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How to choose a plan to insure yourself against critical illnesses
Feb 01, 2016
In the 2 minutes you will take to read this article, 3 people will die of cancer in India.
By the time the day is over, 900 people under the age of 30 would have succumbed to heart disease.
By the time the year is over, there will have been nearly 50,000 deaths caused by the non-availability of vital organs for major transplants.
Besides the emotional turmoil caused by these life changing critical illnesses, there is financial upheaval as well.
Herceptin, a medicine that treats breast cancer (the largest killer of Indian women in 2014), costs between Rs.75,000 and Rs.1 lakh per vial. A patient usually requires 16 vials.
A single valve replacement surgery for heart disease costs between Rs.1 lakh and Rs.3.5 lakh.
A transplant needed to treat kidney disease, the 12th leading cause of death in the world, costs Rs.4 lakh.
Critical illnesses are not a distant possibility, but a daunting reality. Treatment and care for these diseases is not easy to arrange, and therefore, it is essential that you properly insure yourself against them.
To find yourself the most suitable plan, sequentially answer each of the questions below:
1. I have a Mediclaim policy. Isn’t that enough?
Not necessarily. Within the non-life segment of insurance, health (mediclaim) and critical illnesses fall under different categories.
Health insurance is an ‘indemnity’ based insurance wherein your insurance company reimburses you for the actual cost of hospitalisation you have incurred. This is usually the type of health insurance employers offer their employees.
By contrast, critical illness (CI) insurance is a ‘fixed benefit’ based insurance which does not depend on hospitalisation bills to compensate policy holders. Upon diagnosis of any of the critical illnesses covered by your policy at a specified severity, you receive a lump sum pay-out.
In case you are diagnosed with a critical illness, it is likely that you may be unable to work for a while. Thus, a generous critical illness (CI) rider (on a life insurance policy) can function as an effective income replacement option offering a lump sum critical illness benefit with continuing coverage of the death benefit component. Investing the lump sum payout will ensure your financial foresight results in guaranteed monthly income despite suffering from a critical illness, as well as enough funds for other obligations like the education of your children or paying off loans.
Thus, while there is definitely space for a Mediclaim plan in your insurance portfolio, it cannot replace the need for protection against critical illness.
2. I’m convinced. What are my options for protection against critical illnesses?
There are usually two options available:
i. A standalone critical illness policy
The major advantage of this option is that you can choose the cover according to the illnesses you are prone to contract, based on your lifestyle and family’s medical history. The major disadvantage is that with a CI policy, every few years—usually three—the premium may be revised based on medical check-ups the insurers may ask you to undergo. If your health has taken a downturn, your premium may shoot up.
ii. A critical illness rider with a life insurance policy
The major advantage here is that it is much more cost effective and convenient as it comes attached with a life insurance policy and does not demand high premiums. Additionally, the premium remains the same throughout the policy. The disadvantage used to be that the cover was not as comprehensive as a standalone policy, but there are now a lot of plans available in the market that are even more extensive than most standalone policies, and also cheaper.
3. Tell me more about a comprehensive life insurance policy.
A number of life insurance products offers a CI benefit or rider, but none as comprehensively and cost effectively as a term plan. Buying a term insurance policy is the simplest and cheapest way to secure your family’s finances against unfortunate eventualities like death, disability, or critical illnesses. Buying the policy at a young age can help you secure coverage of crores of rupees for less than Rs.55 per day.
4. I’m convinced. Which term plan would best protect me against critical illnesses?
Choosing the perfect term plan to give you and your family 360° protection isn’t a decision one should take lightly. Additionally, it’s not an easy decision as there are a number of factors you must consider before you decide. However, it is prudent to look beyond the premium when making this decision. After all, paying more today will be worth it if the policy offers assured financial and emotional security to you and your family.
Make sure you consider every one of the criteria explained below:
• Coverage options
Almost all insurance companies offer flexible coverage options that include riders for terminal illnesses, permanent disability, accidental death, and critical illnesses. However, most insurers restrict the CI rider to very few illnesses/conditions. Thus, you need to opt for a plan that is more extensive and covers a wide range of critical illnesses. You should aim to get cover against heart and artery diseases, brain and nervous system complications, as well as major organ care.
Additionally, with women matching men in all aspects of life, a one-size-fits-all plan may leave the family at risk in the event of unfortunate demise of the woman of the house. You thus need a plan that offers women specific benefits. Ideally, it should cover female organ cancers such as breast cancer and cervical cancer, and should also offer special/discounted premium rates to women.
• No increase in premium
Very often, with long term life insurance plans and health insurance plans alike, insurers revise premiums periodically, increasing it slowly but steadily throughout the policy period. This can be detrimental down the line when the premium shoots up suddenly following a medical check-up, so ensure that the policy you choose does not review premium at any point during the period of the policy. This ensures that the only thing increasing is your income, and not your insurance premium.
• The clincher - tax savings
One of the added advantages of getting a term plan with a CI rider is that it reduces your tax liability.
For example, say you buy a standalone critical illness policy, you get tax benefits only u/s 80(D) wherein the maximum limit is Rs.25,000 + Rs.5,000 extra for senior citizens.
However, let’s say you buy a term plan with a critical illness rider. In this case you get tax benefits u/s 80 (C) for the term plan since it’s a life insurance product, for which the deduction limit is Rs.1.5 lakh and you get benefits u/s 80 (D) up to Rs.25,000 for the critical illness rider. So if you are paying a premium of Rs.50,000 for the term plan, it gets deducted u/s 80(C) and Rs.25,000 for the CI rider which gets deducted u/s 80(D), thus reducing your tax liability even further.
5. But, what if I already have a term plan?
As per an IRDAI report, penetration of life insurance in India fell from 3.40 in 2011 to 3.17 in 2012. So even if you do have a term plan, chances are you are underinsured and don’t know it. Also, as explained above, unless you have a critical illness rider, or a standalone critical illness policy, you are still vulnerable to the financial mayhem such situations can cause.
So, do a check. The sum assured for a robust term insurance plan should be at least 15 times your current annual salary.
Let’s say your salary is Rs.10 lakh per annum. In this case, you should be covered up to at least Rs.1.5 crore. If your policy covers you for just Rs.1 crore, it’s essential you immediately buy a term plan for the difference amount, i.e. Rs.50 lakh with a critical illness rider. This will ensure that your family is comprehensively protected.
Thus, the ideal term plan would be one that combines the benefit of a standalone life insurance policy (comprehensive cover) with the benefit of a CI rider (affordability and convenience). You should also look for an insurance company with a high claim settlement ratio so you are assured that your future and that of your family is in good hands.
What does the insurance industry expect from Budget 2016?
Jan 29, 2016
Insurance companies hope the finance minister will be more generous in Budget 2016, than he was last year. And while tax exemptions remain their biggest priority, this year's wish list includes more measures to support and promote the government's pet insurance schemes.
India has immense potential as an insurance market. But it needs some serious support from the government if that potential is to be achieved, starting with more tax incentives for buying personal insurance policies. That's the crux of the insurance sector's wish list for Budget 2016.
Global reinsurance giant Swiss Re points out that insurance penetration in India in FY15 was just 3.3 percent, significantly lower than the global average of 6.2 percent.
Now this number could increase, thanks to Prime Minister Narendra Modi's insurance schemes, the Pradhan Mantri Suraksha Bima Yojana and the Pradhan Mantri Jeevan Jyoti Bima Yojana. But, players launching a scheme is not enough.
"See we have been telling the government that personal lines of business need a push and the tax breaks have always helped the Indian customers to go in a particular direction in the case of life insurance policies," says G Srinivasan, CMD, New India Assurance.
"So we have asked for a very small exemption. We have said that if this exemption is given, a lot of people will go for householder's policies, personal accident policies, which is today necessary for every individual," Srinivasan adds.
Currently, life insurance premiums are eligible for exemption under Section 80C of the Income Tax Act. Insurers like HDFC Standard Life feel life insurance needs a separate exemption, similar to that given to contributions made to the New Pension Scheme (NPS). Remember, 2015 saw an exemption of 50,000 rupees being provided to NPS contributions, over and above the Rs 1.5 lakh deduction limit allowed under the Income Tax Act.
Amitabh Chaudhry, MD & CEO, HDFC Standard Life Insurance says, "while last year he (the finance minister) made a major move in terms of giving a different category for NPS from a tax-saving perspective, we do believe that it is important that he, maybe, needs to carve out something similar for life insurance."
This is because, Chaudhry says, right now, the life insurance category is all mixed up and a lot of other things are allowed in it. So, separate provisions for life and pension schemes would be very helpful.
In addition, players feel the government must aggressively push its two insurance schemes to improve penetration. And one way to do this would be to enhance the insurance cover provided under these schemes from the current Rs 2 lakh. Service tax levied on life insurance products is also another sore area.
Health insurance market maintained double digit growth last fiscal year
Jan 28, 2016
The health insurance segment in the country continues to witness steady growth on the back of growing healthcare costs and increasing penetration levels with total premium collection growing 15 per cent in 2014-15 year-on-year. During 2014-15, the gross health insurance premium collected by non-life insurance companies was Rs.20,096 crore compared with Rs.17,495 crore in 2013-14, recording an increase of 14.87 per cent, according to the latest annual report of IRDAI (Insurance Regulatory & Development Authority of India).
The four public sector general insurance companies – New India, United India, Oriental and National – accounted for a major share of health insurance premium at 64 per cent of total health segment. Stand-alone health insurers contributed 14 per cent. While there is a marginal increase in the share of public sector and stand-alone health insurers, there is a drop in the share of private non-life insurers whose market share has come down from 26 per cent in 2013-14 to 22 per cent in 2014-15.
Over the past five years, there is a marked increase in the share of individual health insurance premium in total health insurance premium collected- increasing from 35 per cent in 2010-11 to 44 per cent in 2014-15.
The share of group health insurance business (other than government business) in total health insurance premium has remained static at around 45 per cent. . About 24 per cent of India’s total population has been covered under one of the health insurance policies in 2014-15.
Source: The Hindu
Insurance costs to go up 20-25% as more cars become Bharat Stage VI compliant
Jan 27, 2016
Insurance premiums might go up by as much as 20-25% as automakers start bringing out greener, more fuel-efficient cars that are Bharat Stage VI emission norms compliant, says industry experts. The Union government has directed auto manufacturers that all four wheelers in India should be Bharat Stage-VI compliant by 2020. Automakers have said that the average cost of producing a car, which uses fuel compliant with the European regulator's emission standards, will go up by 1-2.5 lakh.
"Its a fairly simple formula. If manufacturing costs go up then so will the price of the car and the sum insured. If the sum insured goes up then you will have to pay higher premiums," says Tapan Singhel, CEO, Bajaj Allianz General Insurance.
The auto industry has been lobbying for pushing the deadline on implementation of Bharat Stage VI to 2023 as the move requires heavy investments in infrastructure and resources. Automakers will have to invest significantly in new technology that could increase the cost of a diesel car by as much as Rs 65,000 to Rs 1 lakh and the cost of petrol engines from Rs 7,000 to Rs 11,000, according to sources.
With more sophisticated technology like diesel particle filters (DPF) and selective catalytic reduction (SCR) involved, small diesel vehicles could become prohibitively expensive, which will have a cascading effect on vehicle insurance.
"It is similar to what we saw with CNG vehicles. Insurance costs did go up with the introduction of CNG buses and cars; because these vehicles on average cost more than their less environment friendly counterparts," says the head of underwriting at a general insurance company.
As to the premise that the spike in insurance premiums could see a little moderation from the safety features installed in cars, industry sources say the idea is a little "far-fetched."
"Third-party premiums are fixed by the Insurance Regulatory and Development Authority of India (IRDA). And owned-damage (OD) premium rates though fixed by general insurers again are subject to IRDA clearance. So if cars in future have more safety features - and say accident rates go down - again keeping in mind that its human error more than technical glitches in cars that account for most road accidents - then there is a slight possibility in the distant future that actuaries could factor that in ... But its really quite far-fetched," says the underwriting head.
There is also the view that the IRDA will need to gradually increase rates to make it more acceptable to purchasers of vehicle insurance. "They'll have to stagger the possible rate hike. If it's brought in over a period of time it will be more acceptable," says Vinod Sahgal, managing director, Bajaj Capital Insurance Broking Ltd.
Source: The Times of India
Yoga powers its way into health insurance wellness packages of ICICI Lombard, Bajaj Allianz and others
Jan 27, 2016
The buzz around Yoga seems to have struck a chord with health insurers. The growing popularity of this ancient form of exercise has prompted general insurers such as ICICI Lombard, Bajaj Allianz and Royal Sundaram to incorporate it in their wellness and preventive healthcare benefit packages.
While the trend is more prevalent in the employees' group health insurance schemes, some insurers are now planning to extend it to their retail health policies too. "We are planning to introduce such programmes for our retail customers," said Nikhil Apte, chief product officer, product factory (health insurance), Royal Sundaram. The company plans to offer online Yoga coaching sessions or DVDs to its retail policyholders.
ICICI Lombard has already recognised Yoga as an eligible preventive healthcare tool by making it part of an add-on cover attached to its regular health policy. "Policyholders who buy our add-on cover that offers preventive healthcare and wellness benefits can file a claim for reimbursement of expenses incurred on enrolling for Yoga sessions," says Sanjay Datta, chief, underwriting and claims, ICICI Lombard General Insurance. The customers have to produce receipts of fees paid to Yoga institutes to claim the benefit. The sum insured under this add-on plan ranges from Rs 2,500 to Rs 10,000 a year, depending on the cover amount chosen.
While the demand has been rising steadily, the success of the International Yoga Day last year has spurred insurers to act. "We had tie-ups with the leading Yoga centres in the past but after seeing the success of International Yoga Day last year we decided to revive it and bring it under the ambit of our value added services portfolio," said Suresh Sugathan, head, health administration team, Bajaj Allianz General Insurance. The insurer is planning to offer discounts and incentives as part of its range of value-added offerings. "We are in talks with some Yoga centres and institutes for a tie-up. Policyholders who sign up for Yoga sessions at these institutes will be eligible for discounts on programme fees," he added.
In the employees' group health insurance space, Yoga is being seen as a cost-containment measure, along with other preventive healthcare programmes. Insurance officials and brokers cite its ability to manage stress, one of the primary causes of heart ailments, diabetes and other lifestyle diseases that affect employees' health, as the core benefit. "Since Yoga helps control stress levels, the claims filed by employees could go down, helping the corporate clients keep their subsequent year's premium under check, as premiums are linked to previous year's claim ratio," said Sanjay Kedia, CEO, Marsh Insurance Brokers.
The cost-benefit trade-off works in insurers' favour, say officials. "For instance, organising five Yoga sessions in a year (for corporate clients) could cost around Rs 50,000, but it could reduce the scope for ailments triggered by stress and hypothetically cut down insurers' claims payout by say Rs 5 lakh," said Apte.
Source: The Economic Times
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