All you need to know when switching insurers :: Business Line

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All you need to know when switching insurers : Business Line

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Is your Health Insurance armour in place ? Business Line

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Should you buy an outpatient cover? :: Business Line

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What insurance agents don’t tell you:: Business Line

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Easier insurance with Aadhar :: Business Line

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5 things to ask an agent :Chief Distribution Officer, Aegon Religare Life Insurance: Business Line

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All about maternity cover :: Business Line

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If your health plan falls short :: Business Line

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Get more out of your car insurance :: Business Line

Car insurance is mandatory and most buyers just sign up for it; they don’t pay attention to what it really covers and what it doesn’t. If a policy holder has to pay from his pocket for replacing rubber or metal parts in case the car meets with an accident, for instance, then the entire purpose of insurance gets defeated. One can overcome this if motor insurance is bought with add-on covers.

Insurers offer such covers for engine protection, road-side assistance and personal belongings lost in an accident. You could even buy protection for no-claim bonus, opt for nil depreciation or ‘return to invoice’, as add-ons which will fetch you a higher sum by way of insurance.

No-claim bonus

No claim bonus (NCB) is an incentive for those policy holders who have not made any claim against their car insurance policy in the previous years. Over time, NCB can be accumulated up to 50 per cent of premium. However, even one claim on the policy can bring this down to zero. The NCB cover ensures that even if claim is made, your NCB earned remains protected at the existing eligible percentage, instead of becoming zero. This is a good add-on for all vehicle users. After all, one bad day on road should not spoil your safe driving record for years.

Return to invoice

This benefit can be availed of only in the first or second years after buying a car. In the event of a total loss following an accident or if the insured vehicle is stolen and not recovered, the insurance company usually only pays the shortfall, if any, between the amount insured and the purchase price of the vehicle or current replacement price of the new vehicle, whichever is less. But this add-on allows you to obtain the full invoice price.

This ensures full claim settlement without any depreciation on the value of spare parts that are replaced after an accident.

If your car’s bumper gets completely damaged and it costs Rs 20,000 to replace it, the insurer may usually pay around Rs 10,000, after allowing for wear and tear. But with ‘nil depreciation’ cover, the car owner gets the entire amount back. It is mostly available for vehicles that are less than three years old. So, your car parts may depreciate, but your claim value need not!

What if you meet with an accident and need immediate support for an emergency? Your insurer can provide it through fuel assistance, flat tyre, battery, towing or an alternate car for a certain period. Emergency road-side assistance is all about buying peace of mind.

Engine protector

Remember what monsoon can do to your precious car? During heavy rainfall, if your vehicle is submerged in water, on starting, the engine could break down. Your mechanic calls it hydro-static lock and it is a frequent occurrence during monsoon. Many car-owners make the mistake of starting their vehicle when it is submerged in water. The repair costs can be very high.

(The author is Vice President - Retail Sales, SBI General Insurance.)

‘There is vast untapped potential for the life insurance industry’ :: Business Line

The challenge is to reach out to the growing young working population to make them more secure about their future.PUNEET NANDA,ED, ICICI Prudential Life Insurance

Private life insurance players have not had it easy in recent years with declining premium collections and the regulator tightening the rules governing this sector. But Puneet Nanda, Executive Director, ICICI Prudential Life Insurance Company Limited, who heads the largest private life insurance company in India, thinks that the worst is over and the regulatory changes will ensure that the road is smoother for investors in the future. Excerpts from an interview:

Why are premiums in the life insurance space going down? What is the way forward?

The flow of money into any financial product is largely governed by the household financial savings rate. Over the last few years, these savings have seen a decline.

During the period following the opening up of the life insurance industry, household savings rate was around 22-23 per cent of GDP; almost equally divided between physical and financial savings.

Over the last two-three years, despite household savings remaining the same, financial savings have come down. The RBI data, last year, revealed that it had fallen to 8 per cent from around 11 per cent earlier. Slowdown in the economy and other macro-economic factors affected the allocation of investments towards financial services products. Volatility in capital markets is another factor impacting investment decisions of consumers.

There have also been various regulatory changes which required life insurers to recalibrate their business models. This may be another reason why flow towards insurance has not been that great. The first half of this year has started to see increased allocation of funds towards life insurance. There is a definite change in the way life insurance is being looked at by consumers. Products now offer a much better proposition and there’s a lot that the new regulations have done to ensure that maximum benefit is provided to the customers.

What will be your strategy to grow volumes?

Our strategy has always been that of offering need-based life insurance solutions that meet customer requirements.

That’s not all, we have endeavoured to create products that are comparable with other financial savings instruments.

These products, supported with good customer service along with strong technology-driven solutions, have made us the preferred choice when it comes to life insurance. Our technology solutions have empowered customers, facilitating the making of informed decisions and providing a smooth buying experience.

 When the industry opened up, the penetration of life insurance as a percentage of GDP was less than 2 per cent. With changes in the economic environment, there have been fluctuations. The penetration for FY2013 stood at around 3 per cent.

This implies that there is vast untapped potential for the life insurance industry.

India has a huge working population that is growing; the challenge here is to reach out to this young working population to enable them to secure their future.

The regulator is getting stricter with the norms governing agents and data show that agents are leaving. How is the industry going to look at distribution from now on?

Traditionally, the life insurance business in our country has been based on an agency-led model. With the entry of private players, innovation is the order of the day in the distribution channel too.

Today, we have a multi-channel distribution network and thanks to technology, buying life insurance products has become a very simple and easy process. A customer can choose between buying from an agent, a bank or online. What’s important is the experience and the time spent in the process — the objective is to enable customers to make an informed decision.

We have managed to maintain a fair balance. In initial years, about 50 per cent of the business came through the agency channel, about 30 to 40 per cent from the bank channel and about 10 per cent from other channels.  

This has seen some change in the last three years. Currently, about 50 per cent comes from bancassurance, 30 per cent from the agency channel and the rest from other channels. 

What are your thoughts on increasing competition in the industry and many players considering exit?

Different companies have different objectives and strategies. There are 24 life insurance companies today. Some may want to exit, at the same time, there could be others lining up for fresh licenses. Over time, it is likely to become a more segmented market. While there may be a few national players of scale, depending on their strategies, some companies may prefer to become niche players based on customer segments, geographies or products. For instance, now we already have pure health insurance companies.

It is a natural evolution. Competition is good as it improves the proposition for the customer and makes the industry more efficient.

Life insurance is a difficult market since it has long-gestation products and players need to have the right mindset.

While we have seen joint venture partners of some players exit, this may have been primarily due to their individual compulsions or views at international level.

Globally, India is viewed positively from a long-term perspective due to its growing middle-class and increasing income levels. However, since the life insurance industry is capital-intensive players should have sufficient funds to sustain over the long term.

We find insurers misleading consumers about returns from their products in the advertisements they give. What is your take on this?

The regulator has given clear guidance on advertising in any medium on what you can say and what you cannot say. All advertisements have to be filed with the regulator.

While it may be difficult to have complete standardisation in terms of the information shared about returns, let us remember that when a person buys a traditional plan, he/she buys it keeping in mind a long-term goal with corresponding financial obligation.

So, the objective of the advertisements is to help consumers realise how these plans can enable them to get closer to their goals.

Don’t fall for traditional plans :: Business Line

The new regulation has not capped charges and the traditional plans continue to be costly.

While the market-linked plans of insurance companies were refurbished long ago, traditional plans, which offer assured returns, continued to have features that were loaded against the investors.

The Insurance Regulatory and Development Authority (IRDA) has tried to address this by coming up with a new set of regulations for traditional plans. The deadline for insurers to comply with these rules passed on New Year ’s Day.

Most insurers have re-launched their old products in the last two weeks based on the regulator’s mandate. But traditional insurance plans are still far from a mouth-watering proposition for investors.

Yes, you may be shelling out less to the agent and getting a higher surrender value if you hop off midway. But despite these changes, these plans remain high-cost investments.

What has changed

The new guideline has improved the surrender value under traditional insurance policies. Now on, the first year premium paid will also be counted in surrender value calculation, and, policies of term less than ten years, will acquire surrender value after the second year itself. It also limits agent commissions both on long term and short term policies.

It has been mandated that revenues from online sales and through other direct channels, will have no commissions and that the benefit here will have to be passed on to the customer. There are also stipulations on minimum sum assured under a policy, reinforcing the point that these products are essentially insurance policies.

Higher Commissions

For traditional plans such as endowment and moneyback policies, around 35 per cent of your first year premium (on policies where premium payment term is 12 years or more) will now flow to the agent. Compared to Unit-Linked Plans which pay 5-12 per cent of the premium in the first year as agent commission, the charges in traditional plans still look excessive.

Commissions need to be trimmed further to improve effective returns meaningfully. Also, there is no cap on total charges under a traditional plan unlike in ULIPs. In unit-linked plans, the investor can be sure that the insurer will not take away more than 2.25 per cent of returns, as this is maximum allowed difference between gross and net yield under the regulation.

The best of traditional products even now may give you just 5-6 per cent returns, with outer limits depending on bonus declaration.

Surrender to pinch

If an agent tells you that lock-in requirements on traditional polices have been relaxed, don’t fall for it. Surrendering a traditional plan in its initial years will still be a costly affair. Earlier, the surrender value amounted to 30 per cent of the premiums paid till date, excluding the first year premium.

Now it is 30 per cent of total premiums paid. For example, if you paid Rs 1 lakh for three years, your surrender value in the fourth year will be Rs 90,000 now against Rs 60,000 earlier.

A policy of term less than 10 years will acquire surrender value after the second year and one of policy term over 10 years, will acquire surrender value after when three year premiums have been paid.

Higher cover

IRDA has also asked insurers to ensure higher sum assured under traditional insurance plans.

For a 45-year-old person, the minimum sum assured now has to be 10 times the annual premium and for someone above this age, the minimum sum assured has to be seven times the premium. Now, though this ensures a higher risk cover, the costs attached are also high.

Poor Transparency

A traditional plan, does not disclose where it invests your premiums. Most of the money goes into debt investments with an allocation to equity, but investors would not have any disclosures about the investments until maturity. This is likely to keep investors in the dark about returns until the maturity.

Unlike unit-linked plans , traditional plans also don’t offer monthly declaration of NAV or fund value. The new regulation has not done anything to correct this lacuna in traditional plans.

All you would get is a benefits illustration assuming gross returns of 4 per cent and 8 per centAs mentioned earlier, mixing insurance with investment is a bad idea.

The best option for investors across board is to take a term policy to cover all risks and a medical cover. Select unit linked plans can be looked at if their charges are low and if they have a good track record, with a modest risk profile. While traditional plans may have worked in an environment of low inflation, they may not make the cut in a high-inflation, high-interest rate scenario.

Tech Tools: Customise insurance:: Business Line

Ever wonder if the life insurance plan you signed-up for is sufficient, now that you have taken a home loan? Re-assessing your insurance cover is required when life’s needs changes, but many of us may not want to tackle the complex calculation.

Tata AIA Life has come up with three calculator tools to help customize insurance products to your requirements. The Protection gap calculator computes life insurance cover required to maintain a family’s standard of living both pre & post retirement, after considering any outstanding loans and existing life insurance cover.

Child Need planner helps to plan your monthly savings required to meet children’s financial requirements such as education or marriage.

Retirement gap calculator computes the consistent monthly savings needed to achieve the desired retirement income. You can also calculate the required corpus at the time of retirement, after considering future inflation estimates.

The app is available for Android and Apple platform and can be downloaded for free. The company says that there has been around 3,000 downloads in the one month since launch. Life insurance advisors are also using these calculators to gauge their client’s needs.

Invest in equity funds only for the long term:: Business Line

I am a 52-year-old government employee and I wish to invest around Rs 4 lakh in a safe avenue. I also plan to invest Rs 10,000 per month in mutual funds through the SIP (systematic investment plan) route.

Could you please guide me to safe and guaranteed ventures so that I can spend my retired life with financial security?

K. Saraswathi

The only ‘safe’ avenue available for investors is the bank fixed deposit or other government-promoted schemes such as the NSC or the PPF. Any other investment that is even remotely market-linked is subject to volatility and fluctuation in returns. So, park the amount in a fixed deposit or the NSC.

Again, with respect to your SIP investments, there is no fund that can give you assured or guaranteed returns.

You can consider investing regularly in the NSC or PPF so that you accumulate a reasonable corpus for your retirement.

But if you can take a little bit more risk, you can consider balanced funds. Schemes such as Tata Balanced, ICICI Pru Balanced and Birla Sun Life 95 have good long-term track records. Split the amount equally among these three funds.

Monitor their performance regularly and book profits in case of substantial rallies.

Once you accumulate a corpus with these funds, then closer to retirement, exit these funds. The amount accumulated can be parked in a fixed deposit that gives you a monthly interest payout.

The interest amount can be invested in a monthly income plan. Some plans with a proven track record are HDFC MIP Long Term, Reliance MIP and Birla Sun Life MIP.

Bharti AXA’s Secure Income plan-- Offers regular cash flows :: Business Line

Bharti AXA’s Secure Income plan is a traditional, non-participating endowment plan with a guaranteed monthly income. The premium payment term is 5/7/10 years for policy periods of 15/17/20 years. Sum assured is 11 times the annual premium for policy terms of 15/17 years, and 13 times the premium for a 20-year policy.

After the end of the premium payment term, the policyholder will receive a monthly income. This is guaranteed at 8 per cent of sum assured. Besides this, there is also a guaranteed addition to the policy annually, from the year after the premium payment term completes until the maturity of the policy. The annual guaranteed addition will be 7 per cent of sum assured for a 15-year policy, 8.5 per cent for 17-year term and 10 per cent for 20-year term.

On maturity, the policyholder gets the sum assured plus the guaranteed additions. In the case of death, the policyholder’s nominee gets higher on the sum assured plus guaranteed additions, or 105 per cent of premiums paid, or 11 times of the annual premium (13 times in case of a policy with a 20-year term).

LOW RETURNS

A guaranteed monthly income plus a guaranteed addition to the policy are the highlights of the plan. But, when we compare this to the premium one has to pay, the net returns under the plan come to 4 per cent — at par with other similar products in the market. A person who is 30 and takes a 20-year policy with Rs 50,000 as annual premium for 10 years, will receive an annual income of Rs 24,885 from the 11th year. Also, after maturity one might get Rs 6,22,122.

OUR OPINION

If you are in the age band of 30-35 now, note that the policy will end when you are around 50-55 years, and you would be without a life cover at a time when you will need it the most. For young investors, our recommendation is to take a plain term cover and put the balance savings in PPF or the National Pension System (NPS). With PPF too, one can get tax benefits — the principal, the interest and the maturity proceeds are tax exempt. For 2013-14, the PPF interest was 8.7 per cent— though this is subject to revision every year by the Government. In NPS, you can choose your investment vehicle with a maximum of 50 per cent in equity and split the rest between government securities and corporate debt instruments. Charges are very low, working out to just 0.6-0.8 per cent per annum. If you have a stomach for risk, you might also consider some balanced equity funds and start a systematic investment plan.

Don’t fall for tall claims by insurance agents :: Business Line

If you are deceived and the insurance company doesn’t redress your grievance, you can approach the IRDA.

Rahul was thrilled when he received an SMS offering him a 10-year interest-free loan for Rs 10 lakh. All he needed to do was to sign up for an insurance policy.

Beware of such messages! These are dubious messages sent by fraudsters waiting to swindle money. There have been similar cases of unsolicited mails, messages and phone calls in recent months where people have been cheated with promises such as interest-free loan, guaranteed returns and gifts on surrender of insurance policies. Three out of every 10 complaints that the Insurance Regulatory and Development Authority receives today are on unfair business practices by insurance agents. To avoid falling prey to these temptations, conduct a background check on the agent and go through the details of the contract.

Morgan Stanley Global Insurance Monthly: Issue #23

Morgan Stanley Global
Insurance Monthly: Issue #23
August saw a reversal of the July rise in share
prices across all insurance sub-sectors, with US
Life underperforming peers, but retaining its
outperformance YTD – helped by favourable macro
conditions and rising yields.
European insurers’ results were mixed with few
surprises – for most names, we saw a decline in book
value driven by the uptick in yields, which resulted in volatile
net income figures, given the impact from hedge losses and
unrealized losses on bond portfolios. In the reinsurance
sub-sector, we believe that rising yields will benefit the
more asset levered names (we prefer Munich Re, Swiss
Re). However, in our view, reinsurance pricing, especially
US cat, will fall in 1/1 renewals.
In US Life, Nigel Dally believes that the fundamental
outlook continues to strengthen, reflecting stronger
macro conditions, favourable operating leverage, and
robust capital management. 2Q results continued to show
strength, where RoEs have now moved back to just over
12% - just shy of the 13% peak achieved in 2007.
Higher interest rates also drove declines in US P&C
carrier portfolio values, with an average decline of 2%.
However, operating RoEs benefitted from better
underwriting and accretive capital management, and our
US P&C analyst Greg Locraft now expects P&C carriers to
deliver an average 11% Op ROE in 2013.
In Asia, the Chinese regulator has officially announced
the pricing deregulation for traditional life products –
meaning that life insurers can now set their own interest
rate assumptions in the pricing of non-participating
products (albeit with a limit). Furthermore, the cap on life
product commission rates was removed, and the regulator
guided that future policies will be particularly focused on
growing the P&C sector.

ICICI Prudential Cash Advantage - Dulled by poor returns :: Business Line

Cash payouts before the end of the policy’s term are attractive, but overall returns are low.

ICICI Prudential Cash Advantage is an endowment plan that comes with a guaranteed benefit on maturity. It offers a premium payment term of 5/7/10 years and a policy period of 15/17/20 years. The plan is a bit different from other endowment products currently in the market, as it offers a regular cash payout after the premium payment period.

The payout starts as the premium payment term ends and continues till the last year of the policy. The policyholder can choose to receive this sum monthly or annually. This cash payout will be equal to 11.5 per cent of the guaranteed maturity benefit.

At the end of policy term, the surviving policyholder gets the guaranteed maturity value plus reversionary bonuses and terminal bonus if any. The sum assured on the policy is 10 times the annual premium for those below 45 years and 7-10 times for individuals in the age group of 45-54. To qualify for tax deduction, the sum assured on the policy should be at least 10 times the annual premium.

The plan acquires a surrender value only after three years of premium payment. In case of an unfortunate event, the policy holder’s nominee will be paid higher of the sum assured plus bonus, or the guaranteed maturity benefit, or 105 per cent of the premiums paid till then.

The plan is made to look attractive with cash payments even before the policy term ends. However, the costs outweigh benefits and there are alternate avenues where you can potentially generate better returns.

COSTS AND RETURNS

Assuming you pay an annual premium of Rs 1 lakh and sign in for a 20-year policy and a premium payment term of 10 years, the plan will offer a guaranteed maturity benefit of Rs 5.31 lakh and a life cover for Rs 10 lakh.

If we take bonus rate of 4 per cent (this is company’s average pay out rate in the last three years), your returns on this product would be around five per cent. Now, even if we take the long term inflation rate to be one-two percentage points below the current 10 per cent, this plan will give you a negative real return.

OPTIONS

For those of you eyeing superior returns, an endowment plan is not a good investment tool. Though there is a guaranteed benefit plus some bonus at maturity, the returns are measly. Instead, you can invest in the public provident fund where there is an advantage of tax benefit, capital safety and higher returns. For life cover needs, a term policy is always cheaper. A term insurance cover for sum assured Rs 10 lakh will cost a 35-year-old only Rs 3,000-3,500 a year.

The PPF scheme has a 5-year tenure. The principal contributed towards the scheme, the interest and the lump sum that will be received at the end of the term are all tax exempt.

If you invest Rs 1 lakh in a PPF scheme for 10 years, at the end of the 15th year itself you will have generated around Rs 23 lakh. Individuals who don’t mind a little risk may even start an SIP in some balanced equity scheme of a mutual funds. Equity exposure has the potential to generate inflation-beating returns over the long run.

Low returns dent appeal -HDFC Life Guaranteed Pension Plan :Business Line

Endowment policies are not ideal retirement vehicles due to their low sum assured, high premiums and stringent surrender charges.

After a hiatus, insurance companies are once again launching deferred annuity products. Only this time, traditional endowment plans are being showcased as an ideal way for you to derive a pension, after you retire.

HDFC Life Guaranteed Pension Plan is one such policy. Premiums can be paid for 5, 7 or 10 years and the total term of the policy is 10-20 years. So you can, for example, pay premiums for 7 years, while the policy period is 20 years.

Like many traditional products there are ‘guaranteed’ additions made for every complete year. There is also a vesting addition made depending on the policy term.

We have analysed its features and suggest whether you should put your money into the policy for retirement pension purposes.

Insure to protect standard of living :: Business Line

Employer-provided healthcare programme may not be adequate to cover your family.

Insurance is an important part of our lives, as it helps indemnify losses to protect our standard of living. The question is: How should you insure? The question assumes relevance because of three factors — low awareness for medical insurance, dominating presence of with-profit life insurance products and high volatility in the stock market. It is in this context that we discuss issues related to medical, life and investment-portfolio insurance.

NON-INVESTMENT INSURANCE

You should consider buying a medical insurance even if your employer offers a healthcare programme. For one, you could change jobs. And your new employer may not offer similar benefits. Also, your existing employer may choose to reduce coverage as a cost-cutting measure. Besides, employer-provided healthcare programme may not be adequate to cover your family. The issue is that medical insurance increases with age. So, it is better that you enrol for a medical insurance programme when you are 28 than when you are 40.

You should have a medical insurance for yourself and your dependants for as long as the insurance company offers coverage. You should also consider top-up plans with high deductibles. Such plans are cheaper and useful when you incur large expenses during medical emergencies.

Then, you and your spouse should have life insurance protection. The amount of insurance should be such that claims, if made, cover your family’s existing liabilities and loss of income due to death of the insured. You should buy term insurance contracts, even if it means not recovering your life insurance premiums if you survive the term. Remember, insurance is to indemnify losses, not to generate gains.

Do not buy with-profit insurance plans, as they are expensive and offer low returns. You can instead buy term insurance and invest the premium-difference in mutual funds to earn higher returns. And what about investment-portfolio insurance?

Suppose you want to accumulate Rs 10 crore for your retirement. A sharp decline in the value of your portfolio during your working life could mean that you may fall short of your required wealth at the time of your retirement. And that could affect your standard of living in your retired years. This risk is higher when your portfolio value declines during the last 10 years of your working life — a period that is called as the retirement risk zone. You face a similar risk when you create a portfolio to meet any objective such as funding your child’s college education. The question is: Can you insure your portfolio from losses and increase your chances of achieving your investment objectives?

Unfortunately, you cannot buy portfolio insurance because such products are typically available for institutional investors. And you cannot use exchange-traded options to effectively protect your portfolio because such options are shorter-maturity products, while your investment horizon is longer.

REBALANCING PROCESS

You do, however, have a built-in insurance in your portfolio — your rebalancing process. This is the process where you periodically reduce your equity investments as you approach your investment horizon date. That is, you lock-in to the unrealised gains on equity and lower your future losses by buying more bonds that mature at the end of your investment horizon. Rebalancing does not, however, protect your portfolio from unexpected market crashes. But neither will exchange-traded options.

Insurance is important to protect your standard of living, but it comes at a high cost. So, you should buy medical and life insurance that is required and at an optimal price. That means you need to shop for your insurance protection. Lower premiums are not necessarily better, especially if the company that charges higher premium has a better track record of hassle-free settlement. After all, you buy insurance because you want the insurance company to indemnify your family’s losses.