Friday, October 7, 2011

Prajna Capital

Prajna Capital

Health policies by life insurance companies will not be portable

Posted: 07 Oct 2011 05:38 AM PDT

YOUR plan to switch your existing health insurance policy from a non-life insurer to a life insurance company may not be possible, at least for now. The insurance regulator is likely to confine the portability of health insurance policies to non-life insurance companies.

"To start with, only mediclaim policies offered by general insurance companies will be portable. Health insurance policies offered by life insurance companies, which are much more complex in nature, will not come under it," said a senior official of the Insurance Regulatory and Development Authority (Irda).

One of the primary reasons for not extending the facility is that the term of the policies offered by general insurance companies is one year. However, for life insurance companies, it is long-term, raging between three and 15 years. Portability allows a policyholder to shift the policy offered by one insurer to the other, while keeping the terms and conditions of the cover unchanged.

"Most health plans offered by life insures are indemnity policies or benefit policies, which are associated with lump sum benefits at the end of the term, subject to certain pre-specified conditions. Hence, it is very difficult to port credits, since these policies require completely different underwriting techniques," said a life insurance company official.

More than 90 per cent of the health insurance business is confined to the general insurance industry. Policies offered by general insurers are fixed-benefit plans and are renewed annually. This is different from plans offered by the life insurance companies. So, portability between health products offered by life and non-life insurance companies is not feasible.

In short, for mediclaim policies, there are no survival benefits or life covers. So, general insurance companies would not be able to service these kinds of health insurance plans, he the official said.

Another aspect is the pricing of the policies. "One of the important issues is how to price the benefits. Different companies offer different benefits to add exclusivity to their products. For instance, in the case of portability, one has to forgo some benefits. Thus, the policyholder might claim some discount, which the insurer might not allow," said an actuary in a life insurance company.

Last week, the insurance regulator decided to postpone the execution of portability of health insurance policies by three months to October 1, as industry officials sought more clarifications from the regulator.

In a bid to facilitate data sharing among insurance companies, Irda had embarked upon providing a web-based facility for insurers to feed in all relevant details on health insurance policies issued by them. This data would be accessible by the company to which a policyholder wishes to port his policy. "Such a system would enable the new insurer to obtain efficiently data on history of health insurance of the policyholder wishing to port. It is necessary to enable the smooth running of the system," Irda had said.
 

Start planning early for a tension-free retirement

Posted: 07 Oct 2011 03:27 AM PDT

 

If you are young, deploy most of investible income in equity instruments

RETIREMENT is not only about taking long walks in the evening, gardening or pursuing your hobbies. Remember that you will be without a job and your children may or may not support you at that time. Therefore, it is very important that you plan for your retirement.
While all of us would like to live a tension-free retirement life, the success of it depends on starting early and investing correctly.

Here is an outline on how to plan for your retirement?


First, decide your retirement age. Then calculate your current monthly expenditure. Now ask yourself if you want to maintain the same lifestyle or are ready to compromise on your current lifestyle during retirement.


This will tell you if you require an equal income or are willing to settle for a lesser income in your retirement days. Adjust the money required with an inflation rate of 4-6 per cent per annum till your retirement life. This will tell you the corpus you need to have to give you the monthly income you require to support you in your retired life. You will need the help of a certified financial planner or can even use the financial calculators available on various financial planning websites to help you do the calculation.

Once you know the corpus you require to provide you with the required income over your retirement period, the next step is to know the investment avenues available to achieve your retirement goal.

Investments should depend on your age, risk profile and the period you have for investments. Balancing the portfolio from time to time is a must. The following are the different investment products you can consider during the investment phase:

Mutual Funds investment through SIP: If you are young and have a long time to reach your retirement age, we suggest you initially deploy most of your investible income in equity instruments and as time proceeds decrease the exposure to them.

Equity investments are the best tools in beating inflation in future. Invest 100 per cent of your corpus in mutual funds through SIP when you are young. Once you reach the age of 50 years, transfer your money from equity investments to debt funds.


PPF and EPF: These are the safest investment instruments and carry a tax free investment rate of 8-8.5 per cent. A PPF account can be opened by any salaried or non-salaried individual in any bank or post offices. You can invest any amount between Rs 500-70,000 to keep a PPF account active.


Remember don't dip into your savings, PPF works best because of its 15 year lock in period. EPF also provides a return of 8.5 per cent and comes with no risk.


New Pension Scheme: This requires a minimum investment of Rs 6,000. It offers two investment options -active choice or auto choice.


In active choice, you can allocate your funds across three fund options equity, fixed income instruments and government securities.


However you can invest a maximum 50 per cent of your portfolio in equities. In auto choice, your funds begin with a maximum equity exposure of 50 per cent.


There are two separate accounts--Tier I is the basic account in which withdrawals are not allowed till the age of 60 years. In Tier II account withdrawals are allowed. You need to have a tier I account to maintain a Tier II account. You can join the NPS by approaching any branch of a bank authorised by the Pension Fund Regulatory & Development Authority as a point of presence.


The list of banks authorised to sell NPS are available on the PFRDA website. NPS has fixed the retirement age at 60 years. Once you are of 60 years, the NPS allows you to withdraw 60 per cent of the accumulated corpus while the remaining 40 per cent is given to you in the form annuities.


Insurance Plans: Not many companies are currently offering Unit Linked Pension plans while the traditional insurance pension plans offer low returns. I would not suggest to look at insurance plans to meet retirement goal as they have poor returns. The best instruments are mutual funds through SIP to maximise returns and minimise risk.

 

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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 IDFC Mutual Funds Online

 

Invest in UTI Mutual Funds Online

  

Invest in SBI Mutual Funds Online

 

Invest in L&T Mutual Funds Online

 

Invest in Edelweiss Mutual Funds Online

 

Retirement Portfolio needs to generate enough returns to support your lifestyle

Posted: 07 Oct 2011 01:02 AM PDT

You Should Slowly Start Reducing Your Exposure In Equity And Increase Your Holding In Debt

When you are close to retirement, there are many concerns. The critical one is ensuring that the retirement corpus that has been created over the year is safe. But the tricky part is that the portfolio also has to generate enough returns to beat inflation and give regular income.

You have to assess your monthly expenses and see if the pension is good enough to take care of them. If you have to be dependent on returns from the corpus for additional income, it has to be invested in a manner without harming the principal amount. What makes planning for a retired life a lot more difficult is that life expectancy is on the rise. The general tendency of people in this age group is to cut out all the risky asset classes from the portfolio. But being completely conservative is not a good idea, considering that you will have to plan your portfolio with at least 15 to 20 years in mind.

Say, your portfolio is worth 1crore at the age of 49 years with equity constituting about 70 per cent. But as you grow older, the ability to take risk comes down significantly.

The thumb rule is that as you approach retirement your exposure in high-risk asset classes should come down gradually. Every five to seven years you should slowly start reducing your exposure in equity and increase your holding in debt.

Financial advisors say that an exposure of between 10 and 20 per cent in equity is a necessity, even when you are planning your investments for retirement.

When looking at investing in equity mutual funds you should park your money largely in diversified mutual funds. "It is a safer bet. In case of sector funds, one needs to continuously monitor.

And if you are not so sure about pure equity funds, look at balanced or hybrid funds. There are balanced fund options with high exposures to either equity or debt. That is, 7080 per cent in equity or debt, depending on the fund's mandate. Choose the one that suits your needs. If you think there will be a high requirement for funds post retirement, go for the equity option.

However, remember that the taxation for both kinds of funds will be very different. For an equity-based balanced funds, there will be no tax on returns after one year. For debt-based funds, there will be 10 per cent without indexation and 20 per cent with indexation after one year.

But the present circumstances offer interesting options in the debt space. The present high interest rate scenario may offer good options. For instance, a five-year bank fixed deposit will fetch you anywhere 8.25-8.75 per cent annualised returns. Fixed Maturity Plans are also an investment option that should be considered as they give returns as high as nine per cent post tax.

One needs to have the right mix to beat inflation. Say if your portfolio constitutes 80 per cent debt and 20 per cent equity and inflation is around seven per cent. Your debt portfolio will give you returns of between eight per cent and nine per cent but say in the eventuality of the markets dipping, your equity portion takes a hit of 10 per cent or so, you would be still fine because there will not be any capital loss.
 

Nominee for your insurance policy

Posted: 06 Oct 2011 11:09 PM PDT

WHEN insurance companies hand over claim amounts, they insist on giving it to the assigned nominee. He retains the funds, until it can be handed over to the beneficiary or the legal heir. Obviously, the nominee needs to be a trusted individual. But for most customers, filling the space marked 'nominee' is a mere formality. Until the money lands in the hands of one with whom their relationship has soured.

In several instances, customers forget to review or change nominations; a divorced wife, for instance, is still named as nominee. In the man does die, she would then be entitled to receive the discharge from the insurance company, despite not being the legal heir anymore. The presence of a current wife adds to the complications. Though she is legally entitled to the proceeds from her husband's policy claim, she can only hope the ex-wife agrees to transfer the claim amount to her bank account without much fuss.

The insurance company will release the payment to the nominee, unless informed of the complexities well in advance. If there is a will, the issue can be resolved, since a will supersedes any other claim.

IF NO WILL

IT is a rare case, when an insurance company would intervene and take decisions regarding whom the claim amount should be passed on to. When matters get complicated, we usually wait for the civil courts to give their decision.

If there is no will, the claimant could move an interim order against the company, restraining it from releasing the claim amount. He or she would then have to obtain a succession certificate from the court, proving the validity of the legal heir. However, this could easily take eight to nine months before one gets the final order.

Typically, while signing insurance applications, individuals are bound to nominate the person closest to them. The policy proposer needs to take into account the nature of relationships between the nominee and the beneficiary who would be involved in the financial transaction after his death. This is especially true if the relationship in question, is that of the deceased's wife and his mother, a relationship often considered tempestuous.

In the absence of a will, subject to certain conditions, our inheritance laws consider the wife, children and parents as legal heir. Each of them can make a claim to the amount." The absence of a will or succession certificate can make the situation difficult when the nomination remains unchanged. The matter reaches the courts if there are more claimants. "But if there are no rival claimants, the insurance company will get the legal heirs to sign the discharge receipt jointly, after verifying their particulars with the company records.

In fact, the legal heirs also need to specify persons in whose name the cheques can be dispatched.

At times, a minor is named as both nominee and beneficiary. Until the minor turns 18, a guardian nominee needs to safeguard the funds. If the guardian nominee dies, a new name has to be put up to avoid delays. Some insurance companies now offer to hold on to the funds on behalf of the minor. They would offer interest similar to the current rates offered by bank fixed deposits until the child turns 18.

Typically, insurance companies explain the details of a nomination only on inquiry. If the nominee is also the beneficiary, the transfer of the claim amount ought to be hassle free.

Move to new term insurance plan if age on your side

Posted: 06 Oct 2011 07:00 PM PDT

While thinking of switching policy one must look at new premium, health condition

A sharp 30 per cent fall in term insurance premium, which provides only risk cover and no return on maturity, has been witnessed in the last two years in the face of reduction in solvency margin by insurance regulator to sell term plans and also due to rising competition.

But those who bought term policies at higher rate continue to pay higher premium. Premium in term plans is fixed for the entire tenure of policy and these policies do not have any renewal or maturity benefits.


So, should you renew your existing policies or discontinue old one in favour of new one?
Term or pure insurance products do not have any investment component and do not have any maturity benefits. If the policy-holder outlives the tenure of policy he doesn't get any return on premium.

For example, earlier on a sum assured of Rs 50,00,000 for tenure of 25 years, a 40year-old male would have had to pay annual premium of Rs 32,500. Now, for Rs 50,00,000 sum assured a 40year-old male has to pay only Rs 20,000.

Experts say that you can switch to new policies if age is on your side. But as you grow old, the mortality charges rise. When you think of switching to a new policy you must look at the new premium you would be required to pay. You must also look at your health condition. Any sign of deteriorating health would attract extra loading on the premiums.

Often insurers make customers undergo medical examination before issuing a policy. Mortality table indicates the rates which are to be charged for people of different age groups based on the average probability of a person in that age group expiring.

If a policyholder is covered under a term insurance policy he will be better off continuing his existing policy in case his health status has deteriorated,.

Instead of discontinuing old policy, one can buy new plans at cheaper premium and enhance total life coverage. To enjoy low premium on life cover, one should buy insurance at younger age.

 
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