THE decision by market regulator Sebi to allow investors get into mutual funds (MFs) with variable entry charges has put the spotlight on the life insurance industry.

For years, fund managers in asset management companies (AMCs) have accused the life industry of imposing higher charges on unit-linked insurance plans vis-à-vis mutual funds. Insurance regulator IRDA has also warned the industry to brace for ceiling on charges.

However, life insurers rule out any zero-entry load in the life insurance business. “Most of the business in life insurance comes from individuals, with MFs it is largely institutional money. There are some distribution costs in life insurance which just cannot be avoided,” said Gaurang Shah, MD, Kotak Mahindra Life Insurance. SB Mathur, secretary, the Life Insurance Council, an association of life insurance companies, said the life industry has to mandatorily distribute 18% of its policies in rural areas and also provide cover to the underprivileged. “If there is an attempt to put restrictions on costs, life insurance, too, may end up being an urban business,” said Mr Mathur. He pointed out if charges were reduced, some of the fixed costs such as stamp duty (Rs 40 per Rs 1 lakh) would have to be passed on to the customer.

1. IRDA drafting bancassurance guidelines
India’s insurance industry watchdog, Insurance Regulatory & Development Authority (IRDA), is working on a set of guidelines for bancassurance that will enable insurers to pass on savings achieved through using the bank distribution channel, reports The Economic Times citing a senior official at the regulator 

Confused over buying the right unit-linked policy?

Well you are not the only one. It is really confusing when you have to compare the offerings of the 22-odd life insurance companies in the market.
While insurers pitch unit-linked policies as the hottest and most transparent plans, most policyholders grapple to get acquainted to terminology of plans from different insurance companies.

So much so, the Life Insurance Council has taken up the issue with the Insurance Regulatory and Development Authority (Irda).

“We are looking at standardisation of nomenclature used by insurance companies and also a uniform method of calculating charges by companies,” S B Mathur, ex-LIC chairman and secretary general, Life Insurance Council, told DNA Money.

“Customers get confused to see charges in plans being called by different names. For example, some use the term ‘fund management’ charge, some call it net asset value (NAV) charge, while some others brand it as ‘policy maintenance charge’ or policy administrative charge.

This creates confusion for customers as they compare similar products,” Mathur said. “We are saying, if the charge is for management of funds it should be called fund management charge. The method of calculation should also be standardised. Some calculate these charges on the basis of sum assured, while some on the NAV,” he added.

The council has said that there should be one or two methods so that it makes it easier for the customer to compare the loads.
While the regulator is still to take a decision on these, Irda actuary R Kannan said, “There is a need to enhance transparency in the operation of insurance companies so that policyholders make informed decisions.
Moreover, to consolidate the benefits, we must inculcate and enhance the confidence of both current and prospective policyholders.”

The Life Insurance Council is also working on a host of other issues. “We are dealing with taxation and compliance issues including KYC norms,” Mathur said.

Expensive as they appear, it is sometimes better to go for individual policies for the whole family

Today, there is increased awareness about healthcare costs and how mediclaim insurance helps mitigate the risk of such costs. One question for the first time buyer is whether to take individual insurance polices for each family member or a family floater policy.

Before we look at the pros and cons of the various types of mediclaim policies available, let us quickly look at what each of these policies means.
An individual policy means a separate policy for each of the family members. That means, if in a family of three members, each of the family member is covered for Rs 2 lakh, then eligible hospitalisation expenses incurred up to that limit for that particular individual only would be reimbursed.

In contrast, in a family floater plan, the limit can be utilised by any of the family member. If the same family takes a family floater plan for Rs 4 lakh and say eligible expenses incurred for one of the members was Rs 3 lakh, it will be fully reimbursed. So, in many ways, the family floater plan offers flexibility in terms of utilising the overall insurance coverage among the family as a group.

This would seem to indicate that a floater plan is always more beneficial for a family. However, there are several other considerations that need to be taken into account before taking this decision. We have used some examples to understand this better.

We then tried to find out the value of a family floater policy that they will get for about the same amount of premium. And we found that the older family would be able to get a family floater plan for Rs 4 lakh at almost the same cost (Rs 13,092 as compared with Rs 13,106 for the individual policies). The younger family fares much better with a family floater policy of Rs 5 lakh available at a much lower cost (Rs 6,998 instead of Rs 7,776 for individual policies).

As can be seen, for the older family, for the same amount of premium, the family floater plan doubles the amount available for each family member (Rs 4 lakh from Rs 2 lakh) while halving the overall family cover (Rs 4 lakh from Rs 8 lakh). For the younger family, on the other hand, the flexibility is increased dramatically (Rs 5 lakh from Rs 2 lakh) without a significant impact on the overall family cover (Rs 5 lakh from Rs 6 lakh) and with money saved to boot.

The reason for this is not far to seek. The family floater plans are priced on the basis of the age of the senior most member and as he/ she gets older, the flexibility decreases and/ or the cost increases significantly.

There are other disadvantages to a family floater policy as well. The policy will be renewed only till the senior most member reaches the maximum age of renewability allowed by that company. As it stands today, at that stage, the other family members will need to take a fresh policy without having the benefit of their claim history and pre-existing disease coverage that comes from continuous renewal of the policy.

The same applies to children who reach the maximum age (normally 25 years in most cases) after which they will need to buy a separate policy for themselves without the benefit of the earlier continuous coverage that they have got under the family floater policy. Most policies also make no specific provision for continuing cover of the surviving members in case of the unfortunate death of the senior most member.

All in all, since continuous coverage and claim history is critical in this category and currently there does not seem to be any stated basis for taking these with you when you are forced out of a family floater plan, we would strongly recommend taking individual policies for the whole family.

The writer is CEO, ApnaInsurance.

The insurance companies should provide proper understanding of the product at the time of selling a policy to avoid mis-selling, according to Mr J. Hari Narayan, Chairman, Insurance Regulatory and Development Authority (IRDA).

“Mis-selling has been a major area of complaint from a consumer point of view. In many cases, there seems to be no clarity on how to interpret a policy and its implications,” Mr Narayan said in his keynote address at a workshop on consumer grievance management in the insurance industry, organised by IRDA, here on Friday.

On an average, two-three lakh complaints are registered in the country per annum while the industry is selling about five crore policies a year, he said.

Out of this, over one lakh complaints are on mis-selling and the remaining pertain to claim settlement and other issues, he added.

The industry, especially, private insurers, should set up benchmark time-frames for addressing various sets of complaints from the consumers, the regulator said.

The institution of ombudsman, which was introduced prior to the formation of IRDA, would also be brought under the purview of IRDA “sooner or later”, Mr Narayan said adding that further streamlining of the ombudsman system could be taken up later.

IRDA will be introducing an integrated online grievance redressal system to help the policyholders, he said.

The proposed software would integrate existing system of insurance ombudsman, the insurers, consumers and the IRDA.

Mr K. Rangabhashyam, Insurance Ombudsman, Kolkata, said complaints of mis-selling accounted for more than half of the total complaints.

“On an average, the 12 offices of ombudsman across the country receive 12,000 complaints per annum out of which 50 per cent are non-entertainable. In the remaining, mis-selling of policies is a major issue,” he added.

THE finance ministry has decided to make a permanent account number (PAN) card mandatory for buying all insurance policies that have an element of investment in the capital market and the premium exceeds Rs 1 lakh per year.

The ministry along with the insurance regulator, Insurance Regulatory and Development Authority (Irda), is working to make the use of PAN mandatory for buying such insurance policies. Insurance products with investment element means all unit-linked insurance policies (Ulips) would come under the new provision.

“Making use of PAN card compulsory will really help. This way, the government can keep track of all financial transactions. It will be useful even for security purposes. These days by tracking financial transactions one can solve many cases,” said Tarun Bajaj, joint secretary, insurance, ministry of finance.

Irda has already started working on the initiative and say they will notify it soon to ensure compliance. Insurance companies say making a PAN card mandatory will affect their business only initially. A senior official of Bharti AXA Life Insurance, who did not wished to be named, said, “The PAN is now an integral component of any financial transaction - from opening a savings bank account to purchasing a house or applying for a credit card. Thus, the urban Indian consumer is now fairly accustomed to the use of PAN cards in buying financial solutions. For these customers buying Ulips, mandatory declaration of the PAN may be a new development that they would need to be accustomed to.

It may take some time for PAN declaration at the time of buying an Ulip to become a practice.” Last year, former finance minister P Chidambaram had announced in the budget that that the PAN would be made mandatory for all financial transactions. However, now the finance ministry has put a floor of Rs 1 lakh of premium per year.

Last year in his budget speech, Chidambaram had proposed “to extend the requirement of PAN to all transactions in the financial market subject to suitable threshold exemption limits.” However, the action taken report presented in the Parliament on Monday says, “It is proposed to mandate PAN for such insurance products that have an investment element in them, with exemption granted in cases where the contracted premium payable on such insurance policy does not exceed Rs 1 lakh.”

Initially, there was talk of the PAN becoming mandatory for insurance policies, post office savings accounts or its savings certificates which did not require record of the 10digit alphanumeric taxpayer identification number.

LIC has always been sensitive to the changing aspirations of its customers and thusbrings out different products from time to time to cater to those needs . Close on the heels of Jeevan Aastha, whichwas a runaway success, our latest offering is Jeevan Varsha, a Close-endedGuaranteed Additions plan. The Planprovides guaranteed benefits on death as well as maturity and has a few uniquefeatures. The Plan would be open for sale from 16th February 2009 to 31st March 2009 .

It is a Money Back Plan with only 2 Policy terms i.e., 9 years and 12 years , withPremium paying term restricted to only 9 years for both . This has been done keeping in view thepreference of the people for short duration policies. Further it offersattractive Guaranteed Additions of Rs.65/- per thousand S.A. peryear for 9-year term and Rs. 70/- per thousandS.A.for a policy of 12-year term.

For the first time in any Money Back Policy, the Survival Benefits are payable every 3 years. This means that for a 9-yearterm policy, the payouts would be at the end of 3rd,6thand 9th years and for a 12-year term policy, the payouts would be atend of 3rd,6th,9th and 12th years. This provision makes Jeevan Varsha aplan with periodical payments (Survival benefit) and helps the buyer in meetingvarious expenses during the course of the policy , while enjoying fullinsurance coverage for the entire policy term .

Any person who has completed 15 years of age can buy this policy so that firstSurvival Benefits becomes payable to him only after he attains majority. The maximum age at maturity has been peggedat 75 years which means that the maximum age of entry for 9-year term would be66 years and for the 12-year term it would be 63 years.

This is a regular premium plan where all modes of payment Yearly,Hly,Qly and monthly (ECS mode only)are allowed.

The minimum Sum Assured for ECS monthly mode is Rs. 75000/- and Rs. 50,000/- forother modes, there being no limit on the maximum Sum Assured.

The Loyalty Additions are also payable depending on the experience of theCorporation with regard to interest rate assumed, expenses and mortality.

The plan has provisions for Loan, Surrender and Revival. Usual conditions regarding Grace Period andCooling-off are also applicable to this plan. Tax Benefits as per the existingIncome Tax Rules are also admissible.

The plan is ideally suited for a person who wishes to plan for his future needsarising at different intervals, ensuring complete safety of his capital andwith assurance of a reasonable rate of return. In other words it is a key toopen the doors of enjoyment & happiness for the buyers.

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).