XYZ Insurance Company Limited, and we have very attractive insurance plan for you.” Doesn’t this sound familiar, a typical phone call during the afternoon from some or the other representatives of different insurance companies, urging us to buy an insurance policy from them. Some of us give a patient listening, while some by getting pretty annoyed, choose to hang down our phones on them as we are either busy with our daily work, or are having an afternoon nap. The phone calls continue and one day you wish to hear them out. Why? Because you have to close out on your tax investments. The lucrative returns and the tax benefits lure you into buying the insurance policy which the telemarketing representative is eager to sell and you eager to buy. And you fall in the trap, not realizing that you are going to be betrayed. Yes, we are calling it as “betrayed”, because the insurance policy is just sold to you rather than you chose to buy one wisely. Have you really ascertained whether you require insurance? And if yes, what plan suits you the best. Some of you often keep buying insurance and don’t even understand whether one is over‐ insured or under‐insured. To simply put what is the risk (insurance) cover which you require. It also so happens that you don’t even recognize or know (the facts and features of the policy) what you have bought. The insurance company’s representative (the agent / broker), just lures you with some fancy projections and you vie for it without knowing the fact that you are actually getting betrayed.
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Please note that your agent / broker is not there to “advise” you, but just there to “sell” you the product, by giving you a rosy picture without really ascertaining which insurance plans suits your financial need – your financial plan; the sole interest of the seller is in the hefty commissions (25‐40% of the first year’s policy premium and 4‐7% of the renewal premium) which he receives. You think you have made your tax saving investments. But, is that the way you save tax? In our opinion, that’s the incorrect way to do your tax savings. For some people the realization of betrayal comes quite late, as when you (or your family members) approach your insurance agent / broker for the claims he may not recognize you. At the time of selling you the insurance policy, agents / brokers manipulate the underwriting forms in order for them to issue you the policy at the earliest (so that he can earn his commission), but it eventually backfires on the policyholder when it comes to the insurance claims. Apart from your insurance agent / broker, our insurance regulator – Insurance Regulatory and Development Authority (IRDA) is also to be blamed for the mis‐selling. Until the capital market regulator – Securities and Exchange Board of India (SEBI), pinched the shoes of the insurance regulator, the insurance regulator just purely played a development role, ignoring the “regulatory” role. The “development” role is also evident through the number of insurance companies which have mushroomed in the last 5 – 6 years. IRDA ignored its “regulatory” role by keeping the policy holder’s interest at bay. It is only now (after SEBI pinched IRDA’s shoes) that IRDA has now started playing a regulatory role. At PersonalFN, we believe that you should take a more prudent approach towards your insurance. This guide will enable you to take informed decisions, for “wisely planning” you’re insurance. There is emphasis on the word “planning” as we believe that insurance should be considered through a need based approach.
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II: Do you plan your insurance?
We are sure you all must have had your share of experiences, as cited in the previous section, and that in a way cites the requirement for a need based approach to insurance planning. Some of you might be wondering, why a need based approach to insurance planning? Many of you plan for almost everything in life. Right from some basic household expenses, marriage, children education, their (children) marriage, your retirement and some fancies of life; such as buying a premium apartment, a car etc. But, very often ignore the “planning” aspect while buying an insurance policy, because again the ignorance comes our way. We pop out questions ‐ Are you kidding? Why do I need to plan for insurance? My financial advisor takes care of my insurance. And again the story of betrayal continues… And to save yourself from betrayal, you really require a need based insurance planning approach. But, before understanding need based analysis, let’s first understand the meaning of the term “insurance”. What is Insurance? To simply put insurance means safeguarding against a specific risk which one is exposed to. Well you may be wondering how does this happen? ‐ It is through transfer of risk from one person to a group of individuals, who are ready to assume (take) that risk for a price paid (the premium). And when you actually confront the risk, the damage caused to you (and your family members), is paid back to you by the risk taker (the insurance company) in the form of claims. So, by buying insurance policy you are buying a protection shield (for the risk faced by you) which enables you to live peacefully.
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Hence by doing so, you or your financial dependents stand better equipped to face such contingencies.
Let’s understand this with the help of an example.
Imagine yourself riding a bike or a scooter!! Well, for some riding it is a fantastic experience, but as you may be aware that this mode of conveyance has its own share of risk ‐ i.e. road accidents (which may prove fatal). Hence, you take all the precautionary measure such as buying a helmet, knee guards, etc. But you forget to buy the most vital thing i.e. “motor bike insurance (a comprehensive plan), medi‐claim and personal accident policy”. And one fine day destiny had something in store for you. You met with an accident. Your bike was badly damaged, you had severe injuries and you also knocked one of the pedestrian, whose family came running for compensation. So, you along with your family members encountered a traumatic experience, as you didn’t have an insurance plan, to safeguard you, your assets and your dependent family members. It was a complete jolt to your health as well as your wealth. Now on the contrary if you were insured well (through a comprehensive motor bike insurance, personal accident policy and medi‐claim), you would have felt the jolt less financially as your insurance policies would have settled all your claims for pertaining to you as well as the pedestrian whom you knocked off. Thus it would have saved you from the financial crunch which you or your family faced, while meeting such contingent expenses.
So now, the question arises ‐ Do we need Insurance?
We think the example cited above, will definitely prompt you to say “yes we need insurance”. And please remember, we aren’t immortal, and contingencies can occur anytime.
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We think all of you will agree that all of us in today’s time are exposed to some element of risk, as today life is complex, full of tensions and uncertainties; no one knows what life holds for us in the near future. Yes, one may say, “I take all the precautions and I’m quite thoughtful”. But you cannot be sure when something untoward may happen. In case of loss of life, during your earning days, it is a big loss to your family as they may end up fending for themselves.
Let us tell you a short story of a very happy family till the things turned around.
There was a family of 4 persons i.e. Husband, Wife and two small Kids. Husband was the only earning member in the family; his wife and children were totally dependent on him for all of their expenses. They were very happy in their life and they had planned for everything from their household expenses to children education and their marriage and even for their life after retirement. They thought everything will go as planned, but life as we all know is full of uncertainty, took a “U turn” and on one bad day the earning member of the family died in an accident. Now the wife could not even bear the shock of losing her husband and she had her children to take care for, without having single person earning in the family. Slowly and gradually it became almost impossible for her to take of herself and her children. She took up a small job for their living but still was unable to meet the expenses of her children education. The dream which she and her husband saw for their children started vanishing. One bad day has changed their life forever. They might have planned their life very well, but not knowing the need and importance of insurance in their life has changed their life completely. Life of the bread earner is not only the emotional loss for them but also a big loss from the financial point of view. Insurance surely cannot compensate the loss of life but at least it makes sure that there is no financial problem to the family in case of loss of life of the bread earner of the family.
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Understanding the need for insurance does not solve the whole purpose, nor is just calling your insurance agent and reposing blind faith in him going to make much sense. What is required is “insurance planning”, rather than simply buying insurance. But that may pop another question “how does one do insurance planning?” Well, to answer that all what you need to do is to follow a step by step approach to understand your insurance needs and then calculate the insurance requirements. There are many ways to calculate the insurance requirement but the best and the most effective way of calculating insurance requirement is given under:
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HUMAN LIFE VALUE (HLV)
Human Life Value evaluates the need for insurance cover in terms of money required to sustain the same standard of living by the family in case something happens to the bread earner of the family. Human Life Value has two approaches to it:
HLV on the basis of INCOME:
In order to calculate Human Life Value on the basis of income, we have to take the annual income of a person and deduct all his personal expenses and also assume the age at which he wants to retire. Personal Expenses includes all those expenses which he does on himself, day to day expenses, insurance premium on his own policy etc., or personal expenses can be defined as those expenses which will not be needed in case the person is not there tomorrow. Net annual income of all the personal expenses is assumed to be spent for the welfare of the family.
For Example:‐
Mr. A aged 35 years earns ` 12 Lakhs p.a. and spends ` 2 Lakhs p.a. for his personal consumption. Therefore, he saves ` 10 Lakhs p.a. for the family welfare, net of his personal
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expenses, which can be used by his wife and children for household expenses, savings and host of other things they want to do. Now assuming he will retire at the age of 60 years and earn a return of 6% p.a. on the amount invested, so to have ` 10 Lakhs p.a. as income for next 25 years (60‐35) at the rate of 6%, the total insurance requirement as on today comes out to be ` 1.35 crores.
HLV on the basis of EXPENSE:
In order to calculate Human Life Value on the basis of expense method, there are various factors which are needed to be taken into account such as life expectancy of spouse, number of children and their dependency period on him, monthly household expense of the family excluding his personal expense, cost of inflation and outstanding loans.
For Example:‐ Mr. A aged 35 years earns ` 12 Lakhs p.a. and he spends ` 2 Lakhs p.a. for his personal consumption. The age of the spouse is 30 years and her life expectancy is 80 years. Yearly expense of the family is ` 6 Lakhs, so the net family expense excluding his personal expense comes out to ` 4 Lakhs p.a. Assuming an interest of 6% p.a. on the amount invested and the inflation at 5% p.a., ` 1.60 crores of insurance cover is required in order to meet the expense requirement of his spouse for the next 50 years i.e. till her life expectancy. Among the two methods followed above, in our opinion the latter, is a more rational approach for HLV calculation as it takes into account the expenses required to meet the household and other lifestyle expenses of your dependents, thus revealing a more realistic picture about your insurance needs. For some it may be a little complex exercise, but if you don’t follow it and simply go by what your insurance agents says you may end buying unsuitable insurance products, which don’t cater to your insurance need, and thus the story of betrayal will continue. Remember to undertake “insurance planning”, don’t simply buy insurance. www.PersonalFN.com 10
III - How do you judge which insurance plan suits you?
Buying insurance is very important for each and every individual, so selecting the right insurance policy is also very important. Selecting the right insurance product according to your requirement is a very difficult task for anyone. There are many sellers/companies in the market and all of them have their own variety of insurance products. It becomes more difficult for you to select the right product when you receive at least one call per day from different insurance companies and all of them claiming that they have the best product available. When buying insurance, don’t go by what insurance companies or agents or your family members or friends are telling you. Don’t even buy insurance by looking at which product is doing best in the market. Buy insurance only when you know that there is a need for the same. First analyze what you are looking for from the insurance policy. Here are some points which you should keep in mind before buying an insurance policy: 1. 2. 3. Are you buying insurance for protection purpose? Are you buying insurance for investment purpose? Are you buying insurance just for saving TAX?
Different policies available in the market cater to different needs. Therefore, don’t buy insurance for sake of buying it; buy insurance because you need it. There are 2 types of insurance which cater to everyone’s need. 1. Life Insurance
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2.
Non‐Life Insurance or General Insurance.
LIFE INSURANCE
Life Insurance
Human life is at the risk of death due to natural or accidental circumstances. When a person dies or becomes disabled then there is loss of income for the family. The survival for the family can become difficult. To protect your family from such a situation, you can opt for a straightforward life insurance policy. Your life is certainly priceless to your family members; however it helps to put a value to the life of the breadwinner in the family, so that in case of any unfortunate circumstance, the family members do have certain income that they will receive. Life insurance policies provide a definite amount of money to the dependents of the insured in case the life insured dies or becomes disabled. Life insurance comes in many forms. The first form is one of pure protection. However with advancements in the insurance field, modifications have been made to the classic term plan to include savings and investments as well. The types of life insurance policies are as follows: 1. 2. 3. 4. Term Insurance (Pure Insurance) Endowment Policy (Savings based) Money Back Policy (Savings based) Unit Linked Insurance Plan (ULIP) (Savings based, market linked)
Types of Life Insurance
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1. Term Plan
Term insurance is the purest form of insurance policy. It provides you a high amount of coverage at a very low premium. This type of policy caters to the need for protection. A Term insurance policy provides you the coverage for the specified number of years by paying the small amount of premium every year. Generally term insurance policies are for the duration of 10, 15, 20, 25 or 30 years.
Death Benefit
In case of your demise during the duration of the policy, the amount of coverage taken under the policy is payable to your nominee.
Maturity Benefit
In case you survive the policy term then nothing is payable at the time of maturity.
Tax Benefit
The premium paid qualifies for deduction u/s 80 C.
New Features
Now the insurers are charging different amount of premium depending upon the risk profile of the person taking the policy. For example, your risk profile will likely be assessed on the following parameters: 1. Medical History
Your medical history and that of your family is a crucial factor that insurance companies take into account while assessing risk. If you have any existing (and possibly life threatening) diseases at the time of taking the policy, then the insurance company will charge an extra
premium known as ‘loading’, as the risk to insure you increases in comparison to insuring a person without any pre‐existing diseases.
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2.
Non‐Medical History
Apart from medical history, life style habits such as smoking, drinking, occupation etc. are also taken into account. Generally the premium of a client who has a smoking habit is higher as compared to a non‐smoking client.
Riders
Certain term insurance policies are also available with additional benefit known as riders:
•
Accidental Death Benefit Rider
In this type of rider a small amount of extra premium is being charged with the regular premium and if a person dies due to an accident, then he gets an additional benefit in the form of increased sum assured. If a person dies because of some other reason than accident, then the sum assured under accidental benefit rider is not payable. • Return of Premium
In this type of rider the premium amount for the policy is much higher than the regular premium and all the amount of premium paid during the policy duration is paid back if the life assured survives the policy term. • Waiver of Premium
In this type of rider if the life assured becomes permanently disabled, then he/she does not have to pay future premiums, all future premiums are waived. Insurance companies charge a nominal fee for this rider. This rider might increase the cost of insurance, but means that you won’t be left without coverage if you are no longer able to pay the premiums.
For e.g. Mr. A has taken a term insurance policy with waiver of premium as a rider. Thereafter he was badly hurt in an accident which left him disabled. In this case, thanks to the Waiver of
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Premium rider, he does not have to pay the remaining premiums but his policy will continue as before. • Critical Illness
In this type of rider if a major disease (as specified in the insurance policy) is diagnosed within the term of the policy then an amount equal to the sum assured in the critical illness rider is disbursed. The important thing to note in this rider is that if a critical disease as specified under the contract is diagnosed then a lump sum amount is paid out. This rider is not to be confused with a Mediclaim policy, in which hospitalization expenses are paid. Most critical illness riders have a waiting period of around 90‐180 days after you buy the policy. During this waiting period no claim can be made for critical illnesses. Further, even after the critical disease is diagnosed, the insured must survive the minimum of 30 days in order to be eligible for the claim
Comparison
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Given below is the comparison between a Pure Term Plan and a Term Plan with riders. In both cases, the Basic Sum Assured is taken as ` 50 Lakhs, term is 20 years and the age of the individual is assumed as 30 years.
Company LIC ` 12,850 50 Lakhs 0 0% Birla ` 9,817 50 Lakhs 0 0% ` 42,433 NA 50 Lakhs ` 8,40,000 ‐0.09%
S.No. 1 2
Type of Term Plan Pure Term Plan Premium Death Benefit Maturity Benefit Return Term Plan with Return of Premium Premium Death Benefit Maturity Benefit Return
(Source: Website of respective insurance companies, PersonalFN Research)
From the above table, it is clear that we are getting 8.40 Lakhs as maturity benefit in Term Plan with Return of Premium but for getting that we have to pay more than 3.5 times as premium and simultaneously the yield to maturity is in negative, so it can be said that Pure Term Plan is better than Term Plan with Return of Premium.
2. Endowment Plan
Due to the drawback of the term plan, that it does not provide anything to the policyholder in case the policyholder survives the term of the policy, the insurance companies came up with a new type of insurance product known as the Endowment policy.
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An Endowment policy is a combination of a protection plan and a saving plan. These types of policies cover the risk for the specified period. Premium of such policies are much higher as compared to premium in term plans.
Death Benefit
In case of your demise before the policy term, the sum assured and the accumulated bonuses are paid to your nominee.
Survival Benefit
In case you survive till the end of the term, you will receive the sum assured and the accumulated bonuses as declared by the company.
Advantage
• Endowment policies are useful for those who are looking to make some regular savings with 100% guarantee of their investment. • If you require a lesser amount of sum assured (Below 2 Lakhs). • If you want a lump sum amount at a desired age.
Disadvantage
• Endowment policy offers lower sum assured than offered in a term plan. • The premium is much higher than term insurance policy for the same sum assured. • Bonuses are not guaranteed. They are generally paid only when insurance company is making profits.
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• If you wish to surrender this policy within first 3 years, you will not receive any surrender value. • If you surrender this policy after the completion of 3 years then you will get less than the amount of premium paid during the 3 years. • If you hold this policy for the whole policy term, then the yield you will get on this type of policy generally varies from 4 ‐ 7.5% depending on term of the policy, which is a very low yield keeping in mind the long term of the policy.
3. Money Back Plan
Term plans offers only coverage and nothing is payable to the policyholder at the time of maturity. Endowment plans offers both coverage and savings, but the policyholder has to wait till the end of the term to get the benefit of this plan. Therefore a new type of plan was introduced by insurance companies known as Money Back Plan. A Money Back Policy periodically provides survival benefits; it means that you will be paid back certain percentage of Sum Assured at a fixed interval. The payment frequency varies from policy to policy. These types of policies cover the risk for the specified period. Premium of such policies are much higher as compared to term plan and endowment plan.
Death Benefit
In case the policyholder dies before the policy term, then the sum assured and the accumulated bonuses are paid to the nominee without any deduction or adjustment for the amount that may have been paid earlier by way of survival benefit.
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Survival Benefits
In case the policyholder survives then the following amounts are payable by the insurance company to the policyholder: • After fixed interval – 15‐20% of the Sum Assured (Depends on term of the policy) • At Maturity – Sum Assured + Bonus – Survival Benefits already paid.
Example: An individual aged 30 years buys a Money Back Plan from LIC. The Sum Assured is ` 6 Lakhs for 20 years and the premium is ` 37,678. In case he dies during the term of the policy, then the nominee will get the full amount of Sum Assured and the accumulated bonuses as declared by the company, without any deduction for the amount that may have been paid earlier as a survival benefit. In case he survives the policy term then he will get the following amounts.
At the end of Year 5 10 15 20 Return from LIC 20% of Sum Assured 20% of Sum Assured 20% of Sum Assured 40% of Sum Assured + Bonus
(Source: Bima Mitra, PersonalFN Research)
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Comparison ‐ Term Plan, Endowment Plan, Money Back Plan
Below is the comparison between term plan, endowment plan and money back plan. The age of the individual is assumed as 30 years.
S.No. 1 2 3
Company LIC LIC LIC
Type of Plan Term Plan Endowment Plan Money Back Plan
Sum Assured 6,00,000 6,00,000 6,00,000
Term 20 20 20
Premium ` 1,936 ` 28,773 ` 37,678
Maturity Amt. 0 12,84,000 7,68,000
Return 0% 7.14% 5.62%
(Source: Bima Mitra, PersonalFN Research) Note: In case of Money Back Policy, you will get 1.2 Lakhs (20% of Sum Assured) every 5 years in addition to Maturity Amt.
Analysis
In the above table we have taken 3 different plans of LIC. The Sum Assured of ` 6 Lakhs and the term of 20 years are constant in all the 3 plans. We can clear see the huge difference between premiums of all them. The premium of Term Plan is the lowest while premium of Money Back Plan is the highest. In case of Term Plan there is no maturity value while in other 2 there is some amount of maturity value. On the basis of the premium that is being charged in each plan, the term of the plan and the amount of maturity value at the end of the term, we have calculated the returns on each of the plans. Term Plan provides no return (0%) while Endowment and Money Back are providing 7.14% and 5.62% return respectively over a period of 20 years. If you look at these plans on the basis of return you are getting, then you will feel that Endowment plan is the best, while Term Plan is the worst plan. But analyzing these plans on the basis of only return is not right; you should look at them on the basis of premium that you have to pay for them as well.
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If you do an in‐depth analysis then you will find that Term Plan is charging you premium only for protection purpose and not for investment purpose, while Endowment Plan and Money Back Plan is charging premium for both protection and investment purpose. The return provided by Endowment and Money Back Plan is very low, keeping in mind that you have taken the plan for 20 years. At PersonalFN, Endowment or Money Back Plans are not at all suited for protection purpose, which is the main objective behind taking insurance. Endowment or Money Back Plan should be bought by only those individuals, who want a little bit of protection and 100% guarantee of their investment. If you really want to protect yourself against any unexpected contingency then buy a Pure Term Plan, which will come at a very low cost and if you want to invest something then look for other avenues which can give you better returns. Always remember, insurance is for protection and not for investment.
UNIT LINKED INSURANCE PLAN (ULIP)
The first Unit Linked Insurance Plan (ULIP) was offered by UTI in 1971, in collaboration with the LIC and later in 2001 private insurance companies also started offering ULIPs along with Tax benefits attached to it. Nowadays we have recently seen that there has been a lot of debate in public, driven by the spat between regulators, on ULIPs. But one would have a question popped up in mind as to what exactly ULIPs are?
What are ULIPs?
Unit Linked Insurance Plan popularly known as ULIP is the financial product that combines safety with a wealth creation opportunity. In ULIPs, a part of your investment (premium) goes towards buying the life cover and the rest is invested in a fund that comprises of either equity or debt or a combination of both. The performance of the fund depends entirely on equity or debt markets performance, as chosen by you at the time of taking up the policy.
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ULIPs enable you to secure your family in case of your untimely death and at the same time provide you the opportunity to earn a return on the extra amount of premium paid. Simply, a ULIP tries to fulfill both the insurance need as well as the investment need. Knowing that ULIPs try to fulfill both insurance and investment need is not enough, there are lots of hidden facts associated with ULIPs. These hidden facts had led to the battle between market regulator ‐ Securities and Exchange Board of India (SEBI) and insurance regulator ‐ Insurance Regulatory and Development Authority (IRDA). The battle however, has been resolved and the new guidelines have been issued by IRDA. Now let us look at how ULIPs work according to new guidelines as issued by IRDA.
How do ULIPs work?
When you buy a ULIP, you are entitled to a certain amount of Sum Assured for the premium you pay. This premium is then divided into 2 parts, one goes towards insurance cover and the other part goes towards your investment need in both equities and debt in a certain proportion. Each of these two components has to follow certain guidelines, which are as follows:
• Minimum Sum Assured In case of Life Insurance cover
If age at entry is below 45 years Single Premium Policies ‐ Minimum Sum Assured of 125% of single premium. Regular Premium Policies – Minimum Sum Assured is higher of the two, (10 * Annual Premium) or (0.5 * Term of ULIP * Annual Premium)
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If age at entry is 45 years or above Single Premium Policies – Minimum Sum Assured of 110% of single premium. Regular Premium Policies – Minimum Sum Assured is higher of the two, (7 * Annual Premium) or (0.25 * Term of ULIP * Annual Premium)
Note: In case of death, the death benefit cannot be less than 105% of the total premiums paid.
In case of Health Insurance cover
If age at entry is below 45 years Regular Premium Policies – Minimum Sum Assured is higher of the two, (5 * Annual Premium) or ` 1 Lakh.
If age at entry is 45 years or above Regular Premium Policies – Minimum Sum Assured is higher of the two, (5 * Annual Premium) or ` 75,000.
Note: At any point of time the annual health cover cannot be less than 105% of the total premiums paid.
• Top Up Premiums
In case you have surplus money then you might want to invest in your existing ULIP, such premiums are called as top up premiums. Thus, top up premiums are the premiums which you pay over and above your regular premiums. The entire top up premium paid during the term of the policy is to be treated as if you are paying single premium for buying the policy, so it is compulsory to provide an additional risk cover on all top up premiums.
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• Premium Allocation Charge
The premium allocation charge is the charge that is directly deducted from the premium. This charge was very high (up to 50‐60% in the initial years) in those ULIPs that were issued before Sep 1, 2010, but according to new guidelines issued by IRDA this charge has to be evenly distributed over the term of the policy. It will mean that now a substantial amount of premium will be available for investment. Below table shows the comparison between premium allocation charge in old ULIPs and New ULIPs.
Premium Allocation Charge Before September 1, 2010 After September 1, 2010 50% 4% 40% 4% 30% 4% 20% 4% 10% 4% ‐ 4% ‐ 4% ‐ 1% ‐ 1% ‐ 1%
(Source: PersonalFN Research)
Year 1 2 3 4 5 6 7 8 9 10
• Minimum Premium Paying Term
Premium paying term means that you have to pay premiums for a specified number of years (in case of regular premium plans). The minimum premium paying term was 3 years in the old ULIPs but now it has been increased to a minimum of 5 years.
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• Lock in Period
Lock in period is the period in which you cannot withdraw your money, once you have invested the amount. The lock in period in ULIPs before Sep 1, 2010 was 3 years but now it has been increased to 5 years. It means that IRDA is now promoting investment in ULIPs from a long term prospective.
• Minimum Guarantee
Minimum guarantee means the minimum amount of return that a ULIP has to provide in case of pension products. Earlier there was no guarantee regarding the rate of return from the ULIP but now companies have to provide minimum of 4.5% return over the term of its pension products.
• Surrender Charge
Surrender charge is the charge which is deducted in case you don’t want to continue with the policy before the policy term expires. In old ULIPs, the surrender charge was totally at the discretion of insurance company, but now insurance companies cannot levy any surrender charge after the completion of 5 years.
• Discontinuance Charge
If you have taken a ULIP for 20 years, but after 2 years you start feeling I should not have invested in this and it’s better to stop paying further premiums, then you will not get your fund value at that time because there is a lock in period of 5 years. Your fund value after deducting the discontinuance charge will be transferred to discontinuance fund and you will earn an interest of 3.5% p.a. till you complete the lock in period. The applicable discontinuance charge is given in the table below:
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Year in which Policy is Discontinued 1 2 3 4 5 and onwards Maximum Discontinuance Charge for policy having premium less than ` 25,000 Least of the following: 20% of Annualized Premium 20% of Fund Value ` 3,000 Least of the following: 15% of Annualized Premium 15% of Fund Value 2000 Least of the following: 10% of Annualized Premium 10% of Fund Value 1500 Least of the following: 5% of Annualized Premium 5% of Fund Value 1000 NIL
(Source:IRDA, PersonalFN Research)
Maximum Discontinuance Charge for policy having premium more than ` 25,000 Least of the following: 6% of Annualized Premium 6% of Fund Value ` 6,000 Least of the following: 4% of Annualized Premium 4% of Fund Value 5000 Least of the following: 3% of Annualized Premium 3% of Fund Value 4000 Least of the following: 2% of Annualized Premium 2% of Fund Value 2000 NIL
ULIPs might look as simple and beneficial products from your point of view, but actually ULIPs are much more complex and difficult products to understand and as there is no transparency regarding its investment portfolio. Evaluating a ULIP is not easy, so if you are thinking of buying it then take the advice of an expert who can guide you in the right direction.
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Prior to Sep 1, 2010 the features offered by ULIPs were far different than the present ones discussed above and to feature them we have presented here in a comparison table.
ULIP Comparison ‐ Old Vs. New ULIP Avatar ULIP Features Implications (Before Sept. 01, (After Sept. 01, 2010) 2010) Minimum 5 times of the 10 times of the It will enhance risk cover for Sum Assured annual premium annual premium the policyholder but will also amount amount lead to increase in mortality charges. Agent’s No disclosure of Compulsorily It will help policyholders to get Commission agent’s disclosure of agent’s information about how much commissions commission in of his premium will be benefit illustration of contributed towards payment a policy of agent’s commission. Guaranteed Nil Guaranteed returns Life insurance companies may Returns on unit‐linked find it difficult to manage long‐ pension plans @ term guarantees because 4.5% there are not many long‐term investment options available. Presently, the longest maturity government bond has tenure of 30 years. Moreover, the guaranteed rate is very low as compared to other fixed income instruments like PPF, Bank FDs which will fetch higher returns. Upfront High in initial 3 Evenly distributed IRDA has eliminated high Charges years of the policy over the initial 5 front‐ending of the expenses, and 4th year years (lock‐in period) which were very high. The onwards gradually regulator has also mandated reduces that expenses should be evenly distributed during the lock‐in period (5‐years).
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Surrender Charges *
Overall Charges
Top‐up
No limit. Companies IRDA has set a range can charge as per of surrender charges their discretion from 2.5% to 12.5% for policies of less than 10 year term and 2.5% to 15% for policies of more than 10 year term No limit Companies can charge maximum upto 3% and 2.5% for policy of 10 year term and 15 year term respectively No compulsory life Top‐ups will be cover treated as single premium policies and will attract mandatory additional life cover. This amount (of top‐ up) will be locked in for 3 years Allowed after 3 years Allowed only after 5 years for all non‐ pensioned products
This will help those investors who wish to exit ULIP after the 5‐year lock‐in as they would not suffer any additional surrender charges over and above the expenses mandated by the IRDA. IRDA has taken this move in favor of investors, which will thus result in overall higher returns due to lower charges
Partial Withdrawals
Lock‐in‐ Period
3 years
5 years
This step will have mix impact on the policyholders. On the one side, they can get increased insurance cover without entering into a new policy agreement. But, on the other hand, it will increase overall cost due to higher mortality expenses charged by the insurance companies This step will harm those policyholders who would be in need of liquidity in emergency period, but nonetheless will also promote long‐term saving habits amongst individuals All investments in ULIPs will carry a 5‐year lock‐in period. This will clearly weed out the mis‐selling of ULIPs as short‐ term products to investors and will also promote long‐term saving habits amongst individuals.
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Minimum Premium Paying Term
3 years
5 years
Insurance Cover on Pension Plans Tax Benefits
Not available
Enjoys Exempt‐ Exempt‐Exempt (EEE) Status
With minimum premium paying term increased to 5 years from the present 3 years, will lead to ULIPs being considered only by investors serious about building a long‐ term investment portfolio. Mandatory Insurance/health cover with insurance/health pension plans will attract cover on all pension higher charges (in terms of plans mortality charges) thereby reducing the overall returns. Under consideration Change in status of ULIP from in DTC Exempt–Exempt–Exempt (EEE) to Exempt–Exempt–Tax (EET) at the time of withdrawals will have an impact on the financial plans of people who own ULIPs
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General / Non‐Life Insurance
Insurance other than life insurance falls into the category of general insurance. General Insurance is also known as Non‐ life Insurance. A general insurance policy is not meant to provide any returns but provides protection against almost everything which has some value in your life and needs to be protected against any kind of damages. General insurance products are meant for a period of one year and are renewable every year thereafter. It’s not always that our life is only at risk, due to which our dependents get financially affected but there our various other risks as well which affects us negatively if they take place such as: Risk associated with our health: as our age progresses the chances of us getting prone to diseases increases, Risks against fire and theft to property, risk due to an unexpected accident etc. They might seem as small risk but when they affect you, they can erode financial assets and eat into hard earned savings. These kinds of risks are covered by General insurance policies. There are various types of general insurance policies; some key types are as follows: 1. Health Insurance (Mediclaim) 2. Top Up 3. Personal Accident Policy 4. Critical Illness 5. Travel Insurance Policy
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Mediclaim
A Mediclaim policy is a health insurance policy which covers all medical treatment expenses up to the sum assured in case you are hospitalized due to an illness / accident. Mediclaim policies are issued for a period of one year and are renewed annually. Mediclaim policies have the following benefits:
Pre – Hospitalization Expenses
Mediclaim policies generally cover 30 days expenses immediately before you have to be hospitalized.
Post – Hospitalization Expenses
The medical expenses you incur in the 60 days immediately after you are discharged from the hospital.
Tax Benefit
The premium paid for these policies are deductible under section 80 D of income tax act up to a maximum limit of ` 15,000 and ` 20,000 in case the person insured is a senior citizen. In case an individual pays health insurance premium for his or her dependent parents then an additional deduction up to a maximum limit of `15,000 is allowed and in case parents are senior citizen then ` 20,000 is allowed.
Cumulative Bonus / No Claim Bonus
Generally Mediclaim policies provide an additional cover of 5% of Sum Assured in the subsequent renewal of the policy in case there is no claim in the current policy year. This increase in sum assured of 5% every year is restricted to a maximum of 50% of the initial
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Sum Assured. If there is a claim in the policy then this additional cover is decreased by 10% on the next renewal. Mediclaim policies are of two types: 1. Individual Mediclaim Policy Individual policy covers only one single person under one policy. The premium in this type of policy is calculated according to the age of the person to be covered under the policy. Under this policy, if the sum assured is ` 5 Lakhs then the person insured can claim up to the maximum limit of ` 5 Lakhs. 2. Family Floater Mediclaim Policy
Family floater policy covers the entire family i.e. self, spouse and the dependent children under one single policy. The premium under this type of policy is calculated according to the member with the highest age in the family. Under this policy, if the sum assured is ` 5 Lakhs then any one person individually or the entire family jointly can claim up to the maximum limit of ` 5 Lakhs.
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Below is the comparison between features of Mediclaim policies provided by different insurance companies: Renewal Upto Lifetime Pre‐Existing Diseases covered from 5th year No Claim Bonus 5% of SA every year (Upto 30%) 5% Disc. Every year (Upto 25%) ‐ Family Disc. 10%
Company
Entry Age
Cashless
New India
18‐‐60
Yes
United India
1‐‐60
Lifetime
5th year
Yes
5%
Oriental
18‐‐45
Lifetime
5th year
Yes
‐
Bajaj
1‐‐65
80
5th year
‐
Yes
10%
National
18‐‐59
80
5th year
5% of SA every year (Upto 50%)
Yes
‐
(Source: Website of respective insurance companies, PersonalFN Research)
Below is the comparison between premium rates charged by the different insurance companies providing Mediclaim. Mediclaim Age Company New India United Oriental Bajaj National ` ` ` ` ` Sum Assured 3 L 3,993 3,039 3,799 3,647 3,039 ` ` ` ` ` 5 L 5,968 4,545 5,681 5,784 4,544
25
(Source: Website of respective insurance companies, PersonalFN Research)
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Top Up
As most of the Mediclaim policies provide a cover up to ` 5 Lakhs only, people had very little choice in case they wanted to increase their insurance cover above ` 5 Lakhs, hence some insurance companies have come up with top up plans which provide you additional coverage at a low cost. Top up plan covers medical treatment cost over and above the actual Mediclaim policy and thus increase the total sum assured. Top up plan can be taken for an individual as well as for the entire family. However top up plans are available only if the sum assured taken in the Mediclaim policy is between ` 3 to ` 5 Lakhs. For example Mr. X has taken a Mediclaim policy for a sum assured of ` 3 Lakhs and a top up plan for ` 7 Lakhs, so his total sum assured is ` 10 Lakhs. If a claim arises for a sum of ` 8 Lakhs then the first 3 Lakhs has to be borne by the Mediclaim insurance company and next ` 5 Lakhs is to be paid by the company from which top up plan has been taken. Please note: Insurance Company from which the top up plan has been taken will not be responsible for claims arising up to the sum of ` 3 Lakhs. Top up insurance plans are targeted by insurance companies to those customers who already have Mediclaim insurance policies but find their cover to be low and hence these customers want to add additional cover. Now, if you are also thinking that your Mediclaim policy is not sufficient to cover your expenses in case of hospitalization and the present insurer is not ready to increase the cover, then a top up policy from another insurer is the solution for you.
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Note however that top up policies are not provided by all the insurance companies, currently only 3 companies i.e. United India Insurance, Star Health and Bajaj Allianz General Insurance company are providing such policies.
Personal Accident Policy
You must be thinking that buying a life insurance policy and a Mediclaim policy is enough to protect yourself from all the uncertainties in life, but what if you meet with an accident and are not able to go to work? In such case life insurance policy will not help you as it pays the nominee only in case of death of the life insured nor the Mediclaim policy will pay because it pays you in case of hospitalization, then which policy will help you take care of loss of income for not being able to go to work? The answer to this is the Personal Accident Policy. A personal accident policy protects the insured in case of an accident resulting into the death of the insured, permanent disablement of the insured or temporary disablement of the insured. Personal accident policies are relatively very cheap policies in comparison to life insurance policies. These policies are especially pertinent to individuals who travel more than usual, due to their jobs. Following are the features available under personal accident policy.
Death Benefit:
In case of death of the insured the full amount of sum assured is payable to the nominee of the insured.
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Permanent Disablement Benefit:
In case of permanent disablement due to an accident the insured gets an amount depending upon the extent of disability. Generally the amount varies from 50%‐100% of sum assured depending upon disability.
Temporary Total Disablement:
In case of temporary disablement due to an accident, a person might not be able to go to work for a certain period of time; in that case this policy will ensure that you get certain amount of weekly income for the loss of job. Generally this weekly compensation is 1% of sum assured up to a maximum limit of ` 5,000 varying from company to company.
Worldwide Coverage:
Most of the personal accident policies provide coverage for accidents occurring in any part of the world.
No claim Bonus:
Generally personal accident policies provide an additional cover of 5% of Sum Assured in the subsequent renewal of the policy in case there is no claim in the current policy year. This increased sum assured of 5% every year is restricted to a maximum of 50%. If there is a claim in the policy then this additional cover will be decreased to zero on the next renewal.
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Below is the comparison between features of personal accident policies provided by different insurance companies.
Company Entry Age Sum Assured 72 * Monthly Income (Spouse 50% or 1 L & Child 25% or 50 K) ‐ 120 * Monthly Income (Spouse 50% or 1 L & Child 50 K) 5 L ‐ 1 Cr. Temporary Total Disablement No Claim Bonus 5% of SA every year (Upto 50%) 5% of SA every year (Upto 50%) 5% of SA every year (Upto 50%) Family Disc.
New India
5‐‐70
1% of SA or ` 3000 every week (Upto 100 week)
10%
United India
12‐‐70
1% of SA or ` 3000 every week (Upto 100 week) 1% of SA or ` 5000 every week (Upto 104 week) ` - 1000 / 5 L of SA (Max. 10000)
10%
Oriental
5‐‐70
10%
TATA
18‐‐65
Bajaj
18‐‐65
10L,15L,20L,25L
National
NA
5 L ‐ 15 L
5% of SA every year (Upto 25%) 5% of SA ` - 5000, 5000, 7500, 10000 every year (Upto 100 weeks) (Upto 50%) 5% of SA 1% of SA or ` 5000 every week every year (Upto 104 week) (Upto 50%)
NA
NA
5%
(Source: Website of respective insurance companies, PersonalFN Research)
Below is the comparison between premiums of personal accident policies provided by different insurance companies.
Personal Accident Company New India TATA National Bajaj Sum Assured 10 L ` 1,655 ` 1,807 ` 1,655 `1,655 15 L ` 2,482 ` 2,710 ` 2,482 ` 2,482
(Source: Website of respective insurance companies, PersonalFN Research)
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Critical Illness
Most people may not be aware of what a critical illness policy is and its benefits. Generally people tend to mix up a critical illness policy with a Mediclaim policy, but the benefits available in both the policies are entirely different. Now‐a‐days, medical treatment costs are soaring high and a simple Mediclaim policy is not enough to cover expenses relating to major diseases. This is where a Critical Illness policy comes into play. While your Mediclaim policy will reimburse your hospitalization bill, the critical illness policy pays out a lump sum amount (sum assured) if you are diagnosed with a major disease that is covered under the policy. Most people think that a major disease will not happen to them, but remember, your neighbor is thinking the same thing. The fact is that critical illnesses such as heart attacks and others can happen to anyone. Critical illness policy certainly won’t decrease the chances of you becoming critically ill, but will surely ensure that you have sufficient amount of money for the treatment of the critical disease. Following are the benefits available in the critical illness policy.
Lump Sum Amount:
Critical illness policy will give you a lump sum amount (full amount of Sum Assured) irrespective of the expenses on the treatment, in case a major disease is diagnosed.
Coverage:
Generally a critical illness policy covers 10 major diseases, but it varies from company to company. The 10 major diseases are as follows: 1. Cancer
2. Coronary Artery Bypass Surgery www.PersonalFN.com 38
3. First Heart attack (Myocardial Infarction) 4. Kidney Failure 5. Major organ transplant 6. Multiple Sclerosis 7. Stroke 8. Aorta Graft Surgery 9. Paralysis 10. Primary Pulmonary Arterial Hypertension
Tax Benefit:
The premium paid for a critical illness policy is exempt under section 80 D.
Survival Period:
Under this policy the insured person should survive at least 30 days after the diagnosis of the disease to be eligible for claiming the amount. Below is the comparison between features of critical illness policies provided by different insurance companies.
Company ICICI TATA Bajaj HDFC ERGO National Entry Age 20‐‐45 18‐‐60 6‐‐59 18‐‐45 20‐‐65 No. of Diseases 9 11 10 8 6 Survival Period 0 Days NA 30 Days 30 Days 30 Days Sum Assured 3 L, 6 L, 12 L 2.5 L ‐ 15 L 1 L ‐ 50 L 2.5 L ‐ 10 L 5L, 10L, 15L, 20L Renewal Age 50 65 60 45 65
(Source: Website of respective insurance companies, PersonalFN Research)
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Below is the comparison between premiums of critical illness policies provided by different insurance companies.
Critical Illness Age Company TATA 30 Bajaj HDFC
Sum Assured 10 L ` 6021 ` 3309 ` 2758 15 L ` 8729 ` 4963 ‐
(Source: Website of respective insurance companies, PersonalFN Research)
It is advisable that every person above a certain age (say 3 to 35 years old) (especially those with a family history of certain diseases) opt for a critical illness policy. The maximum cover allowed under a critical illness policy is ` 50 lakhs.
Travel Insurance
We all want to take a break from work, and travel to our hometown, go for a nice vacation somewhere… and just have a ball of a time. For some of us for the profession which we are in, requires us to travel for business purpose. We can decide to go to any part of the world in split second either for a leisure trip or for business purpose. But have you thought of the risks involved in case of an unforeseen event taking place (on your trip), which is completely out of your control? We generally wish “happy journey”, but forget about making it a “safe and peaceful” journey. Yes, it is very important to minimize the risks that you are directly exposed to while you are traveling in order to make your trip safe and peaceful.
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Most travellers forget to buy a “travel insurance” policy in order to make their journey safe and peaceful, be it a domestic or an international trip. While some buy one (travel insurance), they often ignore to recognize the ideal insurance cover required by them. And that’s because of ignorance or lack of knowledge for risk evaluation, pre‐occupied with work, or
sheer excitement and enthusiasm when it comes to a leisure trip. It is important to assess the travel insurance cover, keeping in mind a host of factors such as income, expenses, contingency reserves, other existing insurance policies, nature of visit, duration of the visit and destination. Your travel insurance can be purchased for a travel as brief as 5 days. There is no need to buy it ahead of your actual commencement of travel. It is relatively cheap and the terms and conditions of travel insurance policies are flexible. You can purchase the same, if you are travelling away from home for a maximum term of 1 year. Features of travel insurance policies that you can buy are:
• Personal Accident • Passport Loss • Dental treatment • Hijack distress allowance • Checked‐in baggage loss • Compensation of medical expenses due to accident or sickness • Compensation for reasonable expenses incurred for purchase of personal requirements due to delay in arrival of checked in baggage while overseas • Compensation for expenses incurred in obtaining a duplicate or new passport
• Compensation for damages to be paid to the third party resulting from death, bodily
injury or damage to property, caused involuntarily by the insured.
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However, the following claims are excluded from travel insurance: • Claims arising due to terrorism and war (some policies cover the risk) • Injury or pre‐existing medical conditions • Travelling against advice of physician • Extreme sporting activities for example, bungee jumping, scuba, mountaineering etc.
Remember to make your journey “safe and peaceful”, along with “happy and joyful”; because when you travel you want safety and peace of mind too! www.PersonalFN.com 42
IV – How to Select the Right Insurer?
By now you must be aware of the various types of insurance products available to suit your insurance needs. And now going a step forward, it becomes crucial to assess from which insurer one should buy an insurance plan. Mind you it’s quite a difficult decision to make. But assessing the factors mentioned below will enable you to insure yourself with the right insurer.
• Promoter’s background:
While some may find it unnecessary to do a check on this, but in our opinion knowing the history / background of your insurer, is utmost important, before you buy insurance. Remember, the insurer indemnifies you against the risk, which you face, and hence assessing the promoter’s background and their philosophy becomes very crucial. While planning your insurance, one wants to buy peace of mind, and not face the bother whether the insurance company would settle the claims or not. Hence, understanding the value systems through the insurance company’s mission statement is important.
• Number of years of existence:
Well, it is always said that experience counts and in our opinion too it does! It is imperative to go with season players (insurers) rather than the one who are relatively new entrants in the business of insurance. While evaluating new entrants, it becomes vital to analyse the streams of other businesses operated by the promoters and their success rates along with ethics while operating such businesses.
• Financial Background:
Also just having a fantastic value system and good number of years of existence, but not having the financial strength to back it, would also not do good when it comes to settling
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claims. What is required is robust financial muscle, which will lead to better claim satisfaction. You don’t require a toothless tiger.
A well‐established insurance company with a proven track record is in a better position to give you that extra bit of peace of mind. But then you would ask what parameters should one check in order to gauge the financial strength? Well you may take help of some of the parameters mentioned below:
Claim Settlement Ratio (CSR): It is very vital to check the CSR, if you are looking for peace of mind while buying insurance, rather simply buying insurance from any insurer. This ratio will help you assess the percentage of claims settled, against the total claims lodged with the insurer. While doing this study, it also becomes imperative to know the claim settlement procedure, from your insurer or the insurance agents, and assess whether you are comfortable with same. And it is important to note that your honesty also pays – one should not disclose any mendacious information while filling in the form. One may escape the underwriter’s eye at the initial stage of getting the policy, but this would back fire on you while settling your claims, as the underwriter might put down his foot on some issues which do not satisfy the underwriting provision of the insurer. So, a low CSR may not always reveal the financial weakness of the insurer.
Solvency Ratio: This ratio reveals the strength in the balance sheet of the insurance company. The solvency ratio reveals the capability of settling claims, taking into account the net worth of the insurer, as it also takes into account the reserves and surplus held by the insurer.
Profitability ratio: This ratio reveals whether the insurance company generates enough income for its stakeholders after meeting all the expenses (both operating as well as non‐ operating expenses). While profitability, may not appear as important as the claim settlement and solvency ratio, but needs to be gauged to ensure the efficiency and effectiveness with which the insurance company is run.
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Remember, only when the business is profitable, the promoters find prudence in continuing with the same.
• Reading the devil in the fine print:
Merely trusting, what your insurance agent says and signing (an insurance form) like a Bollywood or Hollywood star will not do much good to you in the long run. It is imperative that you read all the relevant insurance documents, rather than dumping them in some corner of your house or office.
The devil in the fine can also roar a big “NO” during times of settling claims, as there may be several exclusions which may be a part of the policy which intend buying. www.PersonalFN.com 45
V – How to select the right insurance advisor?
Now that you are aware of the need for insurance planning and check points to keep in mind while buying insurance, let’s move on to decide from whom you should buy insurance. Before buying an insurance policy from any insurance agent disturbing your afternoon sleep (through a phone call), please recognize that an “ideal insurance agent” is equally important as selecting an insurance policy. This is because he can assure you piece of mind (for the services which he offers), along with the risk cover (insurance), which you may have already decided to buy. While one may talk about referral from a friend, it may not always be the right thing to do, as your friend may not know that he has been cheated by his insurance agent. Please recognize that following factors will go a long way in select an ideal insurance agent:
Credentials:
Yes, this is the first and the most vital point one must consider while selecting an “ideal agent”. Your agent’s credentials will be judged on the basis of his • Quality of knowledge • Quality of service Please assess the knowledge of your agent through the prudence which he shows, while advising you the right insurance, through a need based approach as learnt above. Don’t just get lured by some fancy projections made by the agent, which will fill his pockets through
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hefty commission which he earns, as this may make you poorer as you pay high unwanted premiums. Also ascertain his level of product knowledge; and the best way to do that is by doing your homework on the products. Another noteworthy point is, prefer an insurance agent who can give you the right after sale service. Please note the quality of service comes through the years of experience your agent carries. A well‐established agent is always preferred to get the advantage of both ‐ right insurance planning and after sale service.
Multiple insurance companies:
It is noteworthy that an individual agent can take agency in only one particular insurance company, whereas an insurance broker can tie‐up with multiple insurance companies. In your exercise of insurance planning, where you may require schemes from different insurers; select an “insurance broker” since all the various products from different insurers will be available under one roof. This will provide you better co‐ordination in terms of accessing the service of the broker too, as they have executive who handle any client queries. In order to do away with the self‐centric motive of higher commissions, please recognize that you got stick to your financial plan made, which suggest your insurance requirements. Location: This pointer might seem to be miniscule in terms of other pointers but believe us it goes a long way in getting prompt solutions to your important queries. While you may be terribly busy with your daily routine, having an insurance agent in close proximity to where you reside / work may enable you the advantage of easy accessibility in terms of the following:
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• Premium payments • Urgent query handling • Claim processing – During such time you already in trouble; and having an insurance agent in close proximity will save yourself the hassles of running around from pillar to post in the insurers office.
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VI - If you are dissatisfied?
If you are dissatisfied with your insurance policy, then don’t get disheartened. There is always a way out of everything and for your insurance policies as well we have some suggestions, which can surely help you to come out of such policies which create problems for you. The options to you in such cases are:
• Cancellation of policy in Free look in period:
In case you do not agree to the term and conditions of the policy or the benefits mentioned in the policy are not as per your requirement, you can apply for the cancellation of the policy within 15 days from the day you receive your policy documents. Some companies offer extended look in period of upto 30 days.
• Free look in period:
This is a grace period offered to you (policyholder) as per IRDA guidelines. If you do not find policy’s feature and benefits as per your requirement, you have option to cancel it within stipulated time. It prevents you from mis‐selling practices of agents. You will have to fill the cancellation form stating the reason of cancellation of the policy and need to submit this form along with your original policy documents to the company within free look in period. On receipt of your cancellation request and documents, company will proceed to cancel your policy and refund your premium. You will receive your premium net of some charges which company has been spent to issue the policy like stamp duty, medical charges (if you had undergone some medical test), proportionate risk premium charges (the time period for which risk cover has been offered to you). It would be better to read the product brochure
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thoroughly and have clarifications from your insurance planner before signing up for the policy. Make sure that benefits offered by the policy are in alignment with your requirement. All these measures will keep you away from all hassles of cancellation of policy and thus save your time, money and efforts.
• Thinking of surrendering your exist policy? Read this before jumping to any decision.
If you surrender your policy any time during the term, you will have to bear its consequences in terms of hefty charges. These charges depend upon type of plan and company’s rules. In ULIP plans, cap has been fixed by IRDA on the maximum amount which can be deducted as surrender charges but in traditional (endowment / money back) plans there is still no clarity and upper limit on surrender charges. If surrender option is used, in most of the investment plans, you will end up losing your invested amount.
Feeling lost in Insurance world? We have way out for you…. Term plan:
There is no benefit in surrendering term plan as there is no maturity or surrender benefit is offered on these plans. If you feel that the existing term cover is not sufficient for you and you need more life cover as per your financial liabilities, then you should go for a new policy. You can do it with the same insurance company or with another insurance company as well.
Endowment:
Compare the charges involved and benefits receivable on the surrender of the policy.
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Money Back:
Check your financial requirements and benefits offered by the policy. If payments under policy are in alignment with your financial goals then you should continue with your policy. Since it is a traditional plan, it will attract hefty charges on surrender and will erode even your amount invested in the plan.
ULIP:
Case I:
If you surrender your policy before completion of 5years of policy (i.e. lock‐in‐period), your fund value will be transferred to “Discontinued Policy Fund” and will earn a return of 3.5% p.a. You will get this amount only after completion of 5 years of policy enforcement. The amount will be paid to you after deduction of surrender charges as per the specified surrender charges table.
Case II:
If you surrender your policy after completion of 5 years of policy (i.e. lock‐in‐period), fund value will be given to you. As per new IRDA guidelines, there will be no surrender charges applicable after 5 years.
Receipt of Benefit • On Maturity
When the policy has completed its term you will get maturity benefits of the plan held by you.
Term Plan:
No maturity benefits are paid
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Endowment Plan:
Sum assured plus bonuses
Money Back:
Payments at regular interval and at the maturity last installment plus bonuses, if applicable
ULIP:
Only fund value
•
On Death
If the policyholder dies during the term of the policy, then his nominee (family) will get claim amount on death.
Term Plan:
Sum assured is paid to the nominee (family) and the policy will terminate.
Endowment Plan:
Sum assured plus accumulated bonuses till date and the policy will terminate
Money Back:
Sum assured plus bonuses without deducting earlier made payments during the term of the policy
ULIP:
Either fund value or sum assured whichever is higher Or In some plans both fund value plus sum assured
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GRIEVANCE REDRESSAL PROCEDURE
If you have some complaints against insurers either in respect of your policy or claims, then you can get it resolved by following the set procedure. Policyholders who have complaints against insurers are required to first approach the Grievance/Customer Complaints Cell of the concerned insurer. If you do not receive a response from insurer(s) within a reasonable period of time or are dissatisfied with the response of the company, you may approach the Grievance Cell of the IRDA. The complaints need to be sent to the Grievance Cell of the IRDA. The Insurance Regulatory and Development Authority (IRDA) are responsible for addressing complaints filed by policyholders. Complaints against Life and Non‐life insurers are handled separately. Please note that the Grievances Cell(s) responsible for life insurance and non‐life insurance are separate. Only cases of delay/non‐response regarding matters relating to policies and claims are taken up by the Cell with the insurers for speedy disposal. If the grievance is not redressed, insured are advised to approach the Insurance Ombudsmen. Only complaints from the policy holders themselves or the claimants shall be entertained. The Cell shall not entertain complaints written on behalf of policyholders by advocates or agents or any third parties. If the communication is done over e‐mail, then the plaintiffs are requested to submit complete details of the complaint as required in the registration form. Without this, the Cell will not be in a position to register the grievance. In case the claimant is not satisfied with decision of Ombudsmen, appeal can be filed at the appropriate judicial forum like civil courts and consumer courts.
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You can also utilize the facility of tracking your complaints and action on the complaints made by you. For any details you can log on to: www.irdaindia.org Or Send mail to [email protected] Or Dial 155255 (toll free) Contact Information Complaints against Non‐life Insurance Companies: Insurance Regulatory and Development Authority Parishrama Bhawanam, 5‐9‐58/B, Basheerbagh, Hyderabad – 500004. (040) 23240034 e‐mail id: [email protected] Complaints against Life Insurance Companies: Insurance Regulatory and Development Authority Parishrama Bhawanam, 5‐9‐58/B, Basheerbagh, Hyderabad – 500004. (040) 66820964/66789768 Extension –251 e‐mail id: [email protected]
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VII - Regulating the Regulator: SEBI guides IRDA
The Indian Banking and Financial Services industry has been fairly better regulated, than the developed economies, which displays more of “financial exuberance” rather than stringent regulations in the interest of investors. Yes, one may say we (India) have “complex” regulations (as imposed through the statutes), but when observed from view of stability and safety, they are fairly robust. Take the case of the tussle between capital market regulator – SEBI (Securities Exchange and Board of India), and insurance regulator –IRDA (Insurance Regulatory and Development Authority), on the issue of governing ULIPs; it in our opinion resulted a financially healthier and safer option for investors, due to the refurbishing given to ULIPs. The tussle prompted IRDA to take proactive steps in the interest of policyholders/investors, unlike its earlier stance of merely being an insurance development body lobbying for the insurance industry. It is post the tussle that they have realized the need to play a regulatory role too. Thus now policyholders/investors can breathe a sigh of relief and buy peace of mind while buying insurance. Moreover, many private insurers are also exuding confidence and thus investing in the insurance industry in India taking into account the fact, that the savings rate in India is the highest (approximately 30%), as compared to other economies.
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Earlier (in the year 2000), since the IRDA’s inception in 2000 there was only 1 public sector life insurer and 4 public sector general insurers. But now as the FDI limit is at 49%, more private insurance companies (at present there are 22 private life insurers and 17 private general insurers) are entering India, and listing their companies on the stock exchange(s) in India. Today, the insurance industry has become quite robust and well regulated (as it follows the provisions of the Insurance Act, 1938) protecting the interest of policyholders/investors. But still there’s a lot to be done to be effectively transparent in financial disclosures to policyholders/investors; and these in our view are: • Standard format of reporting monthly portfolio disclosure for ULIPs • Better disclosure of following important ratios in the public domain for decision making: Claim Settlement Ratios Solvency Ratios Lucid disclosure of other financial statements such as profit & loss and Balance Sheet Making the fonts of important terms and conditions legible
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VIII – Insurance Screener
Most Popular Policies
While preparing various financial plans, we have come across so many different insurance policies held by the clients. Among those policies it has been seen that some of the policies have been very common which most of the clients are generally holding. Some of those policies which is common to all and has been very popular has been identified and discussed below.
1. LIC ‐ The Endowment Assurance Policy with Profit
Introduction
This is a fixed term policy. The premium has to be paid till the end of the term or till the death of the policy holder whichever is earlier. In case the policy holder dies before the end of the policy term, the sum assured plus the accumulated bonus is paid to the nominee. If the policy holder survives till the end of the term, he gets sum assured plus bonus.
Benefits
• • Death Benefits: Maturity Benefits:
Sum Assured + Bonus
Sum Assured + Accumulated Bonus.
• Mode Mode Benefit:
The following table shows the rebate available on the mode of premium payment.
Rebate
Yearly Half‐Yearly Quarterly
3% of tabular premium 1.5% of tabular premium Nil
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• Sum Assured Benefit:
The following table shows the rebate available on the sum assured.
Sum Assured Rebate
Up to ` 50, 000 Nil ` 50, 001 to ` 1, 00,000 ` 1 per Thousand ` 1, 00,001 and Above ` 2 per Thousand
Features
• • • • • • • • • •
Minimum Sum Assured ‐ ` 50,000/‐ No Maximum Limit Minimum age at entry ‐ 12 years Maximum age at entry ‐ 65 years Maximum age at maturity ‐75 years Minimum Term ‐ 5 years Maximum Term ‐ 55 years Policy Loan available Age Proof Compulsory
No medical examination is required if the conditions applicable under Non‐Medical Schemes are satisfied.
2. LIC ‐ Money Back Policy
Introduction
This is a fixed term policy. The premium has to be paid till the end of the term or till the death of the policy holder whichever is earlier. A part of sum assured is paid to the policy holder once in 5 years. This benefit is called survival benefit. It is very important to note that
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the life risk cover continues for full sum assured even after payment of survival benefits to the policy holder. Also, the bonus is given on full sum assured. On the death of the policy holder before the term of the policy, the full sum assured along with accumulated bonus is paid to the nominee. On the other hand, if the policy holder survives till the end of the term, the amount of survival benefits already paid to him will be deducted from maturity value.
Benefits
• Survival Benefits:
The following table explains the returns of survival of the policy holder till the ends of the term.
Period S.B Amount
5 years 20% of Sum Assured 10 years 20% of Sum Assured 15 years 20% of Sum Assured 20 years 40% of Sum Assured + Bonus
• Death Benefit:
Sum Assured + Bonus, without any deduction or adjustment for the amount that may have been paid earlier by way of survival benefit
• Mode Benefit:
The following table shows the rebate available on the mode of premium payment.
Mode Yearly Rebate
Half‐Yearly Quarterly
•
3% of tabular premium 1.5% of tabular premium Nil
Sum Assured Benefit:
The following table shows the rebate available on the sum assured.
Sum Assured Rebate
Up to ` 50, 000 Nil ` 50, 001 to ` 1, 00,000 ` 1 per Thousand ` 1, 00,001 and Above ` 2 per Thousand
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Features
• • • • • • • • • • •
A money back policy with 20 years fixed term Minimum Sum Assured ‐ ` 50,000/‐ No Maximum Limit Minimum age at entry ‐ 13 years Maximum age at entry ‐ 50 years Maximum age at maturity ‐70 years Modes Allowed ‐ All No medical examination is required if the conditions applicable under Non‐Medical Schemes are satisfied. Housing Loan available Age Proof Compulsory Life assured should be major at the time when first survival benefit will become due, in case he is a minor at the time taking insurance.
3. LIC ‐ Amulya Jeevan‐I
Introduction
You realize that life is full of uncertainties. You want to be financially prepared to ensure that life continues smoothly for your family in the event that something unfortunate befalls you. Term assurance is the answer; an ideal plan for providing insurance protection at a low cost. You can choose from 2 options under this category: Single premium Term Insurance, which involves a onetime payment of premium and Regular Premium Level Term Assurance in which premiums are paid throughout the term of the policy for 5 to 35 years. The main focus of this plan is on protection to your family in the event of your death at a very low cost. www.PersonalFN.com 60
Benefits
On Maturity ‐ Nil. On Death ‐ Sum Assured is paid to your beneficiary.
Features
• Minimum Age at Entry • Maximum Age at Entry
‐ 18 yrs. (Completed)
‐ 60 yrs. (nearer Birth Day)
• Maximum Maturity Age ‐ 70 yrs. • Minimum Sum Assured • Maximum Sum Assured • Modes Allowed • No Loan available • Policy will not acquire any paid up value • No surrender value will be available under this plan
‐ 25,00,000 ‐ No Upper Limit (In Multiple of ` 1,00,000) ‐ Yearly, Half yearly and Single Premium
4. LIC ‐ Jeevan Shree
Introduction
This policy is basically an Endowment Assurance Plan, where you have the choice of policy terms with premium limited to a shorter term.
Benefits Provided the policy is in full force:
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• Maturity Benefits: Basic Sum Assured + Guaranteed Addition @ Rs 75/‐ per thousand p.a + Loyalty
• Death Benefits: Basic Sum Assured + Guaranteed Addition @ Rs 75/‐ per thousand p.a + Loyalty
• Loyalty Addition: The Loyalty Addition* is likely to be at the following rates:
Completed Policy Duration Percentage On Death or Maturity of basic Sum 5‐9 Years 5% 10‐14 Years 12.5 % 15‐19 Years 25 % 20‐24 Years 40 % 25 Years 75 % The actual loyalty addition would depend upon the Corporation’s working experience. • Mode Benefit: The following table shows the rebate available on the mode of premium payment. Mode Rebate Yearly 3% of tabular premium Half‐Yearly 1.5% of tabular premium Quarterly Nil • Sum Assured Benefit: The following table shows the rebate available on the sum assured.
Sum Assured Rebate 5, 00,000‐19, 99,999 ` 3 per Thousand 20, 00,000‐49, 99,999 ` 4 per Thousand 50, 00,000 and Above ` 5 per Thousand * Sum Assured rebate will also be allowed under single premium
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Features • • Term 5 10 15 20 25 • • • • • • • • • • • • •
Option to receive maturity benefits in Tax Free Installments Wide options to select premium paying terms as follows: Premium Paying Term 1, 2 or 3 1,2,3,4 or 6 1, 2, 3,4,6,8 or 10 1, 2,3,4,6,8,10 or 12 1,2,3,4,6,8,10,12 or 16
Single premium can also be paid for terms ranging from 5 to 25 Minimum sum assured ` 5, 00,000.00 & in multiples of ` 1, 00,000.0 No maximum limit (Depends upon Income) Minimum age at entry ‐ 18 years (completed) Maximum age at entry ‐ 60 years Maximum maturity age ‐ 70 years Modes allowed ‐ Yearly, Half Yearly, Quarterly Medical Exam Compulsory Standard age proof Compulsory not allowed to Housewife Allowed to students (Conditional) Accident Benefit not allowed Policy Loan available after 1 year depending upon term
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5. LIC ‐ Komal Jeevan
Introduction
This is a Children’s Money Back Assurance Plan, with payment of premium ceasing on policy anniversary immediately after the child attains 18 years of age. The plan, besides offering risk cover, also offers payment of Sum Assured in installments at age 18, 20, 22, 24 and Guaranteed and Loyalty additions at age 26. This Policy can be proposed by generally father but if mother has income of her own, she can propose. If both parents are not alive, then legal guardian can propose under this plan. Risk under this policy will commence two years from the date of commencement of the policy or from the policy anniversary immediately following the completion of 7 years whichever is later. Benefits • Installment benefit: At Age (Completed) Benefits 18 20% of Sum Assured 20 20% of Sum Assured 22 30% of Sum Assured 24 30% of Sum Assured 26 Guaranteed Addition plus Loyalty Addition • Death benefits: Before commencement of Risk: Premium Paid ‐ Term Rider Premium ‐ Premium waiver Premium After commencement of Risk: Sum Assured + Guaranteed Addition + Loyalty Addition, irrespective of the installments received earlier • Guaranteed Addition: ` 75/‐ per annum per thousand Sum Assured will be added at the end of each policy year • Loyalty Addition In maturity cases, the policy will be eligible for loyalty additions based on the term and Sum Assured. Loyalty additions will also be payable in death after the commencement of risk based on the rates declared from time to time, depending on the experience of the Corporation.
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• Term Rider Benefit (Optional): The proposer will also be given optional insurance cover to the extent of 20% of the basic sum assured (not exceeding ` 1, 00,000/‐) for which he has to pay additional premium under the policy. This benefit will be payable in case the proposer dies before the policy anniversary on which the child completes 18 years of age. • Premium Waiver Benefit (Optional): In case of unfortunate death of the proposer future premiums are waived. The premium waiver benefit can be availed of by the proposer under this plan for which additional premiums will be payable. • Mode Benefit: The following table shows the rebate available on the mode of premium payment. Mode Rebate Yearly 2% of tabular premium Half‐Yearly 1% of tabular premium Quarterly Nil • Sum Assured Benefit: The following table shows the rebate available on the sum assured. Sum Assured Rebate 2, 00,000 and above ` 1 per Thousand Features • A Children’s money back policy with attractive benefits‐ guaranteed and loyalty addition • Minimum Sum Assured ‐ ` 1, 00,000/‐ • Maximum Sum Assured ‐ ` 25 Lakhs • No Minimum age Limit • Maximum age at entry‐ 10 years • Modes Allowed ‐ All
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6. LIC ‐ Jeevan Saathi
Introduction This is joint life policy. Under this policy family gets a lump sum immediately if one of the partners dies, to help the surviving partner maintain a certain level of economic stability. Once again, the basic sum assured is paid to the surviving partner on maturity or in the event of his/her death earlier, to the nominee. Eligibility Policies under this plan will be on the lives of husband and wife, provided both partners are earning members as specified by the corporation for the purpose of underwriting. However, in case of housewives Jeevan Saathi can be purchased jointly with their earning husbands, up to a limited amount.
Benefits • Maturity Benefits: Basic Sum Assured + Bonus • Death Benefits: 1. The sum assured is immediately payable to the surviving partner. 2. The surviving partner will continue to earn bonuses declared on the basis of yearly valuations. 3. The basic sum assured with bonuses is payable to the surviving partner on the date of maturity or to the nominee in the event of death of surviving partner before the date of maturity. 4. If both partners survive the selected term, the basic sum assured with bonus is paid on the date of maturity
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• Mode Benefit: The following table shows the rebate available on the mode of premium payment. Mode Rebate Yearly 3% of tabular premium Half ‐ Yearly 1.5% of tabular premium Quarterly Nil • Sum Assured Benefit: The following table shows the rebate available on the sum assured.
Sum Assured Up to ` 50, 000 ` 50, 001 to ` 1, 00,000 ` 1, 00,001 and Above
Rebate Nil ` 1 per Thousand ` 2 per Thousand
Features • Ideal insurance for earning couple • Both insured in single plan • Insurance of surviving partner continued
• • • • • •
Instead of taking two Endowment Policies on the lives of husband and wife, one Jeevan Saathi can be taken. The premium payable is much lesser. The sum assured is immediately payable in the event of the death of the one of the partners. Premium waived for surviving partner Minimum sum assured `50,000/No maximum limit. Minimum age at entry ‐ 20 years Maximum age at entry ‐ 50 years
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• • • • • • Both partners should be earning members. However in case of house wives Jeevan Saathi can be purchased jointly with their earning husbands, up to a limited amount for the calculation of premium etc., joint age is considered. Policy Loan available Non‐Medical Special scheme will be entertained with restrictions Standard age proof Compulsory Modes allowed ‐ Yearly, Half Yearly, Quarterly, Monthly Maximum Term ‐ 30 years Minimum Term ‐ 15 years Maximum maturity age ‐ 70 years
• • •
7. Birla Sun Life Dream Plan
Birla Sun Life Dream Plan is a Unit Linked insurance plan that provides death cover as well as the maturity benefit. Following are the features in this plan: • Minimum Term: 5 years • Maximum Term: 25 years • Maximum Age at Entry: 50 years • Maximum Age at Maturity: 75 years • Death Benefit: Enhanced Sum Assured + Fund Value • Maturity Value: Fund Value • Minimum Guaranteed Return: 3% p.a. on the premium paid less other charges. • Partial Withdrawal: Allowed after 3 years • Surrender Value: Allowed after 3 years • Investment option: Equity & Debt
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Investment Structure of BSLI Dream Plan Investment Option Protector Builder Enhancer Asset Allocation Equity 0‐10% 10‐20% 20‐35% Debt 90‐100% 80‐90% 65‐80% Risk Profile Low Low Medium FMC (p.a.) 1% 1% 1.25%
(Source: Website of respective insurance company, PersonalFN Research)
Conclusion The above mentioned policies might have been the most popular policies but according to PersonalFN view all of these are not the best policies to have, because most of them are Money Back or Endowment policies. Such policies provide a very low yield and do not fully cover the protection need of an individual. According to PersoanlFN the term insurance policies fulfilling the protection need of an individual at a very low cost are the best policies to opt for.
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Contact us
Head Office
Mumbai (including Suburbs and Navi Mumbai)
503, Dalamal House , Nariman Point, Mumbai ‐ 400 021. Tel: +91‐22‐6136 1221 – 1222 Email: [email protected]
Pune
Tel: +91 922 325 4864
Chennai (including Bangalore)
No. 10, I Floor, Mookambika Complex, 4, Lady Desika Road, Mylopore Chennai‐600 004 Tel: +91‐44‐6526 2621 ‐ 2622 Email: [email protected]
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