PENSION-LOVING INDIANS ARE HUGE OPPORTUNITY FOR FUNDS

Mumbai: After the trust vote, there has been a lot of attention on the perceived efforts of the government to push critical economic legislation. One of these relates to pensions. There are many players in the financial sector who are hoping to see the legislation being enacted, even if for selfish reasons. A growing number of Indians, especially in the urban areas and bigger towns, thanks to their higher income, are putting their money in mutual funds and other products which have an exposure to equity. Asset management firms, both local and foreign, have no doubt about the market potential here.
Now, a report on the private pension market in India, titled The Sleeping Giant, has thrown up some interesting data. Based on the Invest India Data-works Income and Saving Survey 2007, IIMS Data-works research report says that there are over 8 crore people who do see the need for and value of a pension plan even if it is a contributory system. Current estimates are that about 2 crore people save for their retirement by buying life insurance and other products.
The report suggests is that if the latent demand of this segment of the population is harnessed or tapped, the New Pension System could well have a corpus of Rs 57,000 crore in the first full year of operations. Sounds great but the reality might be different. But, as the report says, even if 20% of the 8 crore people, which it reckons are prime prospects, start saving for their retirement, the money which pension providers could have access to will be substantial.
Indeed, it has been demonstrated in some states how some organisations and self-help groups have managed to convert a growing number of daily wage earners to set aside modest sums for old age security.
The IIMS report says that as part of its survey, it sought out information from respondents on their retirement intentions and expectations, besides savings objectives. The survey showed that less than one in 14 people is making a conscious effort to save for retirement. Much of it has to do with low earning capacity. However, with robust economic growth, average earnings have risen and taking into account the change in demographics, the pool of funds which could be available for pension savings will be large.
If the survey is a guide to go by, policy makers will be able to draw comfort from the findings. The majority of those covered under the survey have said that they are willing to accept the fact that they have to save for a decade or more, even if it means small sums every month. Nor are they balking at the thought of not being able to take out money before the age of 58. The survey in fact, estimates that of the 8 crore workers in the paid workforce, one in four workers is ready to save for retirement and sign on for a voluntary pension plan. That should certainly bring some cheer to the pension regulator, PFRDA.
There is a lot of ground that the report covers. For instance, state-wise distribution of latent demand for retirement savings schemes. Demand is pronounced in states such as Andhra Pradesh, Maharashtra and Uttar Pradesh where it believes a targeted approach could well work. The resistance to investing in securities is also low compared to other assets, the report says. The other positives which have emerged from the survey is the fact that 70% of those falling in the latent demand category for retirement products do have a banking account or save with the post office.
Of critical importance now would be the approach of policy makers towards this universe of investors. Obviously, product design would be a key determinant. So would be the regulatory structure, the ease of investment, type of products and distribution channels, among others. The PFRDA is putting in place structures which seek to address all these. It is also clear that those aspiring to tap the potential investible surplus would need to unveil effective campaigns to woo savers. And that is not marketing campaigns alone but financial literacy programmes. The pensions regulator for one is considering doing that. Others who have a long term stake in the market need to follow suit.

Source: The Economic Times

LIFE INSURERS – THE ROAD AHEAD

The insurance industry in India appears full of life. Having grown at double-digit rates in the last couple of years, it is no surprise that new players are still queuing up to enter the market.
But despite the huge untapped market potential that India has to offer, players may have to brace themselves for a slight dip in growth momentum, given the industry’s high reliance on market-linked insurance products. The unit-linked insurance policies, whose sales peaked in the last few years due to the bull run in the equity market, now make up as much as 85-90 per cent of the total insurance sales.

Slowdown – not yet
Would the recent downtrend in the equity market and the sector’s dependence on market-linked products pose challenges? The growth in premium collections during recent months provides no cause for concern. For FY08, while the industry grew by about 31 per cent, private players grew by 83 per cent; LIC registered a flat growth. However, the growth numbers for March 2008 were not as rosy. For private players, the growth in new business premium slowed down to 54 per cent in March.

The slowdown was sharper for LIC, which saw a 16 per cent decline in new business premium for the month. There, however, has been a rebound in the sector’s growth since then. Private players witnessed a 72 per cent year-on-year growth in new business sales in May 2008. This has also been on the back of a reshuffle in market shares between private players and the LIC, whose market share reduced to 38 per cent in May; it was about 48 per cent in FY08.

Players also hold the view that blips in the equity market would not materially impact collections, as ULIPs, as a product, target long-term investments. Mr Kamesh Goyal, CEO, Bajaj Allianz Life, feels, “Since the ULIP portfolio is managed with a long-term perspective, the hindrance of short-term swings in the market is countered to a great extent.” Will the growth continue if the equity markets fail to recover from their recent setbacks? The industry is not too sure of that. “The industry growth will definitely moderate. But that will be driven by both a high base effect and waning appetite for equity markets,” says Mr N.S. Kannan, Executive Director, ICICI Prudential Life Insurance Company. ” Despite that, the private sector is likely to manage a good 40 per cent growth this year”.

Most players are agreed that for long-term sustenance, there is a need for a greater understanding of equity-linked products. Any uninformed buying on the part of the policy holders or mis-selling by the insurance agents can bring the growth story to a halt in the long run. “Mis-selling will definitely impact the market badly,” says Mr Gary Bennett, Managing Director and CEO, Max New York Life. While currently there are not many genres of insurance products in India, Mr Bennett feels that India will, in a few years, see a host of new products getting introduced in the market. “ULIPs are a fantastic product, but they are not the only product. There is much more to come in India.”

Distribution holds the key
Product innovation apart, distribution looks to be a key ingredient for driving growth in the sector. “Insurance is still a push product in our country. So distribution is extremely critical,” feels Mr Kannan. “Agents need to create the need for insurance, especially in emerging markets like India, where research shows that life insurance is the last thing in the list of future purchases for the emerging middle class,” says Mr Goyal. So, while the industry’s fate may depend on the evolution of the need-based insurance products , the growth of individual companies would hinge on their distribution reach.
Mr Bennett says, “Distribution relationship is critical to the business as products can be replicated in no time.”

In a market that is quite homogenous, as far as insurance products are concerned, relationships with clients may be the only differentiating factor. Distribution capabilities and network cannot be easily replicated by competition; whereas, popular insurance products that manage to stir interest are easily imitable and can be offered by other players almost immediately.

“Production innovation can give a lead time of only six months before the product is replicated in the market. So that is the only short-term positive,” feels Mr Kannan. “For long-term growth, we need to look at continuous innovation in both products and distribution channels.”

Share of challenges
Expansion of the distribution network, however, has its share of challenges. Insurance companies with a direct distribution presence or the ones having distribution tie-ups with the promoter group’s bank (bancassurance) may have an edge over competition, given the IRDA’s regulation, which allows banks to sell policies of only one insurance company.

Insurers, who depend on other banks to cross-sell their products, may face challenges due to consolidation between banks. Higher dependence on banks that are potential acquisition targets maycall for the insurance company to periodically re-look its distribution tie-ups. The merger of Centurion Bank of Punjab and HDFC Bank is a case in point. Aviva Life, which sells its insurance products through Centurion Bank of Punjab, may have to find another bancassurance partner because after the merger, the bank may not be able to sell Aviva’s insurance policies. HDFC Bank already sells HDFC Standard Life’s insurance products.

More room for growth
, India however continues to be counted among the fastest growing insurance markets. “The Indian life insurance market has significant potential on account of low insurance penetration combined with low expenditure on life insurance,” says Mr Goyal. Even today, only about one-third of the addressable population in the country is covered under insurance. And the ones who are covered are under-covered, as over the last ten years income levels have shot up significantly. “Premium-to-GDP ratio in India is around 4.5 per cent. In UK, which is also a service economy, this ratio is 13 per cent. So, I think we are still under penetrated as far insurance is concerned,” says Mr Kannan. “Even if we consider the sum assured to GDP ratio, India is at 45 per cent, which is still below other Asian markets such as Singapore.”

It is perhaps this under-penetration that has enticed many newer players to enter our insurance market. HSBC, Fortis and Aegon are among the recent foreign players who have tied up with Indian companies to jointly float new insurance companies. The entry of new players would not only peg up the level of competition in this industry, it will also call for higher investments on distribution and infrastructure network by existing players.

Challenges galore for new players
New players, however, may find it more difficult as they will have much more to grapple with. Besides the higher capital expenditure, they can also have a tough time finding the right bancassurance partner. So, it is little wonder that some of the new insurance ventures have been floated with either domestic banks or with players who enjoy a high retail presence. For instance, IDBI Fortis Life Insurance Co Ltd, a joint venture between IDBI Bank, Federal Bank and Fortis will vend its policies through both the banks’ branches. On similar lines, HSBC’s insurance venture may ride on its branch network. “The reason for some of the private sector banks entering the life insurance sector can be to leverage on their customer base and branch network,” feels Mr Kannan.

“But new players should be willing to commit huge amount of investments for long term growth in this industry.” Among other companies that have entered the life insurance arena are Future Generali and Religare-Aegon. While they do not have any obvious bancassurance tie-ups in place, it bears attention that the Indian partners in both these ventures have a significant retail presence.

Source: Srividhya Sivakumar, (The Hindu Business Line)

RING IN NEW PENSION SCHEME

After winning the trust vote, finance minister P Chidambaram had said the government would push ahead with financial sector reforms. Presumably, this would include key economic legislation encompassing insurance and pensions. On the PFRDA Bill, the government has covered a lot of ground having incorporated some suggestions put forward by a parliamentary committee.

That should address the concerns of lawmakers. Yet, there are issues that must be addressed or at least debated before the legislation is approved. All subscribers to the New Pension Scheme, now mandatory for central government employees who joined service on or after January 1, 2004, have to reckon with a differential tax treatment. In the current tax regime, while contributions to the pensions scheme and earnings are tax exempt, the proceeds are taxed at the applicable personal income tax rate. In vogue in many other mature economies, this is also in line with the exempt exempt tax (EET) method advocated by an expert committee.
This may be a desirable approach. But it overlooks some facts. Comparable long-term social security schemes such as the Employees Provident Fund, Public Provident Fund and the General Provident Fund enjoy a beneficial tax treatment — contribution, earnings and maturity proceeds are tax exempt. It seems discriminatory as it is skewed in favour of the organised sector.

The NPS is designed to bring into its fold not just government staff but lakhs of workers including the self-employed. While providing retirement incomes to a large section of the population is the goal of the scheme, there is the promise of savings flows, which once the NPS gains traction, could fuel the capital needs of industry and infrastructure providers.

It is well known tax treatment drives the behaviour of investors and other financial product providers. In an environment where stocks held for just one year are exempt from long-term capital gains tax, it would be harsh to penalise those trying to build an egg nest. The government has two choices: ensure parity of tax treatment for all long-term social security schemes, or introduce EET across savings products.

Source: The Economic Times

HOPE ON PENSION REFORMS

Between 15 million and 20 million of India's 400-million strong work force have a retirement savings plan. The average corpus at the time of retirement is a paltry Rs 52,000 per individual, and only a small proportion of those covered have contributed long enough to also be entitled to the maximum life-long pension of Rs 3,250 per month.

Yet, according to the annual survey by the Invest India Foundation, around 80 million workers are keen on contributing to a retirement fund, acutely aware that the age-old child-supports-parents model is breaking down. So what keeps them from contributing? Ironically, it is the very organisation that has monopoly rights over the country's pension business, the Employees Provident Fund Organisation (EPFO).

Ever since the era of high interest rates got over in the 1990s and private mutual funds started delivering good results, the EPFO has consistently been shown up as a poor performer in terms of returns offered; its service record is so poor that it is still not able to deliver a unique customer ID that subscribers can use all their life — as a result, many users have 2-3 accounts, which, apart from being difficult to manage, also ensures that workers lose out on pension coverage since you have to contribute for at least 10 years to be eligible for the monthly pension benefits.

There are other problems such as the rising gap, already over Rs 25,000 crore, in the pension scheme but this is a problem for the government, which has to make it good, and not for the pensioners.

It was to fix this that, in 2005, the government sent the Pension Fund Regulatory and Development Authority (PFRDA) Bill to Parliament, to allow new pension fund managers, both public sector as well as private, to compete with the EPFO, with the PFRDA acting as an impartial regulator. The Bill languished because the Left parties argued that private fund managers were not to be trusted.

This changed dramatically when, in April, the EPFO itself invited bids from various fund managers to manage the fresh deposits of around Rs 9,000 crore it gets each year — the current corpus of Rs 150,000 crore is managed solely by State Bank of India. Suddenly the PFRDA Bill got a new lease of life: if the EPFO, dominated by Left and other unions, could trust private fund managers, why couldn't the same apply to the rest of the country? While some prominent members of the EPFO's Central Board of Trustees (CBT) are against the idea, the EPFO management has shortlisted seven private asset management companies and plans to open their financial bids next week, after which the CBT will take a call on whether to go ahead. India's plans to allow new players in the pension market have thus made a significant advance. It would be a pity if the labour unions were allowed to snuff out this reform.

Source: Business Standard

The monsoon between a curse and a blessing

The significant increase in extreme monsoon rainfalls, a burgeoning of insured values, and fiercer price competition are major challenges for the insurance industry in India. The market is currently going through a complex process of liberalisation and adjustment.
The monsoon is as much a part of India as the country’s extensive dry seasons. Producing about 80–90% of the country’s annual precipitation, the summer monsoon (June–September) is a source of life to India, regulating, as it does, the gigantic country’s water balance. It is particularly crucial for the agricultural sector, which accounts for about a fifth of India’s gross domestic product and provides work for around two-thirds of the population. But the monsoon itself has changed. The frequency and intensity of extreme rainfall have both increased considerably, whilst exceptional rainfall levels have given rise to serious floods and ensuing damage in recent years. In 2005, the highest level of precipitation ever measured on a single day in India was recorded in Mumbai. In 2007, the effects of the summer monsoon were extremely intense for the third year in succession.
The annual overall loss due to flood in the years 2005– 2007 averaged roughly US$ 4bn, three to four times higher than the average for the period 1980–2004. Escalating concentrations of values in exposed regions like Mumbai combined with growing insurance awareness caused insured losses to soar during this period. Is this latest development merely an outlier or the herald of a long-term change in monsoon activity?
Climate change as the cause
Scientific studies show that monsoon activity in central India has changed significantly (Goswami et al. 2006). The daily variability of monsoon rainfall, i.e. the range between severe and less severe daily rainfall events, has increased markedly in the last 50 years. In central India, the number of intense precipitation events per day (at least 100 mm/day) has increased by about a third since 1950. The figure is even more dramatic in the case of extreme precipitation events, involving levels of at least 150 mm/day. It has roughly doubled since 1950 – a highly significant increase in scientific terms. At the same time, there were considerably fewer instances of moderate precipitation events in the observation period. Although these opposing trends mean that average rainfall has not changed, this is not good news. On the contrary: whilst the moderate monsoon is important for India’s water balance, especially for the agricultural sector and the supply of drinking water, intense and extreme rainfall have a major bearing on losses. What is more, the majority of models quoted by the Intergovernmental Panel on Climate Change in its report assume that the total rainfall depths of the summer monsoon will increase in future. Even if there are large deviations between the individual scenario calculations, there is no doubt about the outcome: Indian summer monsoons are very likely to become more extreme.
And this is due to global warming. Sea surface temperatures in the tropical Indian Ocean, for instance, have risen by about 0.5°C over the last 50 years. This results in more moisture reaching India with the monsoon.
It is a risk of change that is difficult to quantify and the Indian insurance industry must give greater attention to devising appropriate solutions – particularly as the values to be insured are rapidly increasing.
Losses increase – Premiums come under pressure
In India, the natural perils of windstorm and flood (STIF) are automatically included in any property insurance policy. Weather risks, particularly monsoon rainfall, have always constituted a major threat. The process of global warming has made it more and more difficult to forecast the beginning and magnitude of annual monsoon rainfall. Between 1980 and 2007, weather disasters (floods, storms, droughts) caused overall losses amounting to US$ 53bn (2007 values). The main peril is flood, which accounted for about 77% of the overall losses and 66% of the insured losses over the said period.
The summer floods in 2005 (Mumbai Floods) exhausted nearly all the market players’ cat XL programmes for the first time ever. Due to the agreed net retentions, some of them had large losses that were not covered. There is already a broad consensus in the market that the rates, especially for flood risks, have to be adjusted substantially. Some insurers are considering the possibility of quoting separate premium rates, but this is not to be expected in the short term due to the shortage of claims statistics and especially to the fact that as of 1 January 2008 pricing controls have been removed in all lines of property insurance except motor third-party liability.
Market and market players in a learning process
For the insurance industry, the question is how the Indian insurance market will develop in the medium to long term. If there are no major loss events with large insured losses, pricing pressure will certainly be maintained for some time. Moreover, companies have in the past compensated underwriting losses with high returns on India’s booming stock exchange. Reinsurance capacity is generally available in good measure.
At present, however, India is going through a process of learning and adjustment. The market has yet to encounter a phase with a scarcity of reinsurance capacity that necessitates risk-based pricing. Generally speaking, the private insurance industry should in the long term offer coverage concepts, such as a pool solution with compulsory insurance for natural hazards. These require both technical know-how and financial resources, however. International reinsurers could provide both, but the scope for efficient risk transfer in India is limited at present. Reinsurance is mainly provided by the General Insurance Corporation of India (GIC Re), to which non-life insurers must currently cede 15% of their cessions.
Low market penetration – High growth potential
The socio-economic transformation of India presents its insurance industry with great challenges. Forecasts suggest that the country’s insurance market will increase to some €100bn, five times its current volume, over the next ten years. This growth will be driven above all by rising demand from India’s middle class, currently numbering some 300 million people, and the improvement and expansion of the infrastructure.
Freedom of establishment for foreign insurers is limited at present to joint ventures with a maximum foreign capital share of 26%. The government is currently examining the possibility of increasing this share to 49%. At present, 17 property insurance companies and 17 life insurers are licensed to do business.
These figures vividly illustrate how much the insurance industry has already profited in recent years from the opening of India’s market as well as from the country’s high rate of economic growth. Between 2001 and 2006, the annual increase in premiums averaged roughly 24% in life and 11% in non-life. In an international comparison based on total population, market penetration is still comparatively low in what is the second most heavily populated country in the world. With an average premium volume as a percentage of GDP, market penetration is about 0.6% (non-life) and 4% (life). In the non-life sector, it is estimated that 90% of the Indian population have no insurance protection whatsoever. In terms of absolute premium volume, however, the country already ranks fi fth in Asia after Japan, South Korea, China, and Taiwan and fifteenth in the world (2006). And experts agree that the speed of expansion will continue to be high in the years to come.
Positioning ourselves selectively as a reinsurer
Munich Re has 50 years of experience on the Indian insurance market; it knows the market players and local customs and practice. We opened an office in Kolkata in 2000 and a representative office in Mumbai the following year. We enjoy the confidence of the Indian insurance market and, on the strength of our long-standing business relations, are recognised as a reliable reinsurance partner.
In the current market phase, we are looking beyond our traditional reinsurance business, positioning ourselves as a global reinsurer particularly in niche markets and in sectors where quite specific, individual solutions are required. For example, we are stepping up our involvement in renewable energy projects. With a view to offering attractive insurance solutions in rapidly growing emerging markets, we developed a new product last year: the Kyoto Multi Risk Policy.
We also make available our risk knowledge and financial strength in connection with large and very large risks – a segment that is continuously gaining in importance in the dynamically growing economy of India. We not only provide our capacity but also make an important contribution to the development of risk awareness.
We intend to do everything in our power to support India in the reinsurance sector. To ensure the stability of its strongly expanding insurance market, deregulation must be extended from India’s primary insurance market to include international reinsurance business as well. We intend to open a reinsurance branch as soon as the legal framework permits.

Source: Munich Re

VEHICLE BUYERS SEEK ‘PREMIUM’ ADVICE

Coimbatore: You have decided to buy a car. Say you have made up your mind on the make, colour and model. The next step you will probably take is get a quote from a dealer or two in the vicinity, compare the offer/freebies and approach a bank for finance support.

Here again, you will compare the rate or EMI before submitting your papers for getting a legal sanction of the loan. Thereafter, you leave it to the dealer to insure and register the vehicle before delivering the same at your doorstep. Right?

But when Mr Sekar, a businessman, decided to take a Skoda, he not only compared the EMI dues (to the bank), but also sought the help of an insurance broker to get him the best premium. “In the detariffed scenario, every company has started to offer a huge discount. To get the best rate, I approached an insurance broker,” he said

The broker got Mr Sekar the quotation from five insurance companies — Oriental Insurance, Bajaj Allianz General, Cholamandalam MS General Insurance, IFFCO-Tokio and ICICI Lombard. While ICICI Lombard quoted a final premium of Rs 38,073, the others stuck to a premium of Rs 43,880 on the vehicle, whose declared value was Rs 15.46 lakh. Mr Sekar chose the ICICI offer.

Offer analysis
A closer look at the quotation from the various companies revealed that the own damage premium, basic third party cover and personal accident cover were the same across these companies. ICICI offered the maximum discount of Rs 20,673 compared to Rs 15,504 by the other four players.

Asked about the huge difference in the motor vehicle premium rates, the Head of Pioneer Insurance & Reinsurance Brokers Pvt Ltd, Mr C. Kumar, said the general insurance companies were offering discounts which ranged between 10 and 30 per cent for private cars. “But one has to demand to get the best offer,” he said.

Unaware of offers
With most vehicle buyers preferring to allow the dealer complete all the formalities, such as insurance and registration, customers rarely get to know about such discount offers.
Mr Mohan Kumar, Managing Director of Link-K Insurance Broker Company (P) Ltd, said it is the job of a broker to get the best rate for his clients. To a query on discount, he said, “There is a whole range such as volume discount, good feature discount and the like.”

Industry insiders say that insurance companies have not streamlined or codified the discount, but follow the same yardstick in arriving at the ‘good feature’ discount.

Interesting yardstick
The yardstick, though not publicised or put in the public domain, is interesting.
“The insurer captures all details about the vehicle owner, his vehicle usage pattern, commuting within the city or use for long distance travel, the driver’s background, age, driving experience, past claims experience, the type of vehicle and the client relationship with the company,” Mr Kumar explained.

The good feature discount is extended only to private cars and in the case of a new vehicle, is taken into consideration only from the second year. But not many are in the know about this. At this point in time, it looks like an ‘on-demand’ offering.

Source: The Hindu Business Line

Getting married? Get wedding insurance

Wedding planners say that the smallest metropolitan middle class wedding in India these days, costs upward of Rs 5 lakhs. With the stakes being so high, wouldn’t you want to cover any risk of loss?

A 29-year-old BPO executive, who is getting married next month, has decided to do so. She is taking a wedding insurance to cover all emergencies. Her family will be spending close to Rs 6 lakhs on her wedding. That is a huge expense. Her wedding planner recommended that she should take a wedding insurance cover to hedge herself against any unfortunate incident. She too thinks it’s a great idea.

Every year, lakhs of people spend a fortune at their wedding. Insurance companies have come up with innovative products to get a piece of this pie.

Wedding Insurance for instance covers against delays, accidents, food poisoning, burglary etc. As many customers are superstitious insurance companies do not market these policies aggressively. But for those who like to play safe, the policy is available through wedding planners, banquet halls or through the company branches directly.


The table given below is an example of a wedding insurance policy offered by an insurance company. The insurance package is divided into six sections.


What’s the cover?As in the above example, the insurance package is divided into six sections. Wedding cancellation and postponement is the most sought after. Majority of the people go in for this cover since it covers most of the expenses. But there are strings attached.

Cancellation or postponement must be due to a fire or related hazards to the venue. It could also be a result of an accident to the bride, groom or any of the relatives seven days before the wedding date. But if the wedding is cancelled due to a dispute between the marriage parties, the insurance company will not pay claim. Criminal acts like child marriage will also not be covered.

In case of a claim, the insurance company will reimburse the expenses for printing the cards, advances given to book the wedding venue, advances to the caterer, decorator, as also for hotel room bookings and travel reservations.

The second cover - the damage to property cover would include damage to the decoration at the home of the policyholder or at the venue. In addition, the policy will also cover personal accident. Here, at the time of taking the policy, the policyholder must declare the names of relatives who would be covered under this section. There is also a public liability cover wherein any compensation payable for damage to person or property due to food poisoning, accidents at the venue etc would be covered.

An Indian wedding is synonymous with jewellery and precious stones. So an obvious cover would be the insurance of these items against thefts. In such case though, valuation certificates and bills would be needed at the time of taking the policy.

Public sector insurance companies also offer Wedding Bells - an insurance cover that insures any expenses incurred owing to postponement, cancellation or stoppage of the marriage.

Cost mattersOne need not go in for all these covers. The insurance company offers a choice and you may opt for any or some of these covers. The premiums would depend on which covers are selected. For instance, for the cancellation cover, for a sum assured of Rs 2 lakh, the premium would work out to Rs 1,200. If you opt for the minimum cover under all categories, your premium would work out to Rs 3,421 - excluding service tax (see table).

In both these policies, any negligence, misconduct or insolvency will not be covered. Further, in case of damage to electrical apparatus, that is caused due to a short circuit or self-heating will not be covered. Any fines or levies imposed by the government will also not be covered.

If you keep these in mind, then the policy is surely a must-have, considering the large sums that are spent on marriage these days.

All about Professional Indemnity Insurance

Historically, the word ‘profession’ was associated with the occupations known as the learned professions namely clergy, education, law and medicine. With society developing into a more complex and specialised entity, occupations requiring extensive technical knowledge or training have increased manifold. The domain of professional liability has extended beyond the traditional professions resultantly.

Broadly, professional liability can be defined as the failure to use the degree of skill expected of a person in a particular field. Professional liability insurance, therefore, describes insurance covering liability arising out of the providing of professional services to others.

By law, professionals are required to perform the services for which they were hired in accordance with the appropriate terms of contract. While the first duty is primarily contractual, the second arises from the principle of tort law. A contractual arrangement is created, when a client hires a professional to perform a service. When he fails to perform the contractual obligations as promised and the client suffers harm as a result, the injured party is entitled to be restored to the position he would have occupied had the contract been performed as promised. A tort is a private wrong, as opposed to crime that is a public wrong.

A professional also has a duty to follow a recognised standard of conduct in the course of daily activities. He should use reasonable care to avoid causing injury to his clients in the exercise of such duty. Failure to comply with that accepted standard of conduct will expose a professional to liability for any damage to another person. A wrongful act is established by determining whether a prudent person, in the exercise of ordinary care, would have foreseen that the injury or damage would have naturally or probably resulted from the conduct.

Violation of duty towards a client by a professional can result in a contract action, or a tort action, or both. A breach of contract arises when the professional fails to perform the services agreed to. When he fails to perform as expected either a contract or tort cause of action may arise. However when his performance causes damage or personal injury, a tort action is most likely to arise.

The professional liability coverage needs of different professionals differ according to the possible consequences of their professional acts or omissions. Consequently, professional liability policies differ in the types of loss they cover. The principal consequence of a physician’s negligence is physical or psychological injury to a patient.

Insurance with Investment

Providing an insurance cover to investors in mutual funds has become a fad. Though the idea was initiated by DSP ML back in 2005, others were quick to follow.

Recently Birla Mutual Fund came up with 'Birla Sun Life Century SIP'. Investors who invest via the systematic investment plan (SIP) in 18 of the equity schemes of this asset management company (AMC) will be entitled to a life insurance cover and the insurance expenses (premium) will be borne by the asset management company (AMC). The caveat: the investor must be between 18 and 45 years of age when applying for the scheme and the minimum SIP amount must be Rs 1,000.

So how much will the insurance cover be? The amount of insurance cover for the first year will be 10 times the SIP investment made by the investor. For example, if an investor has a monthly SIP of Rs 5,000, he will be entitled to coverage of Rs 50,000 (Rs 5,000x10) in the first year. In the second year, it goes up to 50 times and 100 times from the third year onwards.

However, the insured amount is limited to a maximum of Rs 20 lakh.

Reliance Mutual Fund has come up with an insurance scheme which benefits the fund house as much as the nominee of the insurance policy. Termed as 'Reliance SIP Insure', the AMC will make the required unpaid SIP payments (up to Rs 10 lakh) should the investor die during the tenure of the SIP.

As a result, the investor's long-term financial planning and objective of investing are continued as per the targeted time horizon even if he dies. Sounds great but this holds only if the SIP is for a period of at least three years with a minimum monthly payment of Rs 2,000. Here the age at the time of investment should be between 20 and 46 years.

DSP ML covered five schemes and investors between 18 and 43 were eligible with a minimum SIP of Rs 2,000. But the tenure was quite long: 6, 11 and 16 years. Under this plan, the monthly SIP installment amount multiplied by the number of months remaining for the scheme to end would be given to the nominee. That was the variable plan. Under the fixed plan, an amount equal to 240 the monthly installment would be paid anytime during the tenure should the investor pass away.

Kotak AMC in 2007 launched its Kotak Star Kid Plan whereby only a child could be made the nominee and this insurance was solely applicable to Kotak 30 and Kotak Tax Saver. The SIP tenures were 5, 10, 15 or 20 years. In the case of death, the balance SIP amounts to be invested would be paid to the nominee with the maximum insurance benefit restricted to Rs 10 lakh.

The age at the time of entry is higher than the other schemes, at 23 years. But then again, since it is targeted at one's child it seems fair enough. But it does have a maximum age limit for entry: 45 years, irrespective of how many children you have by then.

Source: insuremagic

NRIs- the new attraction for insurers

The life insurance companies are turning more dynamic in nature. The insurers are crossing borders to make its reach even for those staying seven seas away. The policies that are offered cater to Laymen, Corporates to High Net Worth Individuals (HNIs). Now, the latest fad that has caught the attention of the insurers is the Non Resident Indians (NRIs). Not only insurance companies but also the financial institutions have turned their attention to them.

The NRIs spread across the world is quite large. It is estimated that there are around 100 million Indians stretched across the world. It serves as a good reason for insurance companies to come up with products aimed specifically for this creamy layer of the country. The reasons could be multiple when an individual decides to leave his/her own motherland and prefer to stay in a foreign country. The reasons for which an individual chooses a foreign land than his own are mainly vocation, business, employment, etc.

Being financially stable, opting for higher insurance cover becomes possible for this elite group. Not only insuring their lives but also the family becomes important. This holds great business potential for the insurance companies. There are some NRIs who intend on sending their children to India for education, etc. Some may even want to settle down in their own country after retirement. Keeping these views in mind, insurance companies have come up with a host of policies for them. Almost all private insurance companies offer policies to NRIs, sometimes treatment given to them also becomes specialised. For example, ICICI Prudential has set its office in Bahrain, which caters exclusively to the needs of the NRI community situated in the region. Saving a considerable amount is usually the central focus in an NRI’s life. The aim on savings and investments makes it easy for them to buy insurance. When they move for vocation, accumulating wealth for future forms a major part of their investment goals.

Keeping their needs in mind, the insurance companies, offer policies ranging from traditional, endowment to unit linked plans. The younger generation has a taste for risk, which is why unit linked plans have attracted the interest of the younger age group. This is mainly because of factors like flexibility, investment in funds that promise good returns, the demand for ULIPs have gone high. Certainly, the number of NRIs opting for insurance is increasing. The insurance mammoth too is not left out in this rat race; the Life Insurance Corporation of India (LIC) offers insurance policies to NRIs as well as the People of Indian Origin (PIO). Now, if you are wondering what PIOs are, they are those who have foreign nationality and reside in foreign countries. A person is considered to be of Indian Origin (excluding countries like Pakistan, Bangladesh or as announced by the state from time to time) if he/she at any time held an Indian passport or he/she or either of his/her parents or any of his/her grandparents was an Indian and a permanent resident in Undivided India at any time. A wife of an Indian Citizen or of a person of Indian Origin is also considered to be of Indian Origin if she may be of non-Indian parentage.

The process of buying an insurance policy is quite simple. Once bought, the person can pay the premiums through cheques drawn on his/her Non-Resident (External) Account or Foreign Currency (Non-Resident) Account with a Bank in India (or Joint Account provided the policyholder is one of the account holders).

NRIs wanting to have financial protection throughout are increasingly opting for insurance. Considering the growing number of NRIs, Life insurance is becoming a popular choice and is being added in the investment portfolios of the Non Resident Indians. In the days to come, there might be more policies that would perhaps be more vibrant in nature that would fit needs more perfectly.

Challenges in rural healthcare

Insurance penetration levels in India are abysmally low, only 22 percent of the insurable population has been tapped and the situation in rural areas is even worse. Educating the rural population about the importance of healthcare and how insurance can help get the best for them at various stages in life is in itself a challenge particularly considering the low literacy levels, the traditional mindset, traditional or local healers, inefficient means of transportation, unaffordability, low importance to healthcare- few of the harsh realities that need to be tackled first.

Low importance to healthcare:

With no means to provide for even the basic necessities, scant regard is given to healthcare. Unless the situation is worse seeking medical help is out of question.

Allopathic cure not considered:

Low educational levels have led to village folks relying on local healers. Their advise is taken at face value and allopathic cure is only taken up as the last resort.

Hospital care is costly:

Access to affordable medical care is absent. Hospitals are located very far off and the cost is unaffordable.

Transportation:

An absence of an efficient means of transport has only worsened the situation. Bullock carts are the usual mode and any other is unaffordable. Hence a patient in need of medical help has to travel long distances to reach the ‘nearest’ health centre.

The following factors will help bring about a change in the situation:

More PHC (Primary health centre):

More primary health care centres need to be set up by the government.

Subsidised local transport:

Local transportation to be arranged for at subsidised rates by the panchayat or the hospital.

Education of village folk:

To spread the message volunteers can build a network of workers who can identify the problem areas and influence the villagers on various issues. Street plays, personal approach on a one to one basis or a group approach will go a long way in educating the rural population.

Tailor made policies:

Insurance companies will have to take into consideration the problem areas, and create tailor made policies.

Marketing:

Marketing in rural India is a different ballgame. Emphasis should be on the traditional media coupled with entertainment. This will go down well with the village folk. LIC used puppets to educate rural masses about Life Insurance. The number of inquires at LIC following the performance was found to be considerably high and the field staff too reported a definite impact on the business.

Womens role:

Awareness building and empowerment of women through income generation projects and literacy activities can help to a large extent.

Private health care centres:

Health care centres set up by private institutions at subsidised rates can ease the problem to a great extent. Insurance companies can play a major role in educating the masses by spreading the message through health care centres.

Buy life cover if you have dependents

Sameer felt like he was living a dream, when at 23, he got a campus placement in a multinational company after completing his management studies. Being the only son of well-to-do parents, he didn’t have any immediate family obligations and started spending with élan. Clearly, saving money was the last thing on his mind.

Life went on, until he met Prakash, an old friend who had decided to make a career out of the booming insurance sector. Minutes into their meeting, Prakash started canvassing the merits of life insurance, listing out benefits such as convenience, safety and the various sops offered by existing policies.

He told him how an early start would give him an edge, considering the mortality costs are lesser and hence, the premium, too. Prakash insisted that his friend buy a term cover, which is the cheapest form of insurance, and then think of investing in insurance.

Sameer saw sense in whatever he said, but remained undecided on whether he should opt for a cover right away or wait till he had dependents.

A senior colleague advised him to seek professional help from Vishwas, a well-known financial planner. When Sameer told him of his dilemma and laid out the comparative tables provided by Prakash on the premiums payable now and five years later, Vishwas smiled and agreed that this was a common dilemma that often went unclarified.

Vishwas held that making available a lump sum to one’s dependents to help them overcome the financial loss in his absence was the right perspective to be adopted for life insurance. According to him, Sameer required no life insurance as he had no dependents and that the ideal time for the young MBA to buy a cover would be when he was married, which would be 4-5 years later.

But, what would be the cost of deferring his insurance cover by so many years?

The financial planner laid down a table for easier understanding.

Vishwas pointed out that the decision to defer life insurance by five years would cost him Rs 58,500 for a cover of Rs 25 lakh and Rs 1.17 lakh for a cover of Rs 50 lakh.

“Isn’t that a big amount to lose?” asked Sameer.

“On the face of it, yes. But, you can make it up by starting to invest now,” said Vishwas. “Let us say you put the amount you would have paid as premium, i.e. Rs 6,250 per year, for the next five years. The savings account would fetch you 3.5% per annum interest today. At this rate, your investment of Rs 31,250 would have grown to Rs 33,515 at the end of five years. At that point, you take the insurance policy for a cover of Rs 25 lakh and stop putting money in the savings account. In other words, you let the Rs 33,515 balance in your savings account compound for the next 30 years (the tenure of the policy) at an assumed 3.5% per annum. At the end of your policy period, this amount would have amounted to Rs 94,000, well over the extra Rs 58,500 you pay for starting the policy late.”

“Similarly, you can accumulate Rs 1.88 lakh by depositing Rs 12,500 per year for five years in the savings account and letting it compound thereafter. That would be well in excess of the Rs 1.17 lakh difference you will pay by starting the policy five years hence.”

“I am sure you understand this is an extremely conservative option. The corpus would be much higher if you swapped the savings account with a public provident fund account, which guarantees a return of 8% per year now. By the time your policy matures, you would have accumulated Rs 3.69 lakh and Rs 7.38 lakh, respectively, for the two premium amounts mentioned earlier.”

There are options galore, really. A recurring deposit of Rs 650 per year for 35 years, at an interest of 5% per annum, would accumulate Rs 58,750. Put the same amount in a PPF account every year and you accumulate Rs 1.12 lakh at the end 35 years,” Vishwas explained. “The returns would be exponential if you invested in equities for that long a timeframe.”

This was an eye opener for Sameer. The discussion on insurance had somehow taught him the value of investing early in life so as to reap the benefit of compounding, said to have been described by Albert Einstein as the “the most powerful force in the universe.”

Note: The premium and the coverage figures used above are purely for representation purposes. The premium quotes have been obtained from the website of a leading life insurance company.

Source:
Arvind A Rao / DNA MONEY

Do homemakers require life insurance policies?

Anju Grewal, a housewife in her mid-30s, agreed to buy life insurance after been chased by her cousin. Though she gave in to social obligations, she was not sure whether she should buy the investment- oriented insurance policy pitched to her. Many people, including Anju, believe that insurance is a forced form of savings. Hence the key message thrust on them is that insurance will not only provide some cover to your family, but can also give you some amount on maturity.
“Do I need life insurance?” was Anju’s question. To find an answer, we must understand what life insurance exactly is. Life insurance is primarily a tool by which an individual can transfer the financial risk (to his/her family) of his/her early or untimely demise to the insurance company. So what exactly is the financial risk in case of loss of life? The first question Anju should ask herself is : “Will my family have sufficient financial resources to maintain their lifestyle and achieve financial goals such as children’s education, marriage, if something were to happen to me today?”. The answer to this question needs introspection as well as thorough analysis. Besides the emotional loss, there is also a financial loss that occurs to a family , when the breadwinner or earning member of a family dies. Families are devastated; have to go through a lot of hardships and turmoil to make ends meet. Even if you have plenty of money, poor planning (too many claimants, legal issues, and litigation) can ensure that your family sees tough days ahead. Generally people buy insurance to demonstrate caring and to feel comfortable that they have indeed done something to secure their family’s future. Whether they need insurance or not is considered irrelevant. For example, there is this celebrity who has been sold an insurance policy where he is paying premiums in crores. This celebrity does not even need life insurance as he is single, no dependents, and no liabilities, has lot of assets but yet has fallen prey to some life insurance product. Life insurance is generally a very personal decision and should be bought only if there is some significant economic impact of your untimely death on your family. Therefore, a housewife needs to ask herself the following questions 1. Is my husband’s income sufficient to take care of my children, liabilities and family goals? 2. Are there any immediate expenses or recurring expenses that would come up should something happen to me today? 3. Does my husband have adequate cover? If so, how much and what kind of expenses, liabilities and goals would I have to address in case of his untimely death? Ensuring that your husband has sufficient cover is far more important for a housewife than ensuring that she has sufficient cover. Considering that the husband has sufficient life cover, there is no pressing need for a woman to buy life insurance. However if one must buy life insurance , then you can opt for a simple term plan that will give a very good cover for a low premium. Most insurance companies will either refuse a pure term plan in the name of financial justification , moral hazard or give a low cover of around Rs. 5 lakh. A term cover of Rs 5 lakh for a 35 year old woman will cost Rs. 1,700 per year. Premiums might vary from company to company but in general there is no need to pay anything significantly more than this number. This means that you can comfortably stay away from investment-oriented policies Folks from insurance companies generally are of the opinion that since housewives are not earning, there is no question of replacing income in case of their death. On the other hand they readily agree to give you insurance if you opt for a investment oriented insurance policy. The right approach to buying life cover is to consider whether the risk has the potential to jeopardise the family’s future. Anju did some introspection on whether her death besides an emotional loss could cause any financial damage. She listed down all the expenses that would come up in case of her absence under the following broad heads: 2 Tuition Teacher for kids 2 Care taker for kids 2 Help for cooking She figured out that her husband’s income was sufficient to take care of all the above expenses and leave aside a tidy figure for investments per annum. She also figured out that should something happen to the couple (Anju and her husband), her husband had sufficient life insurance to provide for their dependents. This thought process and a few calculations made the decision easy and Anju decided to simply invest most of her savings and see if an insurance company can issue her a low cost term plan. There is no doubt that duties and responsibilities of housewives are selfless and incomparable. However, when it comes to life insurance, one must make a thorough assessment of individual situation and then take a prudent call.

(The author is a certified financial planner and the director of My Financial Advisor)
Source: The Economic Times

Save up some cover for that rainy day

Come June and the monsoon will knock at our door. Weather officials have already signalled that the rains will hit Kerala in the next three to four days. Not long ago, many cities and towns were hit by floods brought in by the torrential rains. Maybe it’s time for you to protect your house and belongings. Home insurance policies, offered by general insurance companies, cover your home against risks from natural calamities such as fire, floods, earthquakes, or land slides. Apart from this, there are various sections of the policy that broadly covers the structure of the house alone, or your belongings such as jewellery, furniture, electronic appliances etc, or even both. Some policies even cover your rent expenses if you have to move out to another house because of the damage to your own house. Why home insurance? First and foremost, the possibility of your house getting damaged by floods may not seem like an incident of rarity if you recall the deluge that hit Mumbai on July 26, 2005. “If you say that it was a one-time deluge, such once in a blue moon incident can cost you a fortune,” says a relationship manager with Cholamandalam MS General Insurance. According to official statistics, the 2005 flood damaged over 1,87,000 houses across Maharashtra, affecting eight lakh families. Secondly, the premiums are reasonable for home insurance when you compare it with the single largest investment of your life. It works out to approximately Rs 60 per lakh to protect the house structure. Even for furniture, the premium is Rs 60 per lakh. For electronic appliances, the premium amount will be 1% of the value of electronic goods. “The premium depends on a variety of factors related to the size of the home, geographical location, type of construction etc. Home insurance is not applicable to kutcha (under constructed) dwellings,” says ICICI General Insurance director, retail, Neelesh Garg. Discounts for opting for multiple sections within the policy are built into the plans. You can get discounts of 15-25% on premium if you sign up for more than four to six sections of the home insurance policy. Calculating the sum insured? While insuring your home, the insurer always looks at reconstruction value. Reconstruction value is the cost you incur for redeveloping your damaged house. This value is different from the market value. Sum insured is calculated by multiplying the built up area of your home with the construction rate per sq. feet. For example if the built up area of your house is 800 sq. feet and the construction rate is Rs 800 per sq. feet then the sum insured for your home structure would work out Rs 6.4 lakh. Most insurers give details on construction costs in their websites. According to industry estimates, the reconstruction value is Rs 800 in big cities like Delhi, Mumbai, Bangalore etc. In tier II and ties III towns, the reconstruction value is Rs 600 and Rs 400, respectively. Insurers deduct depreciation on furniture, durables, clothes, utensils etc. while calculating the value of your home. However, most insurers do not apply depreciation to jewellery. How to file a claim? In case of any loss or damage to the home, you have to immediately inform the insurance company or your agent. “Submit a written claim document to the insurance company within the stipulated period. This claim document should contain a detailed account of the articles lost/damaged and the actual value of each article,” says Mr Garg. The claim request will be sent to the company’s claims department. Insurer’s surveyor will submit the final survey report (FSR) along with the documents submitted by you. On receipt of the documents, the claims department processes the claim. On approval of the claim, a letter is sent to the insured giving the approved amount of settlement along with the discharge voucher. Payment cheque is released on the receipt of the signed discharge voucher. The documents the insured have to submit will vary from reason to reason. However, they broadly include the filled claim form, photocopy of the policy, final police report and copy of all invoices, repair estimates etc. Since it’s a structured product and the premium is economical, this policy may be worth a look. Better safe than sorry.

Source: The Economic Times

PAN for all investments a panned idea

A THRESHOLD FOR INSURANCE PRODUCTS MAY AS WELL SERVE THE PURPOSE WITHOUT HITTING PENETRATION
AHEAD of this year's budget, insurance regulator IRDA's views were sought by the government on a proposal to make permanent account number (PAN) mandatory for investments in insurance products. One of the mandates of financial regulators in the country is to develop the market, besides of course oversight of the industry. The insurance regulator seemed to have taken that mandate seriously for it didn’t quite favour the move to quote PAN for insurance products. IRDA's rationale was that this would dampen the enthusiasm of distributors of insurance products, mainly individual agents, on whom the inusurance industry leans heavily. The obvious worry was that given the low level of insurance penetration in the country, a diktat on PAN could put off potential investors. Indeed, insurance penetration in the country is low. Measured in terms of premium collections, the penetration is close to 4.1% of GDP in life and 0.6% of the GDP in the non-life segment. This is way below the figures for insurance penetration in developed countries such as the UK and Japan. According to the insurance industry, distributors, who are a key link in the chain of activities in the insurance sector, are already complying with rigorous documentation norms. The insurance industry is apprehensive about getting bogged down in more paperwork if PAN is made mandatory for policy holders buying insurance products. There are further arguments. The insurance regulator also made out a case that insurance companies were obtaining PAN from clients whenever the premiums paid or sum assured breached a certain threshold. The limits are basically internal benchmarks set by insurers who carry out a due diligence on their clients. The aim is to assess if a policy-holder has the financial ability to pay his premium. Insurers do these checks, although it is not mandated by IRDA. Insurers in India are eyeing huge opportunities in rural areas and argue that compulsory quoting of PAN could dampen their sales in these markets. Getting farmers, for instance, to buy insurance policies could be a challenge as many of them may not possess a PAN card. Perhaps, the case built up by IRDA was not strong enough. The government went ahead and announced in the budget that PAN would be made mandatory for all transactions in the financial market, subject to a certain threshold. The limits will now be imposed by the finance ministry in consultation with IRDA. Like the insurance industry, the mutual fund industry too, raised a hue and cry over the government's move to make PAN mandatory for investments in mutual funds. Fund houses had then raised the bogey that it could impact investments in mutual funds, and instead money may be diverted to Unit Linked Insurance Plans (ULIPs) offered by insurance companies. But the government did not budge and made PAN mandatory for investments in mutual funds. No threshold was set for mutual funds. Similarly, transactions in the securities market are also covered. An investor needs to have a PAN to open a demat account even if he trades only in one share. Over the last few few years, PAN has evolved from being just an identification number of income tax purposes. It has virtually become a citizen's identification number, though the last word on this is not out yet. Besides an individual, banks, credit card companies and other agencies are now required to quote PAN of their clients in select financial transactions. The data is then matched with the tax-returns of the individual to see if he is short-paying or evading taxes. In short, PAN is handy to establish an audit trail in financial transactions. So, there is no case for excluding investors buying ULIPs from quoting PAN. Ulips are popular savings instruments as they offer protection in terms of life cover and flexibility in investments to the policyholder. The investments are similar to a mutual fund, though insurers say that a oneto-one comparison may not be correct. A threshold if at all may be justified for insurance products other than ULIPs- mainly pure life cover. But the bulk of the products being peddled by the industry are ULIPs and firms here say that they are no different from other markets. So, if at all a threshold is justified, what ought to be the threshold for other insurance products? Perhaps a good benchmark could be the limit set for insurance companies reporting transactions under the anti-money laundering legislation. Here, micro insurance policies with an aggregate annual premium of up to Rs 10,000 (from all policies) are exempt. The limits could be reviewed periodically when with rising incomes the ceiling could be raised.

Source: The Economic Times

Health Insurance Article : Floater Health Insurance Policy

The incidence of chronic diseases has been on the rise all over the world in the past few years. People have been spending large amounts of money treating various kinds of diseases. The cost of medical treatment too has been ever rising. This is where medical insurance can come handy. By spending a small sum on a regular basis in a health-care policy, you can undergo medical treatment assured that your precious savings are not affected by the cost of treatment. The peace of mind alone could help you to heal quicker!

As in any booming economy, India's economic growth is being driven largely by the middle class. Notwithstanding our increased spending capabilities, we are aware of every rupee that goes out of our pockets. We are constantly on the lookout for the best product in terms of cost as well as returns. It is no different with insurance, health insurance in particular.

A relatively new type of health insurance plan called the Floater health insurance plan helps you get maximum benefit for money spent. This is a health insurance plan where all members of a family can be covered under the same plan for a single premium, with the sum assured available to any one member or to all members in case of any eventuality during the term of the policy.

The policy covers medical expenses incurred as an inpatient during hospitalization for more than 24 hours, including room charges, doctor/surgeon fee and medicines etc. This policy also covers expenses 30 days prior to hospitalization and 60 days post hospitalization.

So...what is the difference between regular health insurance plans and Floater health insurance plans?

We can study this with the following example. A family of three - husband (34 years), wife (33) and child (6) - with a regular health insurance policy pays a premium of Rs. 7580. The same family will have to pay only Rs. 6024 if they opt for a Floater policy.


In case of the regular health policy, you have to specify the sum insured against each family member. In the event of a claim, if the expenses move beyond that amount, you have to bear the difference. The Floater policy, on the other hand, provides each family member the benefit of the entire sum insured under the policy.

In the above-mentioned example, when the claim amount increased in the daughter's case, only the amount up to her respective sum insured would have been paid in case of Mediclaim. With the Floater plan, however, the full claim would have been paid out since the total sum insured of the family was Rs.300000 - the sum assured was available to any one of these three persons or to all the three persons in case of any eventuality during the tenure of the policy.

There is an upper limit in floater health insurance plan coverage of Rs. 3 lakhs.



Floater plans have some additional benefits, such as:
Free health checkup coupon for the senior most member of the insured family
An option for 2-year cover that offers a continuous 2-year protection with no increase in premium in the second year. This one time payment of premium for 2 years takes care of your renewal hassles for next year. The 1-year cover is also available.
No health check up required up to the age of 45 years (as on last birthday).
Income tax benefits under Section 80D (which from the current financial year has increased from Rs. 10,000 to Rs. 15,000) in the form of deduction from total taxable income. It is Rs 20,000 for senior citizens.

Policy Exclusions
30-day exclusion: Medical charges incurred, except those arising out of accidental injuries, within the first 30 days from the start date of the policy are not covered. This clause does not apply for subsequent renewal (without a break) of this policy.

The Floater policy is based on the probability of the number of people in a family falling ill during the year. A young family has a lower probability of falling ill, therefore the Floater policy can be an effective cost saver. As age increases, you should start looking to migrate to individual sum insured policies.

Author: Kairav Shah
www.apnainsurance.com