Max New York Life Insurance has announced a strategic partnership with 3i Infotech to market its Max Vijay Insurance Savings box. The tie-up with 3i Infotech will enable Max Vijay to expand its reach to consumers in remote rural areas, via the 12,500 I-SERV Stores across 9 states - Haryana, Uttar Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Goa, Andhra Pradesh, Tamil Nadu and Delhi.

A unique product aimed at providing financial security to the underserved masses of India, Max Vijay provides insurance and savings benefits, for investments starting at as low as Rs. 1000, Rs. 1500 and Rs. 2500. Unlike conventional savings and insurance products, Max Vijay offers people the option to save how much they want, when they want and where they want. With flexible top-ups starting at just Rs. 10, Max Vijay truly allows people to save the small change they would have normally spent, in order to provide a more financially secure future for their families.

Speaking on the occasion, Mr. Rajit Mehta, Chief Operating Officer, Max New York Life Insurance Company said, ’Max Vijay’ is a one of its kind business model that has revolutionized the way insurance is procured, sold and serviced. Our association with 3i Infotech is a part of our strategy to strengthen our presence across the country and help the underserved, to work towards building a financially secure nation. We are pleased to partner with 3i Infotech, which has provided a unique platform through its I-SERV stores to help expand our reach significantly amongst the rural, and less developed parts of the country.”

Mr. Anirudh Prabhakaran, Executive Director and President, South Asia, 3i Infotech said, “We have taken care to align with organizations that have having similar commitment to use technology as a tool to enrich lives and to empower Rural India. The wide reach of our I-SERV stores coupled with the experience and expertise that these organizations bring to this relationship, will benefit Rural India”. “It’s a www, i.e. win-win-win for the Rural Consumers, the Partners as well as the I-SERV stores”, he added

MAX VIJAY – PRODUCT
Cash and Carry

Max Vijay breaks away from the fixed premium policy contract to offer an affordable, low-ticket product. A customer has to fill up a one-page proposal form, provide a basic identity proof and pay an enrollment premium for the policy to be issued. The 10-year tenure policy is available with three premium payment options with a minimum enrollment premium of Rs. 1,000. Subsequent premiums are optional, flexible and affordable. Investment returns once credited at the end of each year are guaranteed.

The policy will not lapse so long as the policy account is sufficient to cover charges. The sum assured is guaranteed. In the case of natural death, the claimant receives the guaranteed sum assured and the account value. In the case of accidental death, the claimant receives the account value and double the amount of sum assured.

MAX VIJAY – DISTRIBUTION CHANNEL
Doorstep Delivery

The delivery model will empower the customer to purchase policies in the remotest places of the country. Max Vijay will leverage multiple channels to sell Max Vijay including microfinance institutions, NGOs and others. Every subsequent premium payments will be acknowledged through instant receipts. Insurance is not a step away; it is now at the doorstep.

MAX VIJAY – SERVICE MODEL
Click and Serve

The service model has been designed to ensure simple, fair and transparent service. The last mile will be the shortest route to quality customer care with even claims being filed at collection points. Wireless handheld devices will enable the immediate capture of customer details and transfer data via GPRS to back-end systems, and issue an instant premium receipt.

The service proposition is built around a technology platform customized by IBM. Real time flow of information and instant confirmation will add to the confidence of the customer, as the process is quick, fair and transparent and cost-effective at every step.

MAX VIJAY - MARKETING MIX
Insurance in a Box

The policy pack will be made available in a box to the customer. ‘Max Vijay’, “Jeevan Bima Gullak”, combines the best of insurance and savings. This is symbolic of the safety net that a customer’s family can fall back on in difficult times.

Max Vijay works like a savings account in which the customers can consolidate their loose change for 10 years, empowering him at every step. This loose change, which otherwise disappears in our day-to-day living, can be saved for a better future.

There’s some compelling evidence whu Term Insurance is the best. Here it is:

I have often pointed out and will do so once more —- I am not in favour of any plan from any insurance company that seeks to combine insurance and investment. Such a blend, without exception, tends to be sub-optimal. It is always better to keep insurance and investments separate. All endowment, whole life policies and Ulips are examples of combination insurance plans.

On the other hand, a term insurance plan is not only the cheapest but the best insurance plan to buy. It has no cash payout at the end of the term. This means, if the policyholder were to pass away during the term of the policy, his family will get the sum assured. However, were he to survive, he will not get a single rupee. In other words, term cover is pure life insurance and has no cash or surrender value.

One might ask why I still favour term insurance as against a traditional endowment or a whole life policy, which at least pays at the end of the day, no matter whether it is the sum assured or the maturity value. I have my reasons.

Basically, insurance is a cost. It is a contract (policy) in which you purchase financial protection or reimbursement against a loss or an unanticipated expense. The price paid to purchase such protection is also called premium in insurance parlance. Such premium is payable, year in year out, till you desire protection from the loss.

Take car insurance. You pay the insurance premium, year in, year out, to protect yourself against the financial damage that an accident can cause. If you are a safe driver and manage not to bang your car during the year, the premium paid is wasted — you don’t get anything out of it. And you are perfectly happy to have done so, so long as you and your car are safe.

Or take medical insurance. Again, premium is paid to defray any costs of medical emergencies or hospitalisation. However, if you remain fit and healthy, the premium paid on buying the medical insurance is lost. But then again, you do not mind this do you?

Why should life insurance be any different? But it is; it always has been.

This is mainly because life insurance premiums come bundled with the pure premium part combined with the part that gets invested on your behalf. The policy is sold more as an investment where the insurance just comes along. However, know that insurance never comes along — it has to be paid for, always.

In the case of life insurance, the premium is known as mortality premium, which is applicable for all polices, year after year, without any exception, till such time the life is insured. Even in the case of single premium plans or policies where the premium is payable only for part of the policy term, nonetheless, the mortality premium keeps getting deducted every year from the fund value. So once again, insurance never comes along; you buy it, year after year.

Let’s take an example to understand this concept further. Say you are 30 years old and desire to buy an insurance cover of Rs 10 lakh. Were you to buy an endowment plan, the premium you would pay would be around Rs 39,000 per annum. However, a term plan would cost just Rs 3,800 per annum for the same risk cover of Rs 10 lakh. The difference between Rs 39,000 and the pure risk cover cost of Rs 3,800 is the investment premium. This is how premiums differ for a constant sum assured. Now, let’s see how the sum assured changes for a given constant level of premium. For a premium of Rs 23,000 per annum, one can either purchase an endowment plan where the sum assured is Rs 6 lakh or buy a term plan with a sum assured of Rs 60 lakh. Your choice.

Of course, brokers earn a far greater commission if they sell you whole life policies than if they sell you a term cover. And the logical argument given against buying a term cover is, why opt for the same when you don’t get anything back in the end? But now, hopefully, you would know better.

Before I end, here’s an answer to all who asked me if I had a favourite policy. I do have one. It’s called “buy term and invest the difference.”
From DNA, January 21

I want to invest in an insurance plan. While going over the key features, I came across the term “paid-up policy”. What does it mean? If a policy is declared paid up, does it impact the sum assured?

If the premium on a life insurance policy for a minimum specified period is paid in full, the policy may continue even if no subsequent premiums are paid. Such policies are paid-up policies.

There is an impact on the sum assured if the policy is declared paid-up.

For instance, if six out of the originally stipulated 30 premiums are paid, the paid-up sum assured under a paid-up policy could still be 20% of the original sum assured of the policy (premiums paid divided by total premiums payable).

Thanks to the crash in the equity markets and the dent in trust in creditworthiness of corporate papers, the non-equity based investment schemes are the flavour of the season. If the lure of ‘riskfree and assured returns’ scheme attracts investors, then LIC, with its latest endowment offering – Jeevan Aastha—will hit the right chord with the investors.

Like any other endowment policy, this scheme is also bundled with the dual benefits of investment and life insurance. But unlike most schemes, it promises guaranteed returns on maturity. This is probably what is driving investors to this scheme, which is scheduled to close this week. However, those who have still not invested would do well take a sneak preview before following the herd, for if the scheme has pros, it has cons too.

Notwithstanding the imbedded insurance benefit, prima facie, this scheme appears a more lucrative investment option. If one were to read its fine print, it reads as – upon survival, the insurer is liable to get the maturity sum assured (MSA) and guaranteed additions. MSA is the one-sixth of the basic sum assured, i.e. one-sixth the amount of life cover. Thus, for a life cover of Rs 1,50,000, MSA would be Rs 25,000. Guaranteed additions have been bifurcated for the 10-year and five year plans. Thus, guaranteed addition is Rs 100 per thousand of the MSA (and not the life cover) per year for a 10-year term and Rs 90 per thousand of MSA per year for a five-year term. Sounds not only confusing but also exorbitant!

To summarise the above thesis - an investor would get 1/3rd the life cover as maturity benefit for the 10-year policy and approximately 1/4th the life cover if the policy tenure is five years. Thus, for a life cover of Rs 1,50,000 for 10 years (which is also the minimum required by the scheme) the amount bound to be received on maturity is Rs 50,000. This is almost double the premium paid – subject to the age of the investor at the time of taking the policy (See Table). The entire premium, however, is required to be paid through a single payment at the time of taking the policy. Thus, an investment at the age of 25 years for 10 years in this scheme would earn risk-free compounded returns of 7.28% per annum.

However, the policy doesn’t score well on the insurance front. It makes sense only if the insurer can foresee death within the first year of taking the policy. Death of the policy owner within the first year of the policy period will ensure the beneficiaries with the entire amount of life cover and the guaranteed additions, too. However, in case the unfortunate event occurs after the first year of the policy the beneficiaries will get only one-third of the life cover with guaranteed additions from the insurance company.
While this scheme does offer decent returns, it is more beneficial to those in the lower age group. Investors in higher age bracket may consider other investment options.

NABARD’s Bhavishya Nirman Bonds (NBNB), those re-opened last week, call for an initial investment of Rs 8,750 per bond (earlier it was Rs 8,500 per bond) and return Rs 20,000 per bond after an investment period of 10 years. These bonds thus offer a post tax CAGR return of 7.97%, a tad higher than Jeevan Aastha. However, they do not qualify for the tax deduction under section 80C of the income tax act. Another product from NABARD, the rural bonds, currently offer 8.5% interest and are eligible for tax benefits under section 80C. The downside is that the interest amount is taxable on maturity, and the interest received on these bonds is not compounded over the years. Thus the benefit of compounding is lost which one can otherwise earn in bank deposits or other savings instruments.

Other investment options that can be given a thought are the National Savings Certificate (NSC) and the Public Provident Fund (PPF). The former is a six-year scheme with interest compounding every half-year, but the entire interest received on maturity is subject to tax, which drastically reduces its returns.

PPF, on the other hand has longer investment tenure — 15 years and the interest gets compounded only annually. However, since the maturity proceeds are absolutely tax-free, PPF gains an edge above most other products of its kind. Both NSC and PPF are eligible for tax deduction under section 80C.

As interest rates have begun to slide, returns on bank deposits have taken a backseat. While SBI currently offers 8.5% on its 5-year tax-saving fixed deposit, HDFC and ICICI currently offer 8% and 9% respectively on similar deposits and the interest is compounded quarterly. However, post-tax, the returns range from 5.96% to 6.77%, which makes them less attractive compared to PPF, NBNB and Jeevan Aastha.

Click to see the full view

To catch up at 60 with someone who has been saving Rs 50,000 a year from 30, you will have to save Rs 4 lakh a year. The flip side is that it may now be easier to bear the higher cost. Says Sumit Rai, senior vice-president and head of health and retirement, Max New York

Life Insurance: “At 50, most of your liabilities, such as home loans, would be paid off and your income would have risen.

So, you should have more to save.” Your investment options range from debt (for example, Public Provident Fund), to equity heavy options (for exam­ple, pension plans from life insurers and mutual funds). Unit-linked plans are cost-effective if you invest with cau­tion. Says Pranav Mishra, senior vice-president and product head of ICICI Prudential Life Insurance: “With 8-10 years of service left, it’s not late. Of his savings, 60-70 per cent should go towards retirement planning. He can begin with an initial exposure of 50-60 per cent to equities and cut it as he nears retirement.”

If you are falling short of your target investment, you could try increasing your income through part-time work, or, in the worst case, extend your work life. In a manner of speak­ing, any time short of the day you retire is a good for plan­ning your pension. And while you are at it, make sure you have life cover and health cover for your family.

Unit Linked Insurance Plans (Ulips) known for their confusing charge structures and terminologies varying between insurance companies will soon be standardised across insurers.

The move will allow a policyholder to know the premium amount he has lost to an insurer as charges and the internal rate of return (IRR) for every year thereby making Ulips comparable between insurance companies.

Ulips are insurance-cum-investment policies with the premium amount invested in stock market or government securities (debt instruments) as per a policyholder’s choice.

The Life Insurance Council, a selfregulatory body of life insurance companies, has submitted a proposal to the insurance regulator — Insurance Regulatory & Development Authority (IRDA) ULIPs insurance-cum-investment policies with the premium amount invested in stock market or government securities (debt instruments) as per a policyholder’s choice

The move will allow a policyholder to know the premium amount he has lost to an insurer as charges and the internal rate of return for every year thereby making Ulips comparable between insurance firms proposing a standardised methodology for calculating the charges.

“We have proposed that the names of various charges and the way of calculating them should be uniform across insurers,” said SB Mathur, secretary general of the council.

Insurance companies will provide a benefit illustration to policyholders telling them the amount it has deducted as charges towards various expenses and the IRR per year at a rate of 6 per cent and 10 per cent. In addition, insurers will also provide a benefit illustration telling policyholders the returns if there were no insurance charges so that he can compare the returns with a mutual fund.

“Policyholder will know the amount (fund value) he will have in case he exits the policy in a particular year,” said an industry official.

According to the new proposal, the number of charges has been grouped as six main charges. Premium related charge, also known as premium allocation charge, will be charged as percentage of premium by all insurers. Surrender or exit charge has been renamed as withdrawal load and will be charged as percentage of first year premium or amount withdrawn. Insurance charge (charged for life cover and various riders) will be expressed as percentage or per thousand sum at risk. Fund related charge such as fund switch would be as a percentage of fund.

Mint features a Q&A on insurance every Monday.

My brother had taken a unit linked insurance policy (Ulip) two years ago. He recently realized that he can make a partial with drawal or surrender the policy af ter a three-year lock-in period. Is the fund value that he receives from the policy taxable?

The fund value received by your brother will be exempted from income tax. Under Section 10 (10d) of the Incometax Act, 1961, premiums qualify for deduction under Section 80c of the Act. That is, benefits-including partial withdrawals, surrenders and maturity proceeds-qualify for deduction.

I am 28 years old, and plan to buy a life insurance policy. How can I add to my insurance against an accident or a fatal mishap?

Most companies will offer riders on the base policy to of fer benefits in case of disability arising from accident. Riders are flexible options that add value to the customer’s life insurance policy. They allow customization of a life insurance policy to suit specific needs of customers. Thus, you could opt for a personal accident benefit rider that is a low-cost, additional benefit paid to the nominee in case the insured’s death is caused by an accident. It is very important to always read sales brochures and policy documents so that you are aware of the plan in its entirety.

• Star Union Dai-ichi Life Insurance Company Ltd., a joint venture of Bank of India, Union Bank of India and Dai-ichi Life of Japan is all set to begin its operations shortly. The Company filed its application for R1 license in April 2008. SUD Life received R3 approval and license by IRDA on 26th of December 2008. The Company plans to cater to the Indian Life Insurance market through a mix of traditional as well as unit linked products keeping in mind the current trends and requirements of the Indian public

• ICICI Prudential Life Insurance Company Limited has launched Health Saver, a new health insurance product which integrates health and savings.

Launching the product, company vice-president (sales & development) K. Mahesh said the product provides reimbursement-based hospitalisation cover with the benefit of a health-savings fund. It allows claims against outpatient treatment, diagnostics and dental care after three years. The customers will receive guaranteed coverage of up to 75 years, against actual medical expenses incurred due to hospitalisation, Mr. Mahesh said.

Other benefits include coverage against pre-existing illnesses and conditions after two years subject to acceptance by the company, no-claim bonus and a free health check-up every two years. More than 240 hospitals in the State had been approved by the company to offer cash-free services to policy-holders, he said.

Life Insurance Corporation of India has tied up with an insurance portal Policy Bazaar.com to sell its policy Jeevan Aastha online. The consumers would now be able to get the details of the policy online and make purchases, a press release said. The policy would be available till January 21. LIC plans to garner Rs 25,000 crore through the sale of this policy.