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Term insurance – because your family needs financial protection

Jan 12, 2016

Buying term insurance is considered as the first step in the process of building a financial plan. A financial plan could be built purely on savings or through a combination of savings and protection - “Save for life’s ‘certain’ needs and protect against life’s uncertainties”.

This can best be understood with an example. Let us begin with a scenario - I need Rs. 10 lakhs for my child’s education, after 10 years. Assuming that my investments earn 8% per year, I will need to set aside approximately Rs. 64,000 each year, for 10 years. This is a ‘certain’ need and can be achieved through regular savings.

Now let’s look at life’s uncertainties. Consider a situation - I am the sole breadwinner and my family requires Rs.1 crore to enjoy the same lifestyle in case I am not around. Arranging this one crore rupees may be a task for most individuals. Death is uncertain and none can be sure that he will get enough time to build a corpus, which will be sufficient to take care of the family, before his death.

But this mammoth task can be achieved if there is a collective effort. If 1000 individuals come together and contribute Rs.10,000 each, there is a corpus of Rs 1 crore in place in no time. This group can create a safety net for that one unfortunate person who dies before saving for his family. This arrangement – technically known as term insurance, works to provide a safety net.

It is the simplest form of life insurance. It is a cost effective route to buy financial protection. Simply put, I pay premiums and in return the life insurance company provides financial benefit to the nominee in case of my death.

Why should I buy term insurance?

I need term insurance to insulate my financial plan in my absence and enable my family to continue with their lives. Here are some of these situations wherein a term insurance can save the situation.

Leave a “home”, not a “home loan”

Take the case of a typical home loan borrower. I am 35 years old, married, have a child and have availed a home loan to purchase a property. If something happens to me, my family will have to repay the loan outstanding at the time of my death. If they can’t they will have to sell the house. This predicament can be avoided through term insurance. If I have bought term life insurance, the insurance company will pay my family a fixed sum. The family can use this money to pay off the home loan outstanding and continue their stay in the home.

Provide income for the family, even in your absence

At the age of 35, I have another 25 years of work life. If I am not there, my family needs to have an alternative source of income for those 25 years. The need for income replacement reduces as I near retirement. If I have bought term insurance, the family can invest the insurance proceeds received after my death, in various saving options and ensure that they get some regular income.

Broadly, individuals up to the age of 40 need insurance equivalent to 20-30 times their annual income. A person in the 40s will need protection that is 10-20 times the annual income and individuals in their 50s will need cover about 5-10 times the annual income.

Things to consider before buying Term insurance

How much life cover should I buy and for how long?

I need life cover to discharge my loans and to provide for the loss of future income to my family. Put simply I need to cover myself, as long as the loan(s) continue and of course, till my age of retirement.

I need to take into consideration my income and outstanding loans while purchasing a term plan. For e.g. I am 35 with a monthly income of Rs. 20,000 and have an outstanding home loan of Rs. 7,00,000. I will need life cover for the next 25 years. Therefore the calculation of cover will be: (Rs. 20,000 X 12 months X 25 years) + Rs.7,00,000 = Rs.67,00,000. I need this cover till retirement.

Whom should I buy it from?

It is necessary to select a life insurer with consistently high claims settlement records. Equally necessary is evaluation of the time taken by the company to settle claims. As “Justice delayed is often justice denied.”

If there is a cheaper product should I switch to a new policy?

As age progresses, buying insurance becomes more expensive. I should therefore continue with my existing policy.

What are my responsibilities while buying life insurance?

It is my duty to truthfully disclose all information in the application form. If I do not provide correct and truthful information, the company may decline my claim thereby defeating the objective of purchasing life insurance. I need to ensure that my latest contact details are updated to enable the company to send reminders and settle benefits in a timely manner.

What should I do if asked to undergo medical tests?

The company may want to ascertain my health condition before issuing the policy and hence ask me to undergo some medical tests. As they say, prevention is better than cure. Treat these medical tests as a preventive check-up that the insurance company is paying for.

What if the premium amount increases after the medical tests?

It is possible that medical tests throw up some prognosis requiring me to pay a higher premium amount. It would be unwise of me to decline the cover because of this. If I am at a higher risk, I have a greater need for the cover. The cover is worth it even with the additional premium.

In conclusion, buying term insurance today will ensure the well-being of my family, even in my absence.


Why accident insurance is a must

Jan 11, 2016

Personal accident insurance policies are must-haves if you are the bread winner of the family.Accidents, be they due to forces of nature or vehicle crashes, are covered under these policies. A health insurance policy pays for your hospitalisation expenses in case of an accident. But God forbid, if you are unable to continue with an active work life due to a serious injury, you need an income supplement.

What’s assured
Accident insurance policies step in here. They pay your family in the case of accidental death, and compensate you for permanent total or partial disability. The sum insured offered, however, is linked to the individual’s income.

Your compensation in accident insurance policies depends on the nature of impairment. A ‘permanent total disablement’ is an injury that prevents the insured from attending to his normal duties for a continuous period of more than 12 months with no hopes of improvement. A ‘permanent partial disablement’ is an injury that results in loss of eyesight, speech, or a hand or foot. If it’s a permanent total disablement, many insurers pay more than 100 per cent of the basic sum insured. With Bharti AXA, for instance, if the basic sum insured (for accidental death) is Rs.10 lakh, for permanent total disablement, a one-time settlement of Rs.15 lakh (150 per cent of basic sum insured) is paid. For permanent partial disablement, up to 75 per cent of the basic sum insured is paid. But here are the other facts you may not know.

Many accident insurance policies cover temporary disablement too. Assume that due to a fracture or injury you are not able to carry on your normal routine for some time. In such cases, insurers provide a daily/weekly benefit.

In Bajaj Allianz’s accident policy, for instance, Rs.5,000 per week for a maximum of up to 100 weeks is given for temporary total disability. In Royal Sundaram’s accident policy, for temporary total disablement, the insured is given Rs.3,000 a week for a maximum of 104 weeks. Like other insurance policies, in accident insurance too, there are a set of disclosures that you need to make while signing up. But there will be no questioning on your medical history.

Set of disclosures
In life or health insurance, the premium for the policy depends on the individual’s age and lifestyle (whether a smoker/non-smoker). But, in case of accident insurance policies, the premium is the same for individuals across age groups.

What however influences the premium is one’s profession. Some insurers do not cover aircraft pilots and crews and those in hazardous occupations under these policies. Some also explicitly exclude injuries caused by risky sports, such as bungee-jumping and para-gliding.

A personal accident insurance policy costs less than a term life insurance cover. Most basic accident policies that cover accidental death and permanent disability are available for a price of Rs.7/8 a day for a sum insured of Rs.20 lakh. This works out to an annual premium of Rs.2,500-3,000.

A term life policy for the same sum insured would cost about Rs.4,000-5,000 a year for an individual of 30 years; the premium is higher for the 40-plus age group.

However, one hitch with accident insurance is that there are few high-value covers on offer. While in life insurance, policies of Rs.1 crore are commonplace today, in accident insurance, most insurers offer up to Rs.10/25 lakh at the most. Those that offer higher sums insured ask for a disproportionately high premium. Royal Sundaram General Insurance offers accident cover for up to Rs.75 lakh. The cost of this policy is Rs.20,942 annually (without taxes). Individuals of 30-40 years of age may get the same sum insured under a life insurance policy for a lower premium of Rs.8,000-10,000.

Tata AIG’s accident insurance policy gives a sum insured of up to Rs.1 crore. The premium on this is Rs.15,140 (inclusive of taxes).

But the sum insured is linked to one’s income. In Tata AIG’s accident policy, for instance, the sum insured given will be only 10 times the annual income for salaried individuals and 20 times the annual income for the self-employed.

Source: The Hindu Business Line

Four public sector insurance companies settles 32% of claims received after flood

Jan 11, 2016

Four public sector insurance companies - United India Insurance Company Ltd, New India Assurance Company Ltd, Oriental Insurance Company Ltd and National Insurance Company Ltd - have so far settled around 32 per cent of the 19,500 claims they received from the flood affected areas of Tamil Nadu, especially Chennai.

There claims are for an estimated amount of Rs 2,518.81 crore and the insurance firms have until January 8, 2016, settled 6,237 claims by paying around Rs 104 crore, according to a senior official from an insurance company.

"We had some camps organised in the select cities and advertised in newspapers. Surveyors have been asked to give the report within five days. Once they gave the report the claim was settled within two to three days. The small claims are settled within 10 days, while major claims may require more time," said M P Jairam, deputy general manager, United India Insurance Co Ltd.

Of the total claims, around 6,573 claims for a total of estimated Rs 1,358.09 crore were received by United India Insurance, out of which the company has settled 2,287 claims for Rs 47.39 crore. The second largest number of claims were to New India Assurance, which received 5,192 claims for Rs 542.74 crore, of which 1,593 claims worth Rs 30.63 crore have been settled.

National Insurance has seen 4,825 claims for a total estimated Rs 263.43 crore, out of which the company has settled 1,691 claims for Rs 11.73 crore. The second largest in terms of amount of claims is for Oriental Insurance, which received 2,910 claims for an estimated Rs 354.55 crore, out of which 666 claims have been settled for Rs 14.51 crore. The numbers include individual and company claims.

A large number of claims were for two- and four-wheelers and some commercial vehicles, he said.

Meanwhile, various industrial associtions complained that several banks and insurance agencies are not properly extending their support to the micro, small and medium level companies to revive their business from the disaster. They alleged that many of the surveyors do not understand the technical requirements and while the critical machines are completely damaged, the claims are settled only by calculating the depreciation, which is affecting the revival plans. They also alleged that the number of claims settled are high considering the priority was on settling smaller claims such as that of two- and four-wheelers while the larger claims from the industry are still pending.

A group of micro and small units have formed a consortium and are planning to conduct a massive protest in Chennai. The micro, small and medium entrepreneurs are asking support including waiver or moratorium for various taxes, moratorium for various loans and financial support from banks, apart from addressing issues with electricity board and other government authorities related to settling the bills.

Source: Business Standard

Drones to assess crop loss under new insurance policy

Jan 11, 2016

A new agriculture insurance scheme for farmers -to be known as New Crop Insurance Scheme (NCIS) -expected to be approved by the Cabinet next week, will see drones being deployed to access crop damage figures.

The feed sent by drones will be collated with satellite imaging and remote sensing technology to assist insurance companies in adequate disbursals calculated on the basis of actual damage to crops in a particular area.Smart phones and online transmission of data will also be used in cutting down time taken to finalise the yield data.

The new scheme also aims to keep the premium rate low as compared to the existing insurance scheme where the av erage premium rate for farmers has been kept at 5.5%. The agriculture ministry in its Cabinet note proposes maximum premium up to 1.5% for wheat, 2.5% for paddy , 2% for oilseeds and 2-2.5% for other crops. Maximum premium or horticultural crops is proposed at 5%, unlike the exist ng schemes where the premium in certain cases goes up to 40%. The Cabinet, chaired by Prime Minister Narendra Modi, may even further lower the proposed premiums for all types of crops.

"We have identified discrepancies in the existing scheme of Modified National Agricultural Insurance Scheme (MNAIS) and will come out with a new crop insurance scheme, set to be implemented from 2016-17," agriculture minister Radha Mohan Singh said.

Besides the MNAIS, another scheme -Weather Based Crop Insurance Scheme (WBCIS) -has also been in operation in many parts of the country since 2007. The ministry's proposal to the Cabinet noted that though the government has been providing premium subsidy up of 75% and 50% under the MNAIS and the WBCIS respectively on actuarial premium rate, it was observed that the "premium paid by the farmers is quite high as the actuarial (exchanging risk with certainty) premium may exceed even 60%".

In order to make the NCIS scheme known to farmers in all districts, the ministry has proposed to allocate districtarea to one insurance company for a longer period of time, allowing them to build infrastructure and create a rapport with farmers of the area. Under the new scheme, the farmers will also get damages of their "post-harvest product" destroyed by cyclone or unseasonal rains up to a maximum of two weeks on "individual loss assessment basis".

Source: The Economic Times

All you need to know about the new Crop Insurance Scheme

Jan 08, 2016

Agriculture Minister Radha Mohan Singh made a presentation to Prime Minister Narendra Modi on Wednesday on the proposed new Crop Insurance Scheme. Besides premium rate, the discrepancies in the existing scheme were discussed.

The meeting was attended by Finance Minister Arun Jaitley, Home Minister Rajnath Singh, External Affairs Minister Sushma Swaraj, Food Minister Ram Vilas Paswan, Urban Development Minister Venkaiah Naidu and Road Minister Nitin Gadkari. Rural Development Minister Chaudhary Birender Singh, Tribal Affairs Minister Jual Oram, Social Justice Minister Thaawar Chand Gehlot, Chief Economic Advisor Arvind Subramanian, Niti Aayog chief among other senior officials from Finance and Agriculture Ministries were also present.

Here is all you need to know about the proposed new Crop Insurance Scheme:

The Agriculture Ministry has proposed an average premium of upto 2.5 per cent for foodgrain and oilseeds crops and 5 per cent for horticulture crops. However, some sections within the Cabinet want a uniform premium of 1-1.5 per cent for all crops.

The Centre would incur an expenditure of Rs 8,000 crore annually if a premium for farmers was fixed at 2.5 to 5 per cent depending on the risky crops and if 50 per cent of the total crop area of 194 million hectare was insured.

But fixing a uniform premium rate of 1.5 per cent for all crops for 100 per cent coverage would increase the Centre's financial burden to Rs 11,000 crore, which the Finance Ministry officials said was a major concern. The government intends to implement the scheme from the forthcoming kharif season from June.

The proposal on the new crop insurance scheme, moved by the Agriculture Ministry, was once discussed in a Cabinet meeting last year, but the decision was deferred in the wake of differences over the premium rate. In the existing Modified National Agricultural Insurance Scheme (MNAIS), the average premium rate for farmers has been kept at 5.5 per cent, though the premium rate for high risky crops is as high as 40 per cent. Last year, only 27 per cent of the crop area was insured which cost Rs 3,150 crore to the national exchequer.

Besides lower premium rate, the proposed Crop Insurance Scheme aims to settle insurance claims faster by assessing the crop damage using modern technologies like remote sensor. The Agriculture Ministry has already launched a portal on crop insurance and a mobile app as part of the digital India campaign.

Source: Business Today

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