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Some easy steps to follow while buying a Life Insurance policy in India

Posted on by Jagoinvestor

Have you already bought Life Insurance ? Though you might have done the sin of being underinsured, I would say its fine, because today we are going to look at detailed steps of buying Life Insurance and we will also learn a lot of things.

Almost everyone has his own set of doubts regarding Life Insurance contracts, but in this article we will not just look at detailed procedure of buying Life Insurance, but also see why most of the people have the doubts which they have. This is probably going to be the last article on Life Insurance you would need.

So here we go. Today for the savvy life insurance buyer, it is possible to buy the policy on the web – it saves money for sure.

Choose company that suits you

The first step in buying Term insurance is to shortlist the company from where you wish to buy the product. There are many companies in India selling life insurance and almost all of them have a Term cover available. Let us call them companies A to M.

If you do not TRUST say five of those companies – or you do not believe that you wish to deal with them, you need not even look at them. Why you dont like Term Insurance and why you are wrong !

Inquire about insurance cost

Now let us say you like to deal only with A, D, F, G and H. Visit these companies’ websites and find out how much a term insurance for you costs. If you are 35 – look for a policy that will protect YOUR INCOME till the age of say 55 years (choosing age 65 will increase the premium) if your retirement age is 55.

However, if you think you will be earning till the age of 65 years, choose a 30-year plan.

Formalities to fulfill

If you are savvy and patient enough, you could fill up the form online – and a person will get in touch for the formalities. Or you could call up and ask for an agent. On an average the agent will not be very well qualified – but most of them will try to dissuade you from buying a term insurance.

Just say, ‘give me a term insurance form’. There will be other documentation like income proof (3 years IT return), one photograph, pan card etc.

#Filling the form

Next is the process of filling the form. This is one crucial thing that people are normally too lazy to do – so they delegate it to the agent. The life insurance form, the medical insurance form and the embarkation form when you are landing in the US or Israel should always be filled by you personally!

You know about yourself – not the agent whom you have just met. Many of them are worried that you will not be eligible to be insured. So in order to protect their commission (and to please you) will take short cuts, be careful.

#Fill details accurately

Every word, every column in the life insurance form is crucial – that is the reason why they are there in the form. All details should be accurately filled. Make sure that the name in your passport, pan card and the life insurance form are EXACTLY the same.

To the authorities K Balakrishnan is not the same as Balakrishnan Kumar. It may sound trivial, but let me assure you your nominee will not find it amusing.

Besides, check your height, weight (I have seen some agents argue with the doctor to show a few kilograms less and some doctors oblige!), number of cigarettes you smoke, the amount of alcohol you drink, parents illnesses before they were 65, and also your own medical history.

Watch this video to know the steps to buy LIC term insurance plan online:

Faith binds customer, insurer

Let us start from the very beginning. The Life insurance form that you are filling in is called a ‘Proposal form’ – which means you are proposing that you want a life insurance cover. Life insurance business is based on utmost good faith.

The Latin word for utmost good faith is Uberrimae Fidei – which means you (the applicant) is under a basic duty to disclose all material facts and surrounding circumstances that could influence the decision of the other party (the insurance company) to enter the agreement.

Non-disclosure or a partial-disclosure makes such agreements voidable – the insurance company can choose to ignore it, but they have a right to cancel the contract.

As per the contract, you are proposing and giving all your details that are asked for in the form. This includes your age, height, weight, your smoking and alcohol consumption habits.

#Be Truthful

You should be truthful because of two reasons – one it is necessary to be truthful. The second perhaps the more important reason is when you are not truthful and you were to die, your nominee will not get any money. If a person has taken a policy just say 8 months before the claim happens, there is almost a 100 per cent chance that the claim will be investigated.

Here the company literally looks at the application with a fine comb and anything that has not been correctly stated will be used against the claimant.

If for example: A person dies in a road accident – and what has been hidden was say blood pressure – Insurance companies have said ‘his blood pressure may have caused him some inconvenience while crossing the road…’

Think about your nominee

One very important thing which most life insurance buyers forget is that by lying on the proposal form they are telling a lie to their nominee, not to the life insurance company! If on death the claim amount is not paid (IMMEDIATELY), it is almost like the policy did not exist.

Cross-check copy of application form

Apart from the critical questions, there are some other questions like caste, spouse’s name, spouse’s occupation and children’s names, especially if the nominee is more than one person.

When the company issues a policy, they are bound to send you a copy of the application form – please check whether it is the same form which you had filled. A while ago I heard of a case where the agent had changed the form – and removed the illness clauses before submitting the application to the company.

As the case involved an employee of the company – the critical illness claim was paid without a murmur. What helped was the fact that the client had kept a copy of the application!

Take your time

Please remember even if you are paying a small premium (term premiums are not large), the sum assured is normally a critical amount and your dependents are waiting for that cheque to carry on their lives. It is quite all right for a person to spend some more time while taking a policy but any delay at the time of claim settlement is bound to unnerve the dependents.

Everything that you say in the form – your job, income, past illnesses are all critical to the whole process of underwriting of your policy. The life insurance company also collects data – if it finds that a certain occupation is prone to a particular type of illness, they may ask you to go through some more tests before they issue a policy.

Understand the contract

There is a big difference between a mutual fund ‘investment’ and a ‘life-insurance’ contract. In case of a mutual fund, the asset management company is making an ‘Offer’ to you. This means if you issue a valid cheque, units will be allotted to you. They are making the offer, and you are accepting.

In case of an insurance contract, you are ‘Proposing’ saying that you want life insurance. If your cheque goes through, then the life insurance company calls you for a financial and a medical underwriting process.

If they are satisfied that your life is a normal life, they will issue you a policy. Once a policy is issued by the company it means you have a contract that is binding. On you the liability is to pay the premium regularly, and on them is a duty that in case of death, they should pay the sum assured amount to the nominee.

This is critical and a very important contract which you should understand reasonably well.

Conclusion

Life Insurance is an important decision in life and each step in this whole process is critical to make the whole decision successful and free of any hassles later. Lets look at the whole steps once again through the diagram.

process of buying life insurance

(This article appeared on moneymantra.co.in and has been republished on this blog with their permission. The article is written by PV Subramanyam who also blogs at www.subramoney.com)

Top 3 wishlist’s of ordinary investor today

Posted on by Jagoinvestor

Are investors in India spoiled a lot? Does it look like we have enough regulations for the investor to make sure his money is safe or do you think that laws still need to be made to make investing a happy experience?

The stock market looks robust and we haven’t seen a major scam for quite sometime now; IRDA and SEBI have and are still sorting out the ULIP mess; SEBI has made Mutual Funds cheap – is there more the investor wants?

Sure they do – there is always room for improvement at the top! To assist the regulators, the investor needs to increase his awareness too. Here are my top 3 wish lists for the small investor in the personal finance space which will make investing a memorable experience for him.

3 wishlist of an ordinary investor in India

#1 Introduce Stringent Real Estate Regulations

A home is often the most prized possession for the small investor today. But often he finds himself at the receiving end of the deal. The modus operandi is the agent or builder will sweet talk you into booking an apartment after you have shown interest in the project.

Once you shell out the booking amount, you are locked in with the builder and the project you bought into. Future demands of money come in; you pay up through a home loan and the builder delays the apartment delivery, in many instances routing your money to launch other projects. A home is the biggest asset the small investor buys in his lifetime( Also see Tips to Buy house).

Paying the home loan is a huge burden to begin with.

Given this, it is but anybody’s guess what a nightmare he goes through when the real estate builders delay the projects by years – the investor has to pay the rent and pre-EMI together. That is a huge drain on his finances.

The regulators ought to come out with a mechanism to stem this rot. Builders need to be rated and penalized for late or shoddy delivery. There needs to be a mechanism in place to penalize builders who cannot deliver the most prized and costly possession for the investor.

CRISIL has already come out with its Real Estate Star Ratings in August 2010 – we will have to wait to whether this helps the real estate industry in a positive way or it becomes just another rating mechanism without serving any useful purpose for the buyers. Till that happens, the investor has to suffer and fight the battle himself.

#2 Sell Insurance to protect against risks, Don’t just make commissions

The old adage “Insurance is never bought, it is sold” holds true even today. Seldom does one buy insurance for protection purposes; it has been mostly sold as an investment vehicle. And whenever a product is sold, it is commissions that drive the sale, not the investor’s profits.

Call it the insurance agent’s smart tactics or the gullible investor’s ignorance, insurance, and especially ULIPs, continues to be mis-sold. This seems to be the most talked about topic in every personal finance corridor. There are regulations to stem the dirt from spreading and there are investor awareness programs out there; the regulators fight and introduce more regulations but at the end of the day, the investor continues to still suffer.

Given the history around this, I think no amount of regulation can eradicate this illness. The only answer is investor awareness. If the investor empowers himself with what is best for him, he will buy the best insurance and probably look at money back, endowment plans and ULIPs the last!

We need to get to a state where insurance is sold only for what it’s meant to be bought for – protection!

#3 Educate themselves about Equity, Don’t just have a short-term view

It’s a very old saying – “It’s not timing the market that matters, its time in the market that matters most”. Equity is meant for the long-term but most investors buy and sell equity to make profit in the short-term.

The investor’s lure is milked high and dry by brokerage houses that earn on brokerage charges which investors generate for them by buying and selling securities.

All brokerage houses will bombard you with SMSes and calls about a hot stock tip, in fact, we recently had the same brokerage house giving a buy and sell signal on the same stock on the same day, one to institutional investors and the other to retail investors.

More churning and constant buying and selling never made anyone rich except the broker. Look at what the Executive Director and COO of Pramerica Asset Managers was quoted in Money Today as saying.

Wishlist for investors in India

Active and passive trading:

It has been proved that the amount of money that one could generate by active trading is usually less than the amount you could generate by passive investing over a long period of time.

Despite this, most of us still lose money by trading; brokerage houses still walk away with our hard-earned money and we keep thinking “How did the guy next door get rich quickly ?!”

IPO’s are issued using the book building process with the idea that the price discovery will happen by buyers but it’s anything but that. Investors still lose money in IPOs. It’s not just insurance that is mis-sold, its equities too !

As a nation bursting at it seems with a young population, the regulators, investors and product sellers need to make sure that investors can have the confidence in investing in products that suit their over all portfolio – its only then that we can pass on the baton of confident investing to the next generation.

This is a guest post from TheWealthWisher, a personal finance blogger and financial planner.

Learning from Comments [Part 3]

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This is the 3rd series of learning from comments ,where I handpick some of the best comments which gives some very good insight and useful information. Following four comments talk about Gold ETF’s , Education about finances to Children , Real estate prices relation to supply of land and KYC .

Gold ETF’s might not be safe

There are serious allegations on various gold etf’s & custodians like GOLD across the globe of using very high leverage for gold holdings. I was going through the fact sheet of SBI GETS & UTI GOLD FUND. Susprisingly all indian ETF are using Bank of Nova Scotia as the custodian for Gold. If you just try to find out the repute of this custodian in financial blogosphere by typing ‘Bank of Nova Scotia is the custodian for Gold’ in google search, you will get to know the kinds of risks involved in GOLD ETF’s – mainly technical risk (its a technical default if gold is not held in reality). So as they say Let the buyer beware. Since most indian families usually keep atleast one locker, i would suggest its better to buy physical 100gms /coins from a reputed jeweller with bill. Its also more easy at the time of selling if bought frm a jeweller than buying coins frm bank also its costs less. – Shared by Rahul .

Money should be discussed with Children

You are right Manish as everybody must teach the children about money but the biggest dilemma people face is how they will be treated back if they start talking about money. Our society treat Money as necessary evil with more stress on the evil so 9 out of 10 times a person is feared to be called Money minded or Kanjoos if they just try to stick to a discipline of Budget within their family.  So many parents just avoid asking their kids how they spend money for the sake of their image. We have always thought money as a bad thing which must not be discussed (Mard se uski kamaai aur aurat se Umar nahin Poochte 🙂 ). In our films Rich has always been a villain but things have to be changed. I still wonder that rather than showing hero taking a loan from money lender and then becoming a Daku for revenge, why dont our films show that taking a loan to spend lavishly on your daughters wedding beyond your means is bad thing and the best solution to keep lala away. Secondly we always think that kids are not mature enough to talk about sex and money. (Often not knowing how smart they are 🙂 ). We must respect their senses and impart knowledge to them gradually. If you dont teach your kid about these things he will seek Pornography and Financial Pornography is much more dangerous. Can we compare “double your money schemes in one year” with Pr*******tes in the world of finance.  So every parent has to cross these mental blocks and take up this duty to empower their kids to face the real world. – Shared by Pramod

Is Short supply of Land responsible for High Real estate prices

Who says land is in short supply in India ? It is kept in short supply in India by the builder politician nexus. Have you ever tried to look at Delhi’s satellite image from Google maps. Mind you 50 % of the land within boundaries of NCR is vacant. The mechanism is – You (Farmers or forest or something else) have land. You want to build a house over that land. Govt will not allow you and will force you to buy some expensive piece of land in an “approved” area. Once all the land is sold then the same land where you or any other ordinary citizen was not allowed to build houses (becuase the land was meant for farming, forest, green belt Archeology blah blah blah) will be captured (acquired) by the govt and will be given to builders by changing status of the land use. Then you will buy the plot at sky high price and new land will freed once all the plots are sold and the cycle goes on. If govt declares its master plan at once and free all the land which is marked for residential use in one go then there will be no shortage and no high prices. BTW All of the population lives on 30% of the land. Rest 70 % is covered by ice, deserts, high mountains etc. Just wait Global warming will ensure that if 10% of the world sinks in water 20 % will become available to mankind as ice shields will go away 🙂 Wait till Unitech starts buying Norway and Siberia. – Shared by Pramod

How to Check if you are you KYC compliant

For those who are not sure if they are KYC compliant can check the http://www.cvlindia.com/. Click on ‘enquiry on kyc’ option (Direct URL) and enter the pan card number. Invalid data means the person is not KYS compliant.  Shared by  Raj Panda .

Should you Invest in IDFC Infrastructure Bonds

Posted on by Jagoinvestor

From the Budget, infrastructure bonds are also eligible for additional tax exemption upto Rs 20,000 over and above Rs 1 lakh under Section 80C. IFCI Ltd was the first company to issue these infrastructure bonds and they have collected a substantial amount in the last few months. Now, IDFC Ltd has introduced its infrastructure bonds and there are a lot of investors, who are considering these bonds as an option to save additional tax for this year. Rajendran and Prashant have also asked the questions related to Infrastructure bonds some days ago on Jagoinvestor Forum. In this article, I give you brief information on IDFC Infrastructure Bonds.

idfc infrastructure bonds

The maturity period of these bonds is 10 years and the lock-in period is five years. These bonds will be listed on the Bombay Stock Exchange and National Stock Exchange. After completion of five years, you can keep these bonds for additional five years and withdraw money at the time of maturity. In case, if you need to withdraw money before maturity, then you always have an option to sell these bonds on stock exchanges. Thus, these bonds can be traded like stocks on the stock exchanges but only after the lock in period of five years is complete. You would require a demat account and Permanent Account Number (PAN) to invest in these infrastructure bonds. The face value of each bond is Rs 5,000. The minimum application has to be for two bonds and in multiples of one bond thereafter. Hence, the minimum investment required is Rs 10,000. You can invest more than Rs 20,000 in these bonds but the tax-exemption would be only upto Rs 20,000.

Taxation on Infrastructure Bonds

You will get tax exemption benefit up to Rs20,000 when you invest in these bonds. However, the interest gained will be taxable. The interest would be added to your income and taxed at the existing slab rate. this taxation rule will be same even after Direct Taxes Code (DTC) Bill comes into effect. Both, the current Income Tax Law and DTC require you to pay tax on the interest earned.

Infrastructure Bonds in different series

Note that these bonds come in 4 different flavors and they are called as Series 1, 2, 3, 4 . Each of these series is different from each other in some way. There are two main things you should understand , which might be of concern to you.

Interest Cumulative :  Series 1 & 3 do not provide cumulative interest. They will pay interest annually. For example, if you invest Rs 10,000, then after completion of 12 months, the interest amount will be paid to you every year and the bonds maturity value would be same as your investment. However, bonds which have cumulative interest will keep accumulating interest. And this interest would be compounded every year. (see CAGR)

Buyback : Series 3 & 4 have buyback option. Buyback option means that you can sell your bond back to issuing company after five years; once the lock in period is complete. In return, you will get back your original invested amount and the interest accumulated for five years. You would notice that interest rates for series 3 & 4 is 7.5%, which is because they have an added advantage of buyback facility. If you don’t want buyback option, you will get 8% interest. People not opting for buy-back options will depend on secondary markets to sell their bonds if they require money urgently before maturity (10 years). Thus, after lock-in period (five years) is complete, they will have to find a buyer in secondary markets else wait till maturity, when they will get the money back from IDFC.

IDFC Infrastructure bonds features

Other features of IDFC Infrastructure Bonds

  • NRI’s cant invest in these bonds (Only available to Resident Individuals and HUF’s)
  • The bonds don’t attract any TDS
  • The bonds are rated LAAA by ICRA, However high rating is not something you should be very excited about. (Link)
  • The interest accrued on the bonds will be credited to the respective bank registered with the demat account through ECS on the due date for interest payment
  • Interest on the bonds shall be payable on annual or cumulative basis depending on the series selected by the bond holders
  • The bonds can be pledged for availing loans after the lock-in period of 5 years

Subscribe to the Bonds in physical form

If you do not have demat account and want to apply for these bonds in physical form , you can still apply for them using these steps (link) , Thanks to Srinidhi for giving this info .

  • Don’t fill up the demat details in the application form
  • Compulsorily provide the following three documents with the application form:
    • Self-attested copy of the PAN card;
    • Self-attested copy of a cancelled cheque of the bank account to which the amounts pertaining to payment of refunds, interest and redemption, as applicable, should be credited.
    • Self-attested copy of the proof of residence. Any of the following documents shall be considered as a verifiable proof of residence:
      • Ration card issued by the Government of India; or
      • Valid driving license issued by any transport authority of the Republic of India; or
      • Electricity bill (not older than 3 months); or
      • Landline telephone bill (not older than 3 months); or
      • Valid passport issued by the Government of India; or
      • Voter’s Identity Card issued by the Government of India; or
      • Passbook or latest bank statement issued by a bank operating in India; or
      • Leave and license agreement or agreement for sale or rent agreement or flat maintenance bill; or
      • Letter from a recognized public authority or public servant verifying the identity and residence of the Applicant.

Should you Invest ?

Though, it’s mentioned that the interest rate on these bonds are 8% or 7.5%, the interest earned would reduce further to 5.5%-6% range when you count the tax paid on interest. But if you look at it from a different angle, and count your money saved due to the tax-exemption at the time of investing, in that case the return would turn out to be around 9.5%-10%, but do you think it’s the right way of looking at returns?

What do you think about these bonds ? Are you investing or not and why ?

Beware of Loading and Co-pay in Mediclaim Policies

Posted on by Jagoinvestor

Today we discuss two concepts in Health Insurance, generally present in the policy document, which policyholders are not normally aware about, because they don’t care to look at those clauses. We are talking about concept of Loading and Co-Pay . Let’s talk about both the concepts one by one.

Copay and loading in health insurance and mediclaim policies

What is Loading in Health Insurance ?

Loading, in terms of Mediclaim Insurance means the Insurer (Company) will charge more amount than the regular premium from the policy holder after a claim has been made. Suppose, for eg., you have an Insurance policy and you pay Rs 8,000 each year in premium, and now suppose in 3rd year you make a claim, then from the 4th year onwards, your premium increases by a certain amount which can range from 5% to even 300%. The increase depends on the company terms and the rules. If the loading is 50%, your premium will increase by 50%, which is Rs 12,000. Loading can apply with every claim you make. Please check the brochure off loading is 50% , your permium will increase by 50% , which is Rs 12,000. Loading can apply with every claim you make.

Please check the broucher of ICICI Lombard mediclaim policy stating different slabs for different amounts of claim made. One more product, I would strictly advice all the readers to stay away from, is Star Health’s Red Carpet policy for Senior citizens. This is one of the most fictitious policy, I have ever come to known. Not only is this policy, making an option of Co-pay up to 30% but also has Loading as well. So, a senior citizen, who is normally retired and must also be suffering from one ailment or the other, will be forced to shell out a huge amount of expenses for hospitalization in addition to the premium paid. According to me, it is of prime importance, for the prospective client to look for the clause of Loading in the policy document of said company.

But it doesn’t mean that all Mediclaim Policies in the market come with the Loading clause. There are a few companies in the market without such Hidden Riders like United India(Gold and Platinum only) and Max Bupa. This concept of Loading defeats the very purpose of Mediclaim. An individual takes a Mediclaim Policy, just so that he won’t pay anything extra, out of pocket but ultimately, he is spends more by way of Loading after the claim has been made..

Why Loading concept is there from Insurance Companies ?

Generally, the insurance company is of the view, that once a policyholder has made a claim due to any illness or some major illness, he might make the claim again in future (if not near then in the distant future), so just to be prepared to face those recurring claims, the company tries to safeguard itself, by procuring a larger premium by way of Loading. Sometimes, it make sense but most times, it does not! The only justification on the company’s part, is that they make this loading thing clear, at the very inception of the policy, in its brochure as well as its policy documents and they do take, a declaration from client that they knows about it with his/her signatures. If the client doesn’t read/go through these details and is later on required to shell out more from his pocket, then it is his mistake not the company’s.

So my advice for all the readers out there; Dear friends, don’t get fleeced! By the sheer laziness of not reading/going through the policy brochure or documents, we will be facing heavy Loading, both of money and of tension.

Is loading acceptable ?

On the brighter side, companies can not just have any kind of unreasonable loading in policies. These have been challenged by consumers, and often the consumer forums have taken decisions in favor of consumers. Here’s a case in point –

Amina Sheikh, an octogenarian, was insured for Rs 1.5 lakh for a decade by the National Insurance Co. Ltd. under its Mediclaim Policy. When her policy was due for renewal in 2007, the company increased the premium from Rs 5,305 to Rs 32,787. This was done to make it financially unviable to continue with the policy. Her daughter protested, so the premium was brought down to Rs 23,845, which too was very high. She was forced to pay this premium and renew the policy to avoid a break in insurance. Her daughter wrote to the company demanding an explanation for the arbitrary increase. The divisional manager replied that the policy now stood cancelled as Amina did not seem happy with the firm. He also clarified that the premium doubles immediately when a person crosses 80 years of age and for her, the premium had been loaded by another 100% in anticipation of claims arising due to advanced age.

CWA then filed a consumer complaint. Rendering the judgment on behalf of the bench, the forum president observed: “Managers of public sector undertakings are duty-bound to take decisions based on facts and not in an arbitrary and irresponsible manner based on their emotions.”

The Forum held that the loading of the premium was arbitrary, unjustified, and contradicted the terms of the policy, which is deficiency in service and unfair trade practice. The forum directed the firm to continue the policy by charging Rs 13,112 and to refund the excess premium collected. It also directed the company to continue renewals without loading as long as the insured paid regular premium in time. Also, compensation of Rs 15,000 for mental agony and Rs 2,500 as costs were granted.  Source : TOI

[DDET Click to Read 2 more cases]

Case Study 2: In Dr Rupali Shirke’s case, the insurance company loaded her premium by 50%, increasing it from Rs 7,727 to Rs 11,824 and decreased the sum insured from Rs 5 lakh to Rs 2.5 lakh. This was done because of two claims lodged by her, which were genuine and settled by the company. This was considered as an “adverse claims ratio” by the firm. When she protested, the insurance firm ignored it.

CWA filed a complaint challenging loading of premium and reduction of the sum insured by United India Insurance Co. Ltd. The Forum held that the firm was bound to renew the policy on the same terms and conditions. It directed the firm to restore the sum insured and charge regular premium without loading. A compensation of Rs 5,000 and costs of Rs 5,000 were also awarded.

Case Study 3: In the case of Hoshang Khan, after a claim was lodged, the insurance firm imposed a loading of 400%, increasing the premium from Rs 10,558 to Rs 55,952. Khan could not afford the high premium, so he sent the premium cheque without the loading, but the insurance company returned it. CWA filed a complaint against United India Insurance Co. Ltd. The Forum held that loading of premium was arbitrary and unjustified. It directed the company to accept the premium without loading. On receipt of the basic premium, the firm was directed renew the policy with retrospective effect from 2006 onwards to maintain the policy’s continuity.

[/DDET]

What is Co-Pay in Health Insurance Policies ?

Co-pay, as the name signifies is the payment made by two parties, even if that is not in equal proportions This is another important factor to be kept in mind while selecting the Mediclaim policy for oneself. Under this clause, the insured is also required to bear a certain percentage of expenses incurred on illness/disease while hospitalized, either conditionally or under certain conditions..

Usually, in our country, the concept of Co-Pay only comes into picture after a certain age. Most of the companies levy this clause once the policyholder enters the Senior citizen category, that is after the age of 60. Mostly this percentage is mentioned as 20% pay – i.e., policyholder is required to pay 20% of the expenses out of his own pocket. For eg, if Mr X, who is 63 years old falls sick and has to be admitted to the hospital for 5 days, for which hospital bills come out to be Rs 80,000 and his Mediclaim Policy mentions 20% co-pay, then Mr X has to pay Rs 16,000 and rest Rs 64,000 will be borne by the company. The basic understanding behind this clause, is that the company is expecting an increase in claims from this particular section of the policyholders, – the senior citizens. The company’s thinking is that as the age progresses, the chances of policyholders getting sick increases. The expenses on his treatment for a given complication will also be higher as compared to the same treatment for someone who is much younger, say age 38 or 40. Looking at it from the prospective of the company, this clause seems logical but as an individual policyholder, I believe this is one of the main thorns in the flesh of the policyholder who is entering the age bracket of 60s. I believe this percentage has to go down, or associated to some very major complications/illnesses, or senior citizens should given some rebate on premium year on year just to balance out this Co-Pay clause.

Some other companies, preferably PSUs, charge this co-pay clause if the policyholder is taking treatment in out of network hospitals. Earlier, they would apply this co-pay concept, in case the policyholder chooses a higher-end hospital with air-conditioned services or someone from smaller city getting treatment in costly cities like Delhi, Mumbai, Chandigarh, Bangalore etc. At that time, co-pay clause was built in to ensure that the policyholder choose the appropriate hospital/doctor/room level relevant to his economical status as well as the premium paid by him to ensure there is no overspend just because of the existence of the mediclaim policy.

So dear all, please keep an eye for co-pay clause in the policy which you are thinking of buying for yourself as later on, it may negate the very concept of cashless or reimbursement later on as later on! And in the 60s when people have mostly retired with no real source of income, to pay even 20% of the total expenses out of own pocket would be a considerably big amount.

So should you choose a company without co-pay and Loading clause ?

No, not always , you should not make co-pay and other clause as the sole criteria for choosing the policy because even if a company does not have co-pay and loading clauses today , it can include them at later stage . As per Medimanage company

“Again in our opinion, a clear loading policy is better than those policies where there is no explicit loading clause. This is because every policy wording has a term where it clearly mentions that “all terms including premium are subject to change on renewal, based on claims or otherwise.” – this makes you exposed to an unlimited extent, when you grow older. Bajaj Allianz implemented a new loading clause in August 2010. The most scientific loading policy is that of ICICI Lombard, which has classified claims into Chronic and Non Chronic. Non-chronic claims like an accident or Malaria etc. would have a loading only above a certain threshold claim amount, which is not carried forward in the subsequent year. Whereas chronic ailments will have a loading of 75% and carried forward upto 200%.

Finally remember, even if you are buying a policy without loading this year, nothing stops the Insurance Company to add a loading clause at the time of renewal. Dont choose a company only because it does not have loading, choose a company which is stable in its services, and does not make frequent and big changes in their policy conditions.”

Please let me know your comments on this topic . Do you feel its ethical to just mention in the document and not make customers aware about it from their own side ? Do you think if companies disclose about it while selling the product face to face, it would create more respect for companies ?

The inputs are provided by Dhawal Sharma, who is an agent for Kotak and Max Bupa .

Mumbai and Ahmedabad readers meet

Posted on by Jagoinvestor

We had Mumbai and Ahmedabad meets in last month and I am sharing Presentations and Pictures of those meets . We have done around 5-6 meets in total in Pune , Mumbai and Ahmedabad as of now and we are looking forward to do more in coming months with more better structure and more enthusiasm .

Mumbai 3rd Meet Presentation

Ahmedabad 2nd Meet

Give your opinion on these meets and presentations . Readers from Mumbai/Ahmedabad are invited to Join our Facebook group and also attend future meets. We will try to do the next session by this month end or the next month end depending on how much we can do it with everyone support. We would like to hear your suggestion about the meets in cities and what you all are looking for these meets which we do face to face. Should it be more on basic level or at advanced level ? What topics should be cover in coming sessions . We would do Bangalore session soon .

9 most asked questions about Term Insurance

Posted on by Jagoinvestor

How does claim settlement work in case you have more than one term insurance policy? Does term insurance provide cover outside India? What if I suffer from some major illness or start smoking after buying a term insurance policy? How easy is it to get a claim from a private insurance company as compared to the state-owned Life Insurance Corporation of India (LIC)?

I am sure you must be concerned about all these questions if you have a term insurance policy or planning to buy one.

Today, I will answer some of the most asked questions, which an individual has in his mind, about term insurance. These questions if left unanswered would not only lead to fear, but may also delay one from taking the right decision.

term insurance

Please note: The following questions and answers are only for term insurance policy and are generally true for any company’s term plan. However, very rarely these questions and answers may differ across insurers.

1. Do Term Insurance pay in case of Accidental Death?

Yes, term insurance pays in case of an accidental death. The sum assured or cover taken under the term plan will pay the claim if the death has occurred due to any reason, be it natural or accidental death, or death due to some illness.

There are certain riders (additional benefits) such as accidental death benefit, permanent disability rider and critical illness rider. By buying/adding these riders to the policy, a policyholder can ensure that his nominee will get an amount over and above the basic sum assured (due to any of the rider-related incidents).

2. Does Life Insurance covers death outside India?

Yes, term plans cover death outside India provided the policyholder has updated this fact with the insurance company. He needs to mention that he now lives outside India. Just like change of phone number, address or nominee, there is a facility in the policy service form where the policyholder has to mention that he is going abroad.

However, if he is going to a country that is marked as unsafe like Pakistan, Burma, Somalia etc., then the company will decline this facility. Otherwise, this cover will be valid in other countries like US or UK.

3. To what extent Pvt Insurance companies investigates death compared to LIC?

There is a difference between early claim and normal claim. If a claim arises within the first two years of buying the policy (This period varies from company to company), the company investigates extensively before settling the claim.

You can very well understand if someone has a cover of Rs.50 lakh by paying Rs.7,000 annually (And he has taken this policy on monthly basis, i.e. paying around Rs.600 monthly), then the company is at a great risk. Hence, the company will doubly check everything to settle the claim.

In normal claim, premiums are paid regularly and the policy is in force for a long period, say 12 to 15 years. In these cases, there are not much issues in getting a claim, be it LIC or any private company.

4. If I buy a term insurance policy today, can its premium change in the future?

Unless and otherwise it’s mentioned in the policy document. Premium of a term insurance remains the same throughout the term of the policy provided everything remains the same with the policyholder. That is, the policyholder has not developed any illness or any smoking/drinking habit.

On declaring any such thing, company might apply loading and thus the premium amount changes.

5. What if a person becomes a smoker after some years of taking the policies?

If the policyholder has developed any habit, like drinking or smoking, after buying the policy, he generally does not have to disclose this fact to the company at all, unless it’s clearly mentioned in the policy document

6. What if a person was a smoker long back but not at the time of taking the policy?

Depends on the policy, but just for example, the Kotak Life Insurance proposal form mentions that the client has to declare whether he was a smoker or drinker earlier also even if he has left that habit long ago. Please see page 4, question 10.3 of this document . However, I am not sure about other companies. Also, it depends on the company whom they consider as a non-smoker at the time of issuing a policy.

For example: Max New York Life Insurance, for its Platinum Protect (term insurance), considers people, who have left smoking more than three years ago, as non-smokers. So please check the company’s rule 🙂

7. What kind of deaths are not covered in term insurance?

Some important facts, which most of the people are unaware of, are that most companies exclude “Death due to Terrorist Attack”. Although such claims are settled on humanitarian grounds later on when the nominee approaches Insurance Regulatory and Development Authority (IRDA) but such exclusion is there in most companies.

Other important fact, which public at large is unaware of, is that insurance companies do not cover death due to war or natural disaster like earthquake/tsunami. Because in these cases, death toll is high and the claim to be settled runs in crores of rupees which is difficult to settle by the company all of a sudden.

Therefore, these facts should also be kept in mind while buying a term insurance.

8. How to take care of claim settlement in case of more than two policies?

The very first thing, in these cases, is to declare in the proposal form that you already have a policy from an XYZ company. (There is a column in every company’s proposal form, which a client has to fill if he has an insurance policy from the same company or any other company).

Once such information is provided, then at the time of claim, the usual practice is to submit the Death Certificate to the insurance company with whom the policy is running for the longest period. Other companies are then informed of the procedure due and an acknowledgment from the FIRST Company is provided to them which are accepted by other companies.

Moreover, of late, it has been reported that generally insurance companies do not ask for an original death certificate to settle the claims, even a photocopy of the certificate will do. So be alert while filling the form and provide all the information about your previous policies to prevent even a minor problem later on.

9. Can NRI’s buy Term Insurance?

They can, but there is a catch. As a general rule, a person has to be resident in India to take up insurance policy from an Indian Company, reason being the documents required by the company like Address proof/age proof are to be for some place in India.

Moreover, if the Sum assured required is more than 50 lakhs or so, customer is required to submit his financial papers such as last 3 years ITR or Form-16 which again should be done in India only. Last thing, medical tests would be done at some medical center affiliated to the insurance company near the address of the client which again should be in India.

So these are reason why insurance might have been declined to some NRI.

So one way which might work is this , If a NRI wants to take Insurance, then on his/her next visit to India he should submit his proof of residence, age, last 3 years ITR etc. and get his medical done at his Indian address. This way he can get his policy issued very easily.

However, there is no need to complicate it and in-case you are out in some country and plan to be there for next couple of years, the best thing would be to take term insurance from your country of residence and later when you come back to India, you can buy term insurance that time.

Watch this video to know some more FAQ’s about term plan:

Comments Do you have any other doubts in Term Insurance which are not covered here? Which one out of the above 9 did surprise you most?

The inputs are provided by Dhawal Sharma, who is an agent for Kotak and Max Bupa.

Ask your doubts at Questions & Answers Forum

Posted on by Jagoinvestor

From long I could see that their is a need of a good platform for you all to ask questions and get them answered . We have a lot of smart people on this blog and why not utilize their knowledge in answering everyone else doubts. So I was working from last few days on a Question & Answer platform which has neat interface structured way of asking questions and other cool features. So finally I have have a forum which is very neat and has a very simple interface to ask questions. Users can register there and then become a member and help others to solve their queries and also share new things which they learnt. Dont forget to register and ask questions to win some prizes (read till end) . Click Here to go to Forum

JagoInvestor Forum Features

Some features of the forum

  • You can ask a question and give a category like mutual-funds , real-estate , life-insurance etc along with tags to them .
  • Other readers can reply to questions asked
  • The best thing about forum is that you earn points when you give a great answer and others like it (There is a thumbs up or down button with each reply.
  • Top 5 users with highest points are displayed on the forum
  • For each user you can see all the questions asked and answers by him.

Forum Link : https://www.jagoinvestor.com/forum/

Rich User Profile

JagoInvestor Forum User Profile

Another best thing about the forum is that each user can have his profile page and can showcase his information about his website , twitter and Facebook profile and all the questions and answers he has contributed to. It also shows how many votes you have got from other users who liked your answer and this helps in showcasing your knowledge. You can also provide your description about your self  in detail so that others can know you . I would request every one here to get involved in the forum and ask questions , how ever silly they are and there are many (really many) smart people around who can answer those questions . I can guarantee they will not be unanswered (may be late answered) .

Prizes

Top 3 winners

Within next 30 days starting from today, the top 3 users will get book called “Retire Rich Invest” by PV Subramanyam delivered to their home 🙂 . The 3 winners will be

  1. User with top number of points One random user from the list of all users
  2. User with most number of answers given (one liners just for the sake of answering will not be considered)
  3. User with most number of questions asked

100 Complimentary gift for registrations

For the first 100 people who ask any question, I would send them

  • A personal finance management excel sheet
  • An ebook on Mutual funds 🙂

Winners will be announced after 1 month . Note that users who have already registered would be considered 🙂

Please post your comments and feedback

Register Complaints to IRDA regarding Insurance matters

Posted on by Jagoinvestor

Do you face issues while dealing with your Insurance Companies ? Do they dont answer you on time or dont entertain your genuine concerns on time ? Are you having a problem with Claims or other issues with an insurance company ?

Should you Complain ?

Incase you are facing issues like unsatisfactory answers , no replies on time , delay in replies, taking matters for granted and not treating you properly, any misselling in Insurance, you can complain to IRDA about all this , its just a call away, hence better use the facility and dont feel like you are not powerful enough. You can also mail Insurance companies and cc the IRDA email id for complaints for faster and better reply, but only incase you are facing issues , dont spam them 🙂 . Here is a nice Video Advertisement from IRDA called IRDA – Apki Suraksha ke Liye . I hope they do things in real life also the way they show in video 🙂

Call centre

IRDA (Insurance Regulatory and Development Authority) has started a new service where you can approach by phone or E-mail and complain against your Insurer. There is a call centre started by IRDA for registering grievances on policy-related matters. The call centre will provide an easy and convenient way to bring complaints to the notice of the IRDA. the Toll Free Number is 155255 and Email for complaints is [email protected] . Before the complain, you can approach the Insurance Ombudsman where the dispute involves amount lower than Rs 20 lakh. You can find the contact mail address of the Insurance Ombudsman of your region from IRDA’s Web site.

Do you think its a good resource and would be of help to consumers or will fail just like other projects ? Comments ?sha

EPF interest rate increases to 9.5% for 2010-2011

Posted on by Jagoinvestor

On 15 September 2010, the Employees’ Provident Fund Organisation (EPFO) raised the interest rate for EPF accounts by 1% for 2010-11. The organisation increased the interest rate to 9.5% for 2010-11 from 8.5% in the previous year. This 9.5% is the highest in the last five years. However, one needs to understand that the 1% increase is only for EPF accounts and not for Public Provident Fund (PPF) accounts. A PPF account interest rate will continue to remain 8%. The EPFO is one of the largest provident fund institutions in the world. An EPF is a retirement benefit provided only to the salaried class. Each month, a small amount of money is deducted from an employee’s salary which is invested in his EPF account. The employer also contributes an equal amount.

Note that from 2011, EPF will become the top product in the debt fund category as there is no other “safe” products which gives 9.5% or anywhere closer to that post tax. Also, the money received from EPF is tax free after five years. Hence, in the long run EPF is the best option to invest your money. Thus, make sure you invest part of your salary in EPF account. A lot of employees take their entire salary and prefer not to invest in EPF accounts. Also, many employees withdraw their EPF money after they get a new job or just leave their account inactive.

Be Happy but don’t be very happy

“EPF becomes the best debt instrument” is surely good news from return point of view. But, the 9.5% interest rate may not be for long-term. The 1% increase in the EPF has happened because the EPFO has Rs 1,700 crore of surplus money lying in the interest suspense account. Suspense account is the account which has all the unclaimed PF money.

What about Trusts managing their own Providend Funds ?

Note that all the companies do not contribute to EPFO-managed EPF, but they manage their employees provident funds through their own trusts, Now they will have to match this 9.5% interest and it would be a tough thing to achieve . Most probably , a lot of trusts are going to appeal to the finance ministry, that this 9.5% interest rate proposal is taken back , but it looks unlikely to happen (Read more)

EPF money investment in Stock Market ?

An EPF is a long-term investment which salaried individuals have. Hence, some amount of it can be invested in long-term equity instruments. According to the finance ministry, some amount of EPF can be invested in the stock market. But, the central board of trustees (CBT) don’t agree with the same. The CBT has decided not to invest in the stock market. The labour minister Mallikarjun Kharge, who also heads CBT, says, “We had received a letter from the finance ministry asking for parking of a portion of EPFO funds in the stock market. We have received huge opposition from CBT members who oppose the idea of investing in stock markets.” As of now, the EPFO maintains a huge corpus of approximately Rs 3 lakh crore.

No Interest on Dead Accounts ?

Earlier, employees would just leave their jobs but, their EPF accounts would earn interest. However currently, that’s not the case. Now, the accounts, which are not operated for the last three years, will not earn interest. So make sure you either withdraw money from your EPF account or maintain the account. According to EPFO estimates, there are a total of 47 million accounts, of which 30 million, which means 60%/around 57% are inactive accounts. Out of the 30 million inactive accounts, around 10 million accounts (that is 33%) have less than Rs 500 balance.

The EPFO mentions that maintaining inoperative account is quite expensive. Hence, the organisation has decided to stop crediting interest in all the inactive accounts which have not received contributions in the last three years. (Read this article.)

Comments ? What do you think about this move ?