Life Insurance « Archives of Policy Mantra Blog

Category Archives: Life Insurance

Life Insurance Health Products

Posted on September 3, 2012 by Smita

Health Insurance Products are offered by both Life Insurance Companies and Non-Life Insurance Companies. And there’s notable difference between the offerings of the products from both Life Insurance and Non Life Insurance Companies.

The Life Insurance Health Products can be categorized under 2 categories with respect to the policy term. There is one category which has minimum 3 years policy term while the other category has the policy term of 10 or more than 10 years.

Following is a discussion on the generic as well as supplementary benefits provided by the health products of the Life Insurance Companies.

Generic Benefits

Daily Hospitalization Cash Benefit: This is the benefit provided to the insured in case, the insured is hospitalized (other than ICU) for treatment of any illness or accidental injury, for a continuous period of more than 24hrs. Under such circumstances a daily cash benefit as per the scale of benefits applicable is paid to the insured.
Intensive Care Unit Benefit: This is the benefit provided to the insured in case, the insured is hospitalized to ICU for treatment of any illness or accidental injury, for a continuous period of more than 24hrs. Under such circumstances a daily cash benefit as per the scale of benefits applicable is paid to the insured which is generally double the Daily Hospitalization Cash Benefit.
Maturity Benefit: At maturity, the insured receives a guaranteed lump sum amount as maturity benefit. This benefit is provided only when the policy term is 10 or more than 10years.
Health Saving Benefit: This benefit entitles the insured to claim reimbursement for health care expenses such as medicines and drugs, diagnostic expenses, dental expenses etc.
Critical Illness Benefit: Lump sum benefit is paid, in case the insured contact any of the critical illnesses mentioned in the policy during the coverage.
No Claim Discount: A certain percentage of “No Claim Discount” on the initial premium is granted in each subsequent year when the insured has made no claims during each previous policy year as per the Policy Terms and Conditions.
Renewal Discount: This is the benefit where in, a certain percentage of discounts are given on the premium applicable at the time of renewal of the policy.
Tax benefit: Tax benefits can be availed under Section 80D of the Income Tax Act, 1961.

Supplementary Benefits

Pre and Post Hospitalization Cover: These are the coverage provided for the expenses incurred for a certain number of days prior to the hospitalization as well as after the hospitalization i.e. after the date of discharge. Generally Pre and Post hospitalization provide coverage of 30 to 60 days.
Day Care Treatment Cover: Apart from Hospitalization cover, few life insurance companies provide Day Care Treatment cover, which requires less than 24hours of hospitalization.
Recuperation Benefit: In case of a continuous hospitalization for more than ten days at a stretch, the Policy provides a lump sum amount to the insured as recuperation benefit which is generally equal to three times the Daily Cash Benefit as chosen by the insured subject to a maximum of Rs. 10,000 for the entire policy term.
Family Care Benefit: This benefit can be availed when two or more than two members, covered under the same policy, are hospitalized for the same illness or accidental injury for more than 5 consecutive days then a lump sum amount (independent of the Basic Sum Assured) is payable to meet the incidental expenses. This benefit will be payable to a family only once in a Policy Year.
Medical Check Ups: This is the benefit where in the life insurance companies provide reimbursement for the medical tests subject to a certain limit.
Ambulance Charges: This is the benefit where in the insurance companies pay for the emergency ambulance charges to carry the patient to the nearest medical services.
Total Permanent Disability Benefit: In this benefit, a onetime benefit will be paid in case the insured is totally and permanently disabled due to an accident.
Congenital Benefit: This benefit is provided by few health products. This will cover the listed Medically Necessary Surgical Procedures required in correcting the congenital defects in a child born / adopted by a mother who is continuously covered for a period of time.

Some of the Health Products Offered by Life Insurance Companies

LIC – Jeevan Arogya
SBI Life – Hospital Cash
Metlife – Met Health Care
ICICI – Health Saver
Metlife – Met Health Care
Birla Sunlife – Universal Health Plan

Categories: Articles, Health Insurance, Insurance 101, Life Insurance

Endowment Plan

Posted on August 10, 2012 by Smita

2 Comments

Endowment policy is a type of life insurance policy which provides insurance cover and maturity benefits as well. In case of demise of policyholder, the Sum Assured is paid to the beneficiary. On survival of policyholder, the accumulated amount along with bonuses is paid.
Endowment Policy = Pure Endowment + Term Assurance

Variants of Endowment Policy

Participating Endowment Plan
Non-Participating Endowment Plan

Participating Endowment Policy – Participating policy is also known as with-profit policy. The insurance company shares the excess profit with policyholder known as bonus.

Non-Participating Endowment Plan – Non-participating policy is also known as without profit policy. It does not distribute dividend nor it participate in distribution of profit.

Terms related:

Sum assured: Life of an individual who is taking the policy is insured for a certain amount which is called sum assured. A part of your premium for an endowment policy goes towards covering the life of the insured.

Administrative expenses: A part of the premium is allocated for the administrative expenses of the insurance company.

Investment: Remaining portion of the premium is invested.

Based on the premium paying term Endowment policies can be classified in three categories:-

Regular payment policies: Policies that have regular payment term till the tenure of the policy are called regular payment policies.

Limited premium payment term policies: Policies wherein policyholder had to pay premium for limited tenure while policy continues till maturity are classified as limited premium payment policies.

Single premium policy: Policies wherein policyholder had to pay premium only once while policy remain in force till specified tenure is termed as single premium policies.

Who can opt for it?

Ideally for the younger families that can comfortable afford the higher premiums. This type of policy can be considered as a way to both save and protect the family in case of unfortunate death of the insured.

Benefits:

Maturity Benefits: The insured receives sum assured plus bonus if any at the time of maturity.
Riders: Riders are additional benefit which can be added to basic policy by paying additional premium. Common rider generally offered by insurance company under endowment policy are:-
- Critical Illness: Lump sum benefits payable upon admission of a critical illness claim.
- Waiver of Premium Rider: A clause in an insurance policy that waives the policyholder’s obligation to pay any further premiums if he or she has become seriously ill or disabled. This is a benefit insurance company provides to policy holder if they cannot work.
- Permanent Disability: Permanent total disablement means that life assured is incapable to do any further act or occupation. The following are considered to constitute such disability:
  - irrecoverable loss of entire sight of both of the eyes
  - amputation of both hands
  - amputation of both feet
  - amputation of one hand and one foot
Accidental Death or Dismemberment: In the event of accidental death during the policy period additional amount equal to sum assured is payable to the nominee.
Death Benefits: In case of unfortunate death of the insured the nominee is entitled to receive sum assured plus bonus if any.
Bonus: A bonus is the method for distributing profit to policy holder. For participating policies, bonus is payable along with sum insured at time of maturity or death. For Non-Participating policy unbundled bonus is available where investment, risk and administration components are separate and premium in respect of different components can be clearly identified.
Tax Benefits: Under Section 80C you can avail tax benefit, yearly premium (not more than 1lac) will be deducted from taxable income.

Additional Bonuses

Generally, Endowment plans have two types of bonuses:

Reversionary bonus: Also called regular bonus, this is annual bonus which depends on the performance of the insurer and is added to the fund every year payable at the end of policy period.
Terminal bonus: An additional loyalty bonus offered by the insurer at the end of policy term

Demerit

Endowment plans are priced higher than term plans.

Companies offering such products:

All most all companies offer Endowment Policies.

LIC; Jeevan Anand – This policy is a combination of both Whole Life Plan and Endowment Plan. Under the plan, premiums are limited to the term chosen and benefits are payable on the date of maturity. But the insurance cover on the life assured continues till death, like a whole life policy

Key Features:

Bonus accrues during the premium paying term and is payable at the end of the premium paying term or on earlier death along with Final Additional Bonus. No Bonus is paid on death after the premium paying term.
Double Accident Benefit is available during the premium paying term and thereafter up to age 70 wherein additional sum assured is payable on death due to an accident. This benefit is built in.
Premium payment can be Monthly, Quarterly, Half yearly, Yearly and SSS.

HDFC; Sampoorna Samridhi – is a simple traditional plan which has 2 unique options of Enhanced Cash and Enhanced Life Cover. Thus, if the policyholder opts for Enhanced Cash Option, he would get the usual Maturity Benefits along with additional Bonus and if he opts for Enhanced Life Cover, then he would get life protection till 99 years of age. Hence the second option is a whole life cum endowment plan. However, if the life insured dies within the policy term, then the Sum Assured along Bonus accumulated till then would be paid to the nominee. This plan also has additional Accidental Death Benefit.

Key Features:

It is an Endowment Plan with choice of Maturity Options
Offers High Sum Assured discount for policies with more than Rs 5 Lakhs Sum Assured
Accidental Death Benefit is in built with the policy

Kotak Mahindra Old Mutual Life Insurance Limited; Kotak Endowment Plan – The Kotak Endowment Plan provides you the benefit of systematic savings whilst offering your family the protection of life insurance.

Key Features:

Save and earn more – Not only can Kotak Endowment Plan helps in the objective of long-term savings, it also helps to accumulate bonus earnings on the premiums paid.
Dual benefits of life insurance and investment – One can have the best of both worlds with this savings plan. It provides life insurance coverage to secure family from an unfortunate demise of the life insured. At the same time, it ensures that the insured get their premiums back along with returns upon plan maturity.
Flexible payment period – One can always opt to complete their premium payments over smaller durations such as 3, 5, 7, 10 or 15 years – yet enjoy the full plan benefits for the entire policy term.

Tata AIG Life Insurance Company Limited; Tata AIG Life Assure – This is yet another insurance policy from Tata AIG Life Insurance that has been planned specifically for those people who are looking for higher insurance coverage and that too at a reasonable cost. With the help of this policy the family member of the insured would be able to maintain its present lifestyle even after his or her death.

Key Features:

This is one such policy that offers insurance cover for several years till 60. This means that the coverage could be obtained for 1, 5, 10, 15, 20 and 25 years right up to the age of 60.
In this policy the Term Plan can simply be changed into any of the savings plan of Tata AIG Life.
In this policy the premium that is paid to keep the policy in strength are eligible for tax benefits as per Section 80C of the Indian Income Tax Act. The sum that is received under the Tata AIG Life Assure One year/ Five Years/10 Years/ 15 Years / 20 Years / 25 Years Lifeline Plans is fully exempted from Income Tax as per section 10(10D) of the act.

Aviva Life Insurance Company India Limited; Aviva Money Back - Aviva Money Back Policy is a comprehensive policy that allows the insured to accumulate savings along with valuable life cover protection through:

A percentage of the Life Cover is paid out, depending on the policy term, at the end of pre-defined years
Guaranteed Additions and Simple Reversionary Bonuses
Riders Available: Accidental Death Benefit Rider

Categories: Articles, Insurance 101, Life Insurance | Tags: Endowment Insurance, Non-participating Endowment Plan, Participating Endowment Plan

Monthly Income Plan

Posted on August 2, 2012 by Smita

No Comments

This is one plan which most of the insurance companies are coming up. The first and the foremost thing to understand is the mechanism of the functionality of such investment plans.

MIP is a type of investment vehicle which provides regular monthly payment to the investor. The plan ensures that investor receives a stable amount of fund each month and is therefore typically suitable to the retired persons or senior citizens without other substantial sources of other income. MIP is similar in many ways to an annuity.

How it works:

There are two parts to describe how it works – accumulation part and payment part.

But before that, let’s understand few terms.

Policy Term – It is the number of years the policy will be activated.

Premium – A regular payment made to the insurance company to keep the policy in force.

Sum Assured – The sum assured is the minimum amount payable to the assured or his/her dependants on the death of the life assured.

Payout Period – The time period during which, the investor receives an expected return from an investment.

Accumulation Part: The insured chooses the policy term as well as the premium payment term. The insured pays premium for the chosen Premium Payment Term. The Premium rates applicable will be dependent on the age, gender, policy term, premium payment mode and chosen Monthly Income.
Payment Part: At the end of the Premium Payment Term, the guaranteed monthly income is received until maturity. Plus based on the offerings of the product, annual reversionary bonus is also paid out if declared.

Following is the illustration of the product Bharti AXA Life Monthly Income Plan.

Who can opt for it?

Ideally for those who are close to their retirement process as there would be an adequate steady flow of income that combines advantages of meeting monthly expenditure as well as capital appreciation..
Depending on the income and needs a person can choose the entry age. Still it is more suitable for the people belonging to the middle age so that during the time they reach the Payout period, the regular monthly income received can help them ensure fulfilling the various education needs of their children as well as the various miscellaneous needs and desires without being felt pressured.

Benefits:

Guaranteed Monthly Income: The insured start receiving the Guaranteed Monthly Income after the completion of the Premium Payment Term, until maturity. This income is tax free.
Loans: There are MIPs which provide the benefit of applying loan against Monthly Income Plan.
Riders: There are products which provide several riders as option.
Premium Discount: This is the benefit where in if the investor chooses high monthly income, rebate on premiums will be provided.
Death Benefits: In case of unfortunate death of the insured the monthly income is received by the family members even before reaching the Premium Payment Term.
Tax Benefits: Under Section 80C you can avail tax benefit, yearly premium (not more than 1lac) will be deducted from taxable income. Under Section 10(10D) death claim is completely tax free.

Companies offering such products:

MetLife providing Met Monthly Income Plan – MetLife offers ‘Met Monthly Income Plan’ a participating plan which guarantees a monthly regular income for insured and family when the insured is there and even if insured is not there for 15 years or till end of the policy term. Moreover the plan lets choose the monthly income that the insured wants and MetLife guarantees that amount.
HDFC – Monthly Income Plan – Long term plan – This scheme has been ranked as number 1 in MIP Aggressive category by Crisil. The primary objective of Scheme is to generate regular returns through investment primarily in Debt and Money Market Instruments. The secondary objective of the Scheme is to generate long-term capital appreciation by investing a portion of the Scheme`s assets in equity and equity related instruments.
Max New York Life – Guaranteed Monthly Income Plan – It’s a traditional, non-participating, life insurance plan.

Reliance – Reliance Monthly Income Plan - This is a hybrid fund with a marginal allocation to equity which may go up to maximum 20%. This is ideal for a predominantly fixed income investor with a marginal appetite for equity risk. The investment horizon in this fund should typically be 2 years or more so that the long term benefit of having a marginal exposure to equity pays off. The fund intends to offer a predominantly fixed income investor the power of equity along with the stability of debt. It is suitable for investors with 2 years holding period.

The plan provides several special plans such as:

Systematic Investment Plan (SIP)
Systematic Transfer Plan (STP)
Systematic Withdrawal Plan (SWP)
Dividend Transfer Plan (DTP)
Auto Debit and Electronic Clearing System
Alternative Means of Redemption – Reliance Any Time Money Card
Recurring Investment Plan for Corporate Employees (RICE)
Online Transactions
Salary Advantage

Categories: Articles, Life Insurance | Tags: Death Benefits, Guaranteed Monthly Income, Guaranteed Monthly Income Plan, Met Monthly Income Plan, Monthly Income Plan, Monthly Income Plan - Long term plan, Premium Discount, Reliance Monthly Income Plan, Riders, Tax Benefits

Failing to Plan = Planning to Fail

Posted on January 3, 2012 by PolicyMantra Team

No Comments

Arpita, a 24 year old independent fashion designer is living her dream. She owns a furnished house in a posh locality in urbane Pune and drives around in a suave car. She is the only earning member of her family consisting of a mother and a college going younger brother. Who would have predicted such a rosy future for her when she was all of 10 years that she lost her father in a fatal accident. The sole bread-winner of her family was gone. Her mother was not in a position to provide for their living and more importantly for educating her children. Their future was in ruins.

When asked about how their family managed to overcome the tragedy which had befallen them, Arpita replied mysteriously that she and her family owed their success to her father who was no more .But how?

Her father had taken life insurance coverage apart from a personal accident policy. They had invested the money which they received as named beneficiaries of her belated father’s policies which provided them a regular source of income. This provided her mother some succor and strength to take up a small time job.

Arpita’s family was fortunate but every year millions of families are deprived of their source of income because of death of their bread-winners. Their loved ones have to undergo tremendous hardships after their death. The most affected group is that of children whose future is compromised. And people have to face such horrid times simply because of lack of awareness about insurance.

Don’t you think that such a thing is an anomaly in today’s modern world? Even in ancient times people were smart enough to secure their interests by sharing their risks. This is how the concept of insurance developed as a tool of mitigating and managing risks.

Insurance is a necessity. The more developed our society becomes; the more compounded and multi-faceted are the risks that one has to face. We cannot control-alt-delete our risks. But we can certainly shift our risks to others by provisioning for insurance. Insurance is the most cost effective and convenient method of managing our risks. The chances of early death of people in the working age-group may be very less. But can you afford to take chances with your loved one’s future?

If you do care for your loved ones, it’s time to stand up to your responsibilities and plan for their (and your) future. And remember its never too late to insure yourself. So, are you ready to plan or planning to fail?

Planning to protect your loved ones click here

Categories: Articles, Life Insurance | Tags: Life Insurance, Managing Risk, Personal Accident Policy, Term Insurance

Add life insurance to your New Year’s Resolution

Posted on December 31, 2011 by PolicyMantra Team

No Comments

We all make New Year’s resolution every year for all aspects of life. But this year make New Year resolution to be adequately covered by life insurance. It is very essential to be adequately covered because it helps to protect your family financially when you are not there.

If you do not have any insurance then you should make resolution this year to buy it to provide protection to your family. If you are already covered then you should assess your current insurance whether you are adequately covered or not. And if you are not adequately covered then increase your coverage.

Things that you need to remember:-

Both partners should be covered by life insurance: Life insurance should cover both of you. You might think that house wife does not contribute much financially to the family. But you will need to give it a second thought when you will be forced to pay for child care, clean house on your own and do other things that a house wife does.

Cover your debts: If you have taken any fresh home loans for long term then do not forget to cover it in your insurance. As it will take care of your debt if something happens to you.

Add living expenses of some extra months: Add living expenses of some months in your insurance for emergencies so that calculation does not go wrong.

Your children’s education: If you are concern about your children’s education expenses; then you can add it in your insurance coverage.

Live Happily!!!

Categories: Articles, Life Insurance | Tags: Life Cover, Life Insurance, New Year's Resolution

Explore all options to get affordable life insurance

Posted on December 28, 2011 by PolicyMantra Team

2 Comments

Life Insurance is the best way to make sure that financial needs of your family are fulfilled even in the case of untimely death of yours.

As you research before buying anything like that it is always sensible to explore all options before buying life insurance as well. This can help you to get not only better rates but also right amount of coverage.

Some points that you need to take care of before buying a life insurance are:-

Explore all options

It is always better to try out all options that are available in the market before buying anything. And it is even more important in the case of life insurance as premiums can vary very widely. And it has no longer remained a tiresome task with the penetration of internet and particularly when PolicyMantra is there. At PolicyMantra you can do anything from research, to quoting, to buying a policy. It has made information accessible to all. Even prior talking to any insurance company or agent it is better to shop from internet as it will help you while discussing anything with them.

Adequate insurance

It is not enough to just have life insurance but it is more important to be adequately insured. If you are under insured then it will not fulfill your goals. If you are thinking it is not affordable then just looks out because often it is cheaper than you think. And if buying all insurance is not affordable to you then you can start from smaller amount and later when you can afford it then you can buy it. If you only know how much you can invest then go to PolicyMantra and check out the maximum cover that you can get from their cool tool for calculating sum assured.

Be healthy

Being healthy it is not only good for you but it can also reduce your premium. In life insurance healthier people have to pay less premium then unhealthier people. If you have unhealthy habits that shorten your life expectancy like smoking, taking regular prescriptions, engaging in risky activities or being overweight you will have to shell out more premiums for life insurance.

Buy early

It is always cheaper to buy life insurance as early as possible. If you buy life insurance at young age then you will have to pay lesser premium. And even it is difficult to get life insurance if you develop any condition that come with older age.

Review regularly

It is also essential to review your coverage at regular intervals. You can review your coverage at the end of one year. You also need to review your insurance needs with any major change in your life such as marriage, birth of a child or impending retirement plans.

What suits you

There are different types of life insurance to meet different types of goals. Firstly you need to think what is your goal and for what purpose you need life insurance.

Term plans are meant to provide maximum amount of protection for smallest amount of premium however, it is for a fixed term. However, unit linked insurance plan is meant for protection along with investment and saving component. But for it you need to pay higher premiums. However, in majority of cases term insurance is better choice.

Choose Annual premium payment term

You might end up paying more if you pay premium monthly. Many insurance companies offer discount if you pay premium annually.

Do not depend solely on your employer’s life insurance

Group Life insurance provided by your employer is not enough to meet your all goals hence do not depend solely on it so buy extra cover on your own. And group life insurance policies are not portable that means if you leave your job then your life cover will also end.

Honesty is the best policy

While filling the application of your life insurance do not try to hide any facts because it may consider your policy invalid. If insurance company caught your lie after issuance of policy it may even choose to terminate your policy. Or they even charge you more or your nominee may have to face problems at the time of claim. If you are not getting good rate from any company then you can try another company where you might be able to get better rate.

Buying more is cheaper

You might think if you want to double your cover then you will need to double the premium but case is not like that. Life insurance charges premium progressively that means if you are doubling your coverage then your premiums will not get doubled.

Check out the best options available at PolicyMantra click here

Categories: Articles, Insurance 101, Life Insurance | Tags: Affordable insurance plan, Cheapest Term Insurance, Life Insurance, Policy Mantra, Term Insurance, Unit Linked Insurance Plan

Be honest of your smoking habits while applying for life insurance policy

Posted on December 27, 2011 by PolicyMantra Team

No Comments

While deciding the premiums for your life insurance policy your smoking habits also play an important role. Life insurance premiums depend on which risk category you fall in depending on your overall health and life style.

Life insurance companies usually classifieds people in different classes based on condition of their health. Take for instance a very healthy person will be kept in “Super Preferred” class while other will be kept in “Average” or “Substandard” class.

When you apply for an insurance policy then insurer will place you in the risk category “Preferred” or “Standard”. And sub category “Non-tobacco” which will indicate whether or not you have smoked or used nicotine.

If you smoke then it has impact on your insurance premium, take for instance if you are in “Preferred” and non-tobacco class then you will have to shell out less premium than a person who falls in “Preferred” tobacco class. Despite of same health condition premiums for smoker and non-smoker is different because of higher long term risk of illness and death due to smoking related diseases.

At the time of applying for life insurance policy you will be asked whether you have taken any tobacco product in last 12 months or not. In reply of which you will need to explain whether you use cigarettes, cigars or chew tobacco. And along with it you also need to specify frequency of using tobacco.

Whether you are regular smoker or occasional smoker you will anyways will be considered smoker and premium will be same.

Be honest

Be honest about your smoking habits while filling the application form or else insurer may deny issuing policy to you. Do not try to cheat the insurance company. You may think that you can escape the deduction of nicotine at the time of medical test as body gets rid of nicotine in 72 hours. But insurers are looking for negative reading not just low level of nicotine. Hence, if you have told in your application that you are non-smoker and if you are found positive of nicotine then your insurer may raise your premium or even it can deny issuing policy.

Consequences

If you had withhold the fact that you are a smoker and later insurance company finds that you are smoker then:-

You can be charged with insurance fraud.
At the time of claim if insurance company discovers your lie then Insurance Company can consider your policy invalid and it can deny benefits to your nominee because you withholded fact.
If insurer discovers your lie within the two years of contestability period then it can even choose to cancel your policy, if it does not issue policy to smokers.

However, if you start smoking after issuance of policy then you do not need to tell it to your insurer. In this condition your death benefits will not be jeopardized. However, if you started smoking later and you die due to smoking related disease then your nominee might have to face problems to get claim.

Quit smoking and check your insurance premium now

Categories: Articles, Insurance 101, Life Insurance | Tags: Claim Payment, Life Insurance, Preferred Risk, Smokers

You can revive your ULIPs but avoid discontinuing it

Posted on October 18, 2011 by pappu kumar

No Comments

Insurance Regulatory and Development Authority (IRDA) has mandated insurers to allow policyholder to revive Unit-Linked Insurance Plan (ULIP) within two years of last premium paid but not later than the lock-in period expired i.e. if you have paid premium for the first year you can revive the policy in the next two years whereas, if you have stopped to pay premium in the 4^th year then you have only one year to revive as at present there is five year lock-in period. Earlier policyholders were need to revive their ULIPs within the grace period of 30-45 days or his policy was considered lapsed; the insurer deducted the surrender charge of 6% in the first year and then insurer use to move the money in separate discontinuance fund; which is consist of fund value of all discontinued policies with the income earned on them. And policyholders were paid after the lock-in period ended.

Earlier policyholder on discontinuation of policy were charged surrender charge and fund management charge; but now insurer can only levy fund management charges and even that not acceding than 50 basis points per year. If you revive your policy insurer will not refund fund management charge but it will refund you surrender charge. If you are reviving discontinued policy then Insurers will also have to pay guaranteed return matching the saving account rate of State Bank of India (SBI) on your accumulated amount at present saving account rate of SBI is 4%.

If you are reviving policy within six months it is easy but if you want revive your policy after that, then insurers may attach conditions or can increase your premiums.

Insurers may ask you for medical test as it may have the fear that you are reviving policy due to any medical emergency or fear of death hence, this can lead to increase in premiums.

Insurers may also increase your premium if your premium slab has changed; as there is different premium for different premium slab; premium for those who are in the age of 25-35 years is similar. It may happen that when you have discontinued the policy you may be in the 25-35 age slab and now when you are reviving your policy then you might have entered in another slab.

Therefore, policyholder should avoid discontinuing policy as ULIPs invest in equities and if you discontinue policy then your fund is transferred to debt where you can get mere return of 4-5%.

Before September 2010 ULIPs were mis-sold by saying that you have to pay premium for first three years which was the lock-in period then; and policyholders who opted for costly ULIPs charging 20-60% premium discontinued mid way. But as ULIPs is long term investment hence you should be invested in for long term to get the full benefit of it. As equities have out performed all asset classes in long run. Hence, you should remain invested in ULIPs for long term so that it can give you return equal or even better than mutual funds.

Categories: Articles, Insurance 101, Life Insurance, News | Tags: Insurance Regulatory and Development Authority, IRDA, Policy Revival, ULIPs, Unit Linked Insurance Plan

Is ULIP better now?

Posted on October 2, 2011 by PolicyMantra Team

No Comments

Unit Linked Insurance Plans commonly called as ULIPs have benefits that are linked to market. ULIPs acts as an investment instrument combined with life protection. ULIPs work on the same mechanism of mutual funds where premiums are utilized to buy the units of investment assets. Policyholder has the choice to invest in different funds available in the market. ULIPs are different from mutual funds in a way policyholder can switch to different funds within a year and has also the facility of partial withdrawal at different intervals from the fund starting after five years of the policy issue date.

After the liberalization of insurance sector in India, ULIP became very popular and it constitutes more than 70% of the portfolio of private life insurers. ULIPs’ cash value is derived on the current net asset value of the underlying investment and so the rising stock market also added to the sale of ULIP. Though ULIP was good product of its kind but it was loaded with high commission component. Sum of first three years commissions almost comes to around 50-55% of the annual premium. This lead to malpractices among agents & other financial advisors and they used to mis-sell it by saying that one has to pay premium for only three years and policyholders can withdraw its money after the said period. Policyholders not aware of the consequences relied on their agents and lost their money when they withdrew it just after 3 years. Insurance is a long term contract so one should keep invested its money for long duration to reap the benefit.

Insurance regulator of India came into action when these practices got prevalent in the market and policyholders started losing faith from insurance. The IRDA, insurance regulator of India, in September 2010 came out with new guidelines for the ULIPs. Post this regulation commissions were slashed heavily and other charges also got reduced giving higher benefit to policyholders, but now it was not in the interest of agents/intermediaries they started discouraging sales of ULIP. Post-regulation life insurance industry saw slump in the sales and the volatile stock market also added fuel to the situation.

We heard from many sources that they are reluctant to buy new ULIP as it is not good now, we felt very sorry for the prevailing misconception and so we thought to compare the ULIP products for the two periods – pre & post regulation – leave the reader to analyze which is better.

We took both products from the same company with similar coverage & features. The life under consideration is taken male person aged 30 years old. We call the two as ULIP Old and ULIP New. Here is the table of our findings:

	ULIP Old	ULIP New
Annual premium	Rs. 50,000	Rs. 50,000
Policy term and premium payment term	20 years	20 year
Investment fund	Balanced fund	Balanced fund
Return on investment	10%	10%
Fund at maturity	23,60,164	25,43,372
Commission payable	47,500	13,000
Fund Management charges	2,96,378	2,19,352
Admin, premium allocation & mortality charges	61,527	30,809
Mortality charges deduced up to	9^th year	8^th year
Net rate of return	7.62%	8.95%

The table shows comparison on factors which are important for any unit-linked insurance plan. We can see here that fund at maturity is higher by 3.6 times of annual premium in the ULIP New as compared to the ULIP Old. We also noticed that all the charges have been slashed substantially. Fund management charges (FMC) has gone down, in this case the ULIP New has 26% less FMC compared to ULIP Old. Commissions payable to agents/intermediaries is also lower; here it is around 70% lower. All this happened due to the capping of charges and hence more money is allocated for cash value to give policyholders a better return. Admin & premium allocation charges have also reduced noticeable by 50% in our example. Mortality charges which companies deduct for taking the risk is for shorter period in the ULIP New, this means that your investment part of policy exceeds the sum assured amount sooner so you end up with more money at the time of maturity or even during the policy term if some misfortune happens. The basic purpose for which ULIP is designed is for investments so thumb rule says that given the same risk whatever product is giving higher return is better. Here in our example we found that ULIP New gives nearly 133 basis points more return on the investments i.e. 7.62% vs 8.95%. We found the regulations gave a facelift to ULIPs.

We hope that this example would help you in better understanding the new ULIP.

Categories: Articles, Insurance 101, Life Insurance | Tags: FMC, Fund Management Charge, Insurance Regulator, IRDA, ULIP, ULIPs, Unit Linked Insurance Plan

Term plans are becoming popular again

Posted on October 1, 2011 by PolicyMantra Team

No Comments

Increasing awareness for insurance policies for protection has resulted in renewed interest in term insurance plans. Earlier term plans used to be the important part of the life insurance company’s business but as Unit-Linked Insurance Plan (ULIPs) became popular term plans lost its importance.

Term insurance policies are those policies in which benefit is provided only in the case of demise of the insured and if the insured survives the term then he has to forgo the premium.

Term policies are different from endowment policies as in endowment policies lump sum is given to the policyholder at the end of the policy term where in a term policy policyholder does not receives any capital. But premium rates of term policies are much lower than that of endowment plans as there is no guarantee of insured getting money back because there is no survival benefit as in a case of motor insurance where you don’t get back your money at the end of the year if you don’t meet any accident during the year!! Motor insurance is a type of pure protection product.

Increase in the sales of term policies is driven by two major factors. First major factor is the online term policies have witnessed a robust growth in the sales of term policies; the companies who were selling less than 100 term policies a month earlier now they have started to sale around 1,000 term policies per month through internet.

Second factor which has contributed to the increased sales of term policies is the group term policies through banks. Banks have begun to provide cover to their consumer loans and saving bank accounts.

Drop in the share of ULIPs in the portfolio of the companies from 80% to 50-60% as sales of ULIPs declined due to the lowered commission for the agents; it has helped other money back plans and term insurance.

However insurers says that ULIPS, term plans and endowment plans are different plans as ULIPs should be bought for investment purpose while term plans and endowment plans are meant for coverage; hence both segments should not influence each other.

Customer who need just coverage than he should opt for term plans as they provide high coverage at lower costs and investor who want protection with flexibility in long term to meet their financial goals can buy ULIP.

Categories: Articles, Life Insurance | Tags: Endowment Plans, Internet Term Insurance, iTerm, Term Insurance, ULIPs

Health Insurance Plans