Prajna Capital

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• Insurance Premium – What every policy holder must know?
• Some tips to deal with high inflation
• NFO Review: Edelweiss Select Midcap Fund
• Factors to know Before Buying an Insurance Plan
• Check Your Home Loan Benefits

Insurance Premium – What every policy holder must know? Posted: 24 Aug 2011 04:46 AM PDT Do you have an insurance policy or are you shopping for one? Don't just look at the benefits that a policy offers. You also need to understand the basics about your premium - how much you will have to pay, how it can affect your policy and what you should keep in mind when paying the premium. Here we explain these concepts for you. What is premium? When you buy an insurance policy, you expect the insurance company to compensate you or your survivors in case a certain event happens or period of time passes. However, in order to get this monetary benefit, you need to pay a pre-determined amount of money to the insurance company. This payment is known as the "premium" you pay to the insurance company. Premium is what the insurance company charges you to protect you. It can be paid either in regular intervals, or in a lump sum at the start of the policy coverage. How is the premium amount calculated? The insurance company considers many factors when calculating the amount of premium that any policyholder should be charged. - Age and health of the policyholder - Total amount of protection coverage sought from the insurance company - Type of policy - term, endowment or unit linked plan - The policyholder's current financial situation and income level Premiums are decided based upon a number of factors such as the total amount of sum assured, the type of policy taken (whether term insurance, whole life or ULIP), the current financial ability of the person to take out the stipulated premium amount after considering his/her expenses, incomes and outstanding liabilities, and the age and health of the person insured. What does the insurance company do with my premium? An insurance company is basically a risk management operation. It receives money in the form of premium from 1,000s of different policyholders who it is contractually obliged to protect. However, statistics and actuarial analysis show that not every one of these policyholder will die or suffer injuries at the same time. So, its able to spread the risk of having to pay out a few policyholders across the premium payments made by 1,000s of policyholders. The premium received by the insurance company is used to invest in differenct financial assets such as bonds, stocks and real estate. The investments over time generate a return and grow into a large pool of money from which the insurance company can pay out claims in case a policyholder dies or suffers injuries, as well as manage its own cost of operations. What are the components of a premium payment? The premium amount includes a "mortality charge" that the insurance company uses to cover the risk of an eventuality to an individual policyholder. This charge depends upon the age of the individual and the total amount of protection (sum assured) required. If the person is older, there is a higher mortality risk, so the charge is higher. Also, the higher the sum assured, the higher the mortality charge. Another component is the sales and administration expense. Every insurance company incurs operating costs as well as costs towards agent commissions, sales and marketing expenses. So part of the premium covers these costs. If your insurance policy, in addition to offering you basic life coverage, also offers you an investment product, then part of the premium is used towards making investments on the account of the policyholder. For instance, if a policyholder takes a market linked insurance plan (such as a ULIP), part of the premium goes towards an investment on the account of the policyholder. How to pay the premium? There are a variety of ways you can pay your premium: - Insurance company's office - Insurance agent - Online banking - Standing instructions to your bank when premium is payable Please keep in mind that under the prevailing law the insurance company will not accept cash in case your premium amount is above Rs. 50,000. The payment will have to be made by cheque or electronic means. What happens if I miss or don't make a premium payment? Non-payment of premium can cause the policy to lapse. An insurance company usually provides a 30-day grace period (15-days if the payment mode is monthly) within which the premium has to be paid. It can also charge interest for the deferred payment and has the right to accept or decline reviving the policy. Usually, you will receive a notice from the insurance company reminding you about your due premium payment. However, if you don't receive the reminder, you cannot hold the insurance company responsible. What happens to a lapsed policy due to non-payment of premium? A lapsed policy can be reinstated within a certain period. The policyholder has to pay the insurance company the accumulated due premium with interest. Some companies might also require a good health statement. The insurance regulator stipulates the norms to reinstate policies but every insurance company might have its own set of activities to revive a lapsed policy. Can the premium amount increase at any stage? An insurance policy is legal contract. One of the terms of the contract is the amount of premium that is fixed and that you need to pay in order to continue being insured. The insurance company cannot unilaterally increase the premium amount at a later stage, unless you have defaulted on your contractual obligation to pay your premium dues for a long period. What if I have not paid premium for years - can I get any money back? Different insurance companies have different policies on this. But mostly, if you have paid premium for more than three consecutive years, then a surrender value could be payable to you, i.e., an amount that the insurance company will pay to you for "surrendering" the policy. However, this would vary by plan type. Typically, the surrender value depends on the type of policy, amount of premium, policy term, number of years for which the premium has been paid and accumulated bonus, if any. How can I lower the amount of premiums I pay? One way is to offer to pay premiums annually rather than a monthly premium paying option. The more premiums you pay in a year, the higher will be your premium costs towards the policy.  Do not purchase riders or additional benefits that do not add value to your insurance needs. -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Invest in DSP BlackRock Mutual Funds Online   Invest in Reliance Mutual Funds Online   Invest in HDFC Mutual Funds Online   Invest in Sundaram Mutual Funds Online   Invest in Birla Sunlife Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in Edelweiss Mutual Funds Online   Invest in IDFC Mutual Funds Online

Some tips to deal with high inflation Posted: 24 Aug 2011 04:21 AM PDT   INFLATION is a much-feared monster today. It has busted budgets of many households and has pushed people to cut corners ­ to trade down on what they buy or even stop some of the things they used to indulge in. This was even more of a problem for those who depend on interest income ­ like senior citizens, who actually saw their money de-growing. That was a double whammy for them. Inflation has moderated a bit and interest rates have started climbing up. This will come as a bit of relief to them. Banks have been raising rates, following the RBI, which seem to be raising rates these days with metronomic regularity. For sometime now, senior citizens have been able to get over 10 per cent on FDs. Yields are expected to climb further as rates are being increased. The expectation is that rates will continue to rise. What should one do or not do during this period? Things to do: Continue the systematic investment plans (SIPs) you have: The dumbest thing to do now would be to stop the SIPs that are going on. Apart from impacting future goals, you will also lose chance to invest at lower levels of market. Over time, these investments done at lower levels would contribute to better returns. Put more in equity/equity assets: Since markets are at a lower level, as per asset allocation principle, you could allocate more to equities or equity-oriented assets to maintain the same allocation levels. Again, investments at this point would give better returns when the markets go up. Invest in debt instruments: If you would like to invest in debt instruments, there could not have been a better time. FDs, non-convertible debentures (NCDs) and fixed maturity plans (FMPs) are offering excellent returns. Especially, FMPs are offering returns in the region of 8.5-9 per cent after tax. It's time to lock in on good interest rates. Property investments: Property prices have run up quite high. Though sales have slowed down, there are no let-up in prices. Unless one finds a good property at attractive prices, one should wait and take a decision when property prices fall to more realistic levels. Commodities: If you do not have exposure to precious metals like gold and silver, you could take an exposure to it to the extent of 5-10 per cent through exchange traded funds (ETFs). Similarly, one can take exposure to commodities through schemes investing in equities dealing in commodities. It is a roundabout way of participating in commodities but safer. Things to avoid: Going headlong into gold and silver is one of the things to avoid: These are going up primarily on the basis of speculation across the world. Huge amount of money is going into ETFs, which is driving demand. Due to uncertainty across the globe, there is support for gold at other levels. But that does not mean you need to invest more than 5-10 per cent of your portfolio in precious metals. Not investing and keeping surplus in bank: Looking for the right time or opportunity to invest and keeping money in a bank are not great ideas at all. Savings accounts give low interest rates and low returns. Evaluate options and commit to proper investments. Churning the portfolio: This may not be the time to churn the portfolio because of low or negative returns. You might have made some investments in some high-risk instruments as well. It might have been done with a particular outlook for the portfolio in line with the time horizon and goals. Suddenly exiting them, after the first whiff of underperformance, is not the best thing to do. Portfolios should be re done only if some assets are not performing as intended (and is not an aberration) and do not hold chance in future too. Following fads: We had talked about investing in gold, which is a fad at this point. There were fads like investing in teak plantations and goat farming at various points in time. Following fads do not help in achieving goals. Chasing returns: Getting into schemes or out of schemes primarily because returns have gone up or down is not a strategy. This does not make sense as the schemes that are not performing well today may fire up later. We need to look at overall performance over the tenure of the investment rather than short-term performances. So, it's simple after all, isn't it? Most times, common sense is what is required to do well with one's finances. -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Invest in DSP BlackRock Mutual Funds Online   Invest in Reliance Mutual Funds Online   Invest in HDFC Mutual Funds Online   Invest in Sundaram Mutual Funds Online   Invest in Birla Sunlife Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in Edelweiss Mutual Funds Online   Invest in IDFC Mutual Funds Online

NFO Review: Edelweiss Select Midcap Fund Posted: 24 Aug 2011 04:21 AM PDT       Edelweiss Mutual Fund has announced the launch of another equity fund after a gap of nearly two years. This fund will be focused on mid cap stocks.   Investment Strategy The primary investment objective of the scheme is to generate long term capital appreciation from a portfolio predominantly comprising of equity and equity related securities of mid cap companies. The scheme may invest upto 100% in equity and equity related securities of companies falling in top 101 to 300 companies by market capitalization. However, it may also invest upto 20% in other listed companies as well as in debt and money market instruments.   Fund Manager Mr. Paul Parampreet and Mr. Nandik Mallik will co-manage the scheme. Mr. Paul Parampreet has done PGDM (IIM – Calcutta) and B.Tech (IIT-Kharagpur). With overall experience of 6 years, he has worked with Edelweiss Securities Ltd. SDG India Pvt. Ltd. ICICI Bank and BG India Pvt. Ltd. Mr. Nandik Malik has done MS-Finance (London Business School), PGDM (IIM-C) and B.Tech (IIT-Kharagpur) and has a total experience of over 6 years. Prior to this, he has worked with DC India Capital, Credit-Suisse (London), BNP-Paribus (London), NM Rothschild (Mumbai) and Fair Issac (FICO) (Bangalore). They together manage four other funds - Edelweiss ELSS, Edelweiss Diversified Growth Equity Top 100 A, Edelweiss Nifty Enhancer B and Edelweiss Absolute Return.   Fund House Edelweiss Mutual Fund has been around for more than three and a half years and has launched eleven funds since then. It's assets under management, as on June 30, 2011, stand at Rs. 258 crores, one fourth of which are under equity funds.   Basic Details NFO Opens: August 4, 2011 NFO Closes: August 18, 2011 NFO Price: Rs.10 Options: Growth and Dividend Minimum Application Amount: Rs.5000 Exit Load: 1% if redeemed/switched-out on or before 365 days from the date of allotment Benchmark: BSE Mid-Cap Index Fund Manager: Mr. Paul Parampreet and Mr. Nandik Mallik   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Invest in DSP BlackRock Mutual Funds Online   Invest in Reliance Mutual Funds Online   Invest in HDFC Mutual Funds Online   Invest in Sundaram Mutual Funds Online   Invest in Birla Sunlife Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in Edelweiss Mutual Funds Online   Invest in IDFC Mutual Funds Online

Factors to know Before Buying an Insurance Plan Posted: 23 Aug 2011 11:27 PM PDT There are many occasions in life when you wonder if you have taken the right decision. Some of the decisions may concern your financial life. Investing your hard-earned money in any financial product of a company or a bank — recommended by your friends, family or agent — without understanding how it works, is a common issue. Your mind is filled with doubts and uncertainty on whether you have made the right investment, especially if it is in a long term product like insurance. An insurance policy is a must in any financial portfolio as it covers the risk associated with the loss of life or property. Since it's a long-term contract for 10 years or more, it is difficult to make changes or amend these contracts during the policy term. Hence, you must spend a little time to research these products to ensure you don't have regrets later. It may not be possible for you to understand all the intricacies of a life insurance policy. But, you could consider the following factors while choosing a plan: Need-Based Investment: The standard thumb rule is that your life cover should be 10 times your annual income so that your family is not impacted financially in case something were to happen to you. You should also take into account any pre-existing medical complication or property loans while selecting the life cover. Your financial portfolio should be well balanced and need based. For example, in case you need to build a corpus for your child's education, you can select from a range of products from insurance companies that ensure the funds that you had planned for your child's education are available whether you are around or not. You need to remember that insurance is a protection-cum-long term investment and savings tool. You need to define your need — like your child's education or retirement — and accordingly buy a policy that will help you meet your requirement in future. Background Check And Due Diligence: Once you have decided on the policy, you could do the necessary background check on the company concerned. All life insurance companies have comprehensive disclosures on their websites that give all required information. Policy structure, customer service capabilities, scope of network, online platform (in case someone wants to buy online term policy), are some of the key things you should look for. Secondly, there are many sites that help you compare various policies as well as the premiums. However, the one thing you need not worry is the financial health of an insurance company. The insurance sector is highly regulated and all companies need to maintain a solvency ratio to ensure that the customer does not suffer. Fund Performance: When buying a Ulip, which also acts as an investment vehicle, you could look at the past performance of the company. All life insurance companies provide details of their funds' performance online. An important thing to consider here would be stability. A company with a good fund performance will have a consistent track record with the fund performance neither being erratic nor extremely risky. Claim Settlement Ratio: Many experts advise that the claim settlement ratio of an insurance company should also be considered when buying a product. However, this should not be of concern as long as you have provided correct information in your policy form. As I mentioned earlier, the insurance sector is highly regulated. Hence, the chances of a rightful claim not being settled is rare. In fact, the average claim settlement ratio of the insurance sector is above 80%, and most companies have healthy ratios. Understanding The Policy: Once you have zeroed in on the product based on your need and track record of a company, you should understand the features of the policy, specifically those related to the policy term, premium-paying term, maturity date and charges. You must also understand the benefit structure of the policy. Every Ulip comes with a benefit illustration at 10% and 6%, which discloses the charges and what the status of your investment would be on a yearly basis. These simple but effective steps will put to rest some of your common concerns. Your policy will then be a source of relief and assurance in your life than otherwise. And, in case you have second thoughts about a policy after buying it, you can make use of the 'freelook' facility, which allows you to return the policy to the insurance company within 15 days of buying it for a refund.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   Invest in DSP BlackRock Mutual Funds Online   Invest in Reliance Mutual Funds Online   Invest in HDFC Mutual Funds Online   Invest in Sundaram Mutual Funds Online   Invest in Birla Sunlife Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in Edelweiss Mutual Funds Online   Invest in IDFC Mutual Funds Online

Check Your Home Loan Benefits Posted: 23 Aug 2011 07:48 PM PDT Rebates will be considered income if the property is sold in less than five years While purchasing a house, one is often told that tax benefits would be available under two sections – Section 80C (up to `1lakh) for principal payment and Section 24 (up to `1.5 lakh) for interest payment. Under Section 80C, there is an additional benefit. One could also claim the amount paid as stamp duty and for registration of the property in the year of purchase. However, if you do, there are several conditions attached. Sale of property: Most individuals only consider the capital gains tax they will have to pay in case of selling their property. However, those claiming deductions on the principal amount under section 80C cannot sell the house for the next five years. If it is sold, the total amount of savings through such rebates will be considered as one's income in the year of sale and taxed accordingly. The relief under Section 24 is not linked to the sale of property. One does not have to pay for the benefits received under it. Under-construction property: Purchasing an under-construction property through a home loan is a common practice. However, unless one gets possession and till the certificate of ownership is presented, no rebate can be sought under either of the sections. The total interest amount paid until possession can be claimed in five equal instalments over the next five years after the end of the financial year when one received possession. Second property:  If you own two properties and took loans for both, the benefits under Section 80C will still be the same. So, you will have to club claims from both properties. However, under Section 24, besides the usual rebate of `1.5 lakh for the first self-occupied property, one can claim the entire interest amount for the second home as deduction. The best part — there is no limit on the benefit for interest payment in case of a second home. Loans from other sources: While claims on the principal amount under Section 80C can be made, the loan has to come from a bank or an institution. In case one has borrowed from friends or relatives, there will be no benefits. However, Section 24 will let you claim a rebate of `1.5 lakh even on loans taken from friends and relatives, as long as the property is for self-occupation. "However, the tax payer needs to retain a certificate from the friend or relative to whom he is paying the interest. Not being able to substantiate the source of funds for the purchase could see him getting a scrutiny letter from the I-T authorities. Loans for renovation: There will be no rebates for a loan taken for repair or renovation of self-occupied properties under Section 80C. There is a limited benefit of `30,000 under Section 24. As long as the property is for self-occupation, Section 24 will let you claim a rebate even on loans taken from friends and relatives

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