Insurance
Should You Buy Highest NAV Guarantee Plans?
Today a Relationship Officer from my bank visited me to educate me on how to use the surplus fund in my salary cum savings account. I actually didn’t have any expectation that he would be able to help. However, I felt that there is no harm in listening to him.
What he ended up glorifying was – Highest NAV guarantee ULIP plan. The way he was pitching the product anyone could have fallen in the trap without actually understanding the product’s nitty-gritty. I thought I must write on this subject to make people aware about the actual pros and cons of this product. (Before this, read – understanding ULIP)
Car Insurance: Comparing The Insurance Packages
Getting your own car insurance is very easy nowadays, especially with the multitude of insurance providers. However, the ubiquity of the options you have may sometimes become a little overwhelming, as it may cause you to become unsure of which insurance to get. To make this task less troublesome for you, the following are some of the pointers that you should consider.
Ban on Gender Discrimination Will Cost Women Dear?
The European Court of Justice (ECJ) recently ruled that from the 21st December 2012 it will be illegal for insurance companies to discriminate on the grounds of gender when calculating premiums for consumers in European countries.
It is hoped that this will spell an end to the sky high car insurance premiums which are now being offered to young male drivers, with research by MoneySupermarket.com suggesting that 5% of drivers have already been forced off the road as a result of these price rises.
However, not everyone is happy about this ruling; with it expected that female car insurance premiums will rise by up to 50%. We therefore take a closer look at these regulations, which are expected to have a cross over impact on countries outside of Europe.
How to Save Money with a Car Warranty?
Car ownership is rarely a hassle-free experience. Although cars bring us so much joy, when they fail it is often a big disaster. A car warranty can help you make savings when it comes to repairing your vehicle – it can be described as a form of insurance policy. A basic car warranty will be offered by a manufacturer but an extended warranty can be provided by the manufacturer and also through a separate insurer. Many people will find themselves facing problems with their vehicles because of electrical or mechanical faults and a warranty will provide cover for costs that are incurred due to these faults. This may involve the cost of repairs or parts that need to be replaced. An extended car warranty can provide even greater cover by increasing the time period within which a person is covered for any vehicle problems. Therefore, the extended warranty can save you money. It’s important to look into the details when considering an extended car warranty. More >
Understanding ULIP
ULIP or Unit Linked Insurance Policy/Plan - ULIP is the most talked about insurance plans. But before investing into such plans we need to look at the risk-return associated with it. Read the question and answers below to understand the concept of ULIP in detail.
1. What is ULIP ?
A ULIP is a life insurance policy which provides a combination of risk cover and investment in equity and debt markets. Unlike traditional plans, the ups and downs of share market have a direct effect on the performance of the ULIPs.
Find out the difference between ULIP and Mutual Funds
2. What is a Unit Fund?
The allocated (invested) portions of the premiums after deducting for all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders are pooled together to form a Unit fund. More >
Life insurance – What’s in it for you?
People don’t quite appreciate how useful life insurance can be. It’s a very effective way of covering a lot of possible eventualities. “Life insurance” is literally insuring your way of life, as well as keeping your family and yourself protected.
Life insurance is essentially a type of extended health insurance for your family and peace of mind in terms of the financial burdens which can afflict even young people. Modern life insurance is geared to helping people deal with difficulties which come from bereavement and it’s packaged to deal with other types of problems like income insurance, trauma insurance and disability coverage. More >
Health Insurance Industry in India – Landscape
Health Insurance, of late, has been in the news increasingly. Most recently it was the Health Insurance Portability with which the Insurance Regulator claims to score a huge benefit for consumers. While the Portability guidelines are only skeletal in nature, whether it would actually do something for the consumer or not is yet to be seen. Other reasons why health insurance has been in the news is the increasing importance it is gaining, both as an important project from the government as well as an important protection step by consumers who are finding themselves being surrounded by increasingly better healthcare, which of course comes at a much higher cost.
So what does health insurance look like today in India? To answer this question, it would be prudent to take a step backwards and figure out where does health insurance fit into the bigger picture.
Health Insurance is part of the growing healthcare industry, which itself is seeing robust growth. Growth of the healthcare industry is being driven by the following factors primarily
- Availability of quality healthcare
- Increased awareness
- Government initiatives
- Rise in number of patients visiting India for treatment, and
- Rise and growth of the middle income group in India, whose potential and size is the subject matter of major plans for many companies around the world
Let me present you with some data on how big the healthcare sector in itself is. Healthcare industry in India represents around 5% of the Indian GDP. 12% of the $77 million venture capital investments in the July – September 2009 quarter were in the healthcare sector. To further grasp how healthcare industry in India is on a growth path, consider this – the Indian healthcare industry jumped from $22.8bn in 2005 to $35bn in 2009 (CAGR of 15.3%). It is expected to rise at a CAGR of 22% and reach $77bn by 2012.
So coming back to the bigger picture, where does health insurance fit in into the healthcare industry? In 2010, health insurance was about 5% of the total healthcare market. And the rate of growth of health insurance is even faster than that of the healthcare industry, averaging a CAGR of 42% from 2003-04 to 2009-10. According to data released by Insurance Information Bureau, health insurance premiums almost doubled in 2009-10 compared to the previous fiscal. (Please do not for a moment assume that premium growth necessarily translates into more profitability for insurers – that probably would need another article by itself to explore).
The surprising fact to note is that despite this explosive growth in health insurance premium, the overall population covered by health insurance in India is quite low. Only around 10% of the Indian population is covered by some form of health insurance, which includes various government and employer covers; the retail penetration of health insurance is at an abysmal low of less than 3%. This presents a unique opportunity for health insurance per se – a growth supported by an increasing healthcare market as well as an expanding customer base. The potential is huge.
On one side lies a market which is so underpenetrated (less than 3% retail penetration), on the other side lies the explosive growth in healthcare expense (which is fuelled by the increased cost of better medical care), accompanied by government’s agenda to increase health insurance coverage (as on December 23,2010, a total of 2,23,54,462 smart cards have been issued across 27 states under the Rashtriya Swasthya Bima Yojana), coupled with increased awareness amongst the consumers that health insurance is a real need today, especially for the burgeoning middle class.
Ramneek Jaiin
*The author works as a Senior Manager in the Product Management Vertical of a global provider of insurance, annuities and employee benefit programs and manages the Health Insurance portfolio for them in India
ULIPs or Mutual Funds – Comparison
ULIPs & Mutual Funds: Differences
ULIPs as an investment avenue are closest to mutual funds in terms of their structure and functioning. As is the case with mutual funds, investors in ULIPs is allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis.
Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to name a few. Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component.
However it should not be construed that barring the insurance element there is nothing differentiating mutual funds from ULIPs.
They are as follows:
Mode of investment/ investment amounts
Mutual fund investors have the option of either making lump sum investments or investing using the systematic investment plan (SIP) route which entails commitments over longer time horizons. The minimum investment amounts are laid out by the fund house.
ULIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route, i.e. making premium payments on an annual, half-yearly, quarterly or monthly basis. In ULIPs, determining the premium paid is often the starting point for the investment activity.
This is in stark contrast to conventional insurance plans where the sum assured is the starting point and premiums to be paid are determined thereafter.
ULIP investors also have the flexibility to alter the premium amounts during the policy’s tenure. For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested; conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP). The freedom to modify premium payments at one’s convenience clearly gives ULIP investors an edge over their mutual fund counterparts.
Expenses
In mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India.
For example equity-oriented funds can charge their investors a maximum of 2.5% per annum on a recurring basis for all their expenses; any expense above the prescribed limit is borne by the fund house and not the investors.
Similarly funds also charge their investors entry and exit loads (in most cases, either is applicable). Entry loads are charged at the timing of making an investment while the exit load is charged at the time of sale.
Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority. This explains the complex and at times ‘unwieldy’ expense structures on ULIP offerings. The only restraint placed is that insurers are required to notify the regulator of all the expenses that will be charged on their ULIP offerings.
Expenses can have far-reaching consequences on investors since higher expenses translate into lower amounts being invested and a smaller corpus being accumulated.
Portfolio disclosure
Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit most fund houses do so on a monthly basis. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio.
There is lack of consensus on whether ULIPs are required to disclose their portfolios. While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory, the other believes that there is no legal obligation to do so and that insurers are required to disclose their portfolios only on demand.
Some insurance companies do declare their portfolios on a monthly/quarterly basis. However the lack of transparency in ULIP investments could be a cause for concern considering that the amount invested in insurance policies is essentially meant to provide for contingencies and for long-term needs like retirement; regular portfolio disclosures on the other hand can enable investors to make timely investment decisions.
| Particulars | ULIPs | Mutual Funds |
| Investment amounts | Determined by the investor and can be modified as well | Minimum investment amounts are determined by the fund house |
| Expenses | No upper limits, expenses determined by the insurance company | Upper limits for expenses chargeable to investors have been set by the regulator |
| Portfolio disclosure | Lack of consensus on the mandatory disclosures | Quarterly disclosures are mandatory |
| Modifying asset allocation | Generally permitted for free or at a nominal cost | Entry/exit loads have to be borne by the investor |
| Tax benefits | Section 80C benefits are available on all ULIP investments | Section 80C benefits are available only on investments in tax-saving funds |
Flexibility in altering the asset allocation
Offerings in both the mutual funds segment and ULIPs segment are largely comparable. For example plans that invest their entire corpus in equities (diversified equity funds), a 60:40 allotment in equity and debt instruments (balanced funds) and those investing only in debt instruments (debt funds) can be found in both ULIPs and mutual funds.
If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the same fund house, he could have to bear an exit load and/or entry load.
On the other hand most insurance companies permit their ULIP inventors to shift investments across various plans/asset classes either at a nominal or no cost (usually, a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches).
Effectively the ULIP investor is given the option to invest across asset classes as per his convenience in a cost-effective manner.
This can prove to be very useful for investors, for example in a bull market when the ULIP investor’s equity component has appreciated, he can book profits by simply transferring the requisite amount to a debt-oriented plan.
Tax benefits
ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds good, irrespective of the nature of the plan chosen by the investor. On the other hand in the mutual funds domain, only investments in tax-saving funds (also referred to as equity-linked savings schemes) are eligible for Section 80C benefits.
Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example diversified equity funds, balanced funds), if the investments are held for a period over 12 months, the gains are tax free; conversely investments sold within a 12-month period attract short-term capital gains tax @ 10%.
Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-term capital gain is taxed at the investor’s marginal tax rate.
Please feel free to provide suggestion, feedback or any alteration/addition to this article. Your comments will help us in improving this article. We will include relevant comments in the body of the article (with acknowledgement)
Making Your Car Insurance Cost Less
Keeping a car on the road is expensive at the best of times, but it’s even harder during an economic downturn. There’s the price of petrol to consider, as well as road tax and paying a mechanic for all those little running repairs. And of course, there’s also car insurance to buy, one of the biggest one-off purchases you’ll have to make every year.
Remember these handy hints the next time your car insurance renewal reminder comes through, and see how the cost of your premium can fall:
Loyalty doesn’t necessarily pay
Sticking with one car insurance company year on year doesn’t automatically get you cheaper premiums. Although with many comprehensive insurance policies, you will be entitled to No Claims Bonus discounts every year, it still pays to always compare car insurance quotes at every renewal to make sure you get the best possible price.
Colour doesn’t count
You’d be amazed by how many people think that the colour of their car plays a part in how much their insurance costs. They believe red cars cost more because they’re traditionally associated with aggressive driving. But think about it, when you try to get a car insurance quote you aren’t even asked what colour the vehicle is. Insurers care about engine size, the car’s value, and the person’s driving history, but they aren’t bothered whether the car is red, blue, black or green!
New cars can be cheaper to insure
It would make sense to say that brand new cars will cost more to insure than older models, but though this is often true, it’s not always the case. Research has found that depending on driver history, it can often cost less to insure a new car than a five or ten year old version of the same model. Old cars are usually owned by younger drivers, who insurers deem a higher risk, while new vehicles are fitted with the best security and anti theft devices, making them statistically less of a target for thieves.
Higher deductibles equals lower insurance
The simplest way to reduce your motor insurance price is to increase the voluntary deductible, or excess, that you are happy to pay if you do need to claim. The higher the deductible, the lower the insurance quote, but remember you’ll also get a lower payout if you do have an accident. And only set an amount that you are able to afford to pay if the worst was to happen.
Cheapest isn’t always best
In the current economic climate, people will try and get the cheapest deal possible. But sometimes, what looks like the “cheapest” car insurance policy might not be the ideal one for you. When comparing quotes, check to see what is actually included in the policy, as many companies remove optional extras like courtesy car provision. What at first glance might seem slightly more expensive policies could provide greater value if they include these add-ons.
Security features save money
Statistics show that older cars are stolen more often than new models because it’s easier to do so – they don’t have as many up to date security features. Installing anti-theft devices like locks and alarms are a simple way to bring down you insurance premiums – many companies will even give a discount worth up to Rs 500 for doing so.
Comprehensive can be cheaper
To try and save money, many drivers will opt for a third party policy (Motor Policy A), the minimum legal requirement, as they think it will be the cheapest option. However, a growing number of studies have shown that it often works out better value to get fully comprehensive (Motor Policy B). Third party insurance is usually bought by higher risk young or new drivers, and insurers have adjusted their prices accordingly. It definitely makes sense to at least compare how much third party or comprehensive insurance will cost.
Mediclaim users will be allowed to switch companies
Upside
Good News for Mediclaim policyholders. Soon portability would be allowed to mediclaim policyholder with a mediclaim policy of sum assured of one lakh or more. In simple terms, it can be compared to the much talked about mobile service provider portability. Customer or policy holders, who are not satisfied with the service of their existing service providers, will be able to switch to another insurer soon without any change in the premium outgo. However, this facility will be available to those policyholders who are insured for a sum of Rs 1 lakh and above, to begin with. It has been decided to widen the cover, according to the recommendation submitted by the General Insurance Council, an association of non-life insurers.
The policyholders will be able to switch their health cover providers with the same benefits retained once they have bought this cover.
Downside
However, under the proposed new policy, after the expiry of the term, if one intends to switch over to a new company, the accumulated bonus is not carried forward and one has to start all over again.
At present, a policyholder is given health cover for a year and the same has to be renewed every year. If there is no claim, the policyholder is entitled to a bonus in the form of increased sum and for every claim-free year, this bonus gets accumulated.
For senior citizens it becomes all the more difficult because companies are reluctant to sell new mediclaim policies to the elderly.
