Stay liquid, stay mobile

Don't park all your money in illiquid, immovable assets; build a contingency fund; pick up an optimum cover. Financial planner Gaurav Mashruwala has these suggestions for two city couples

    Mr and Mrs Prashanth live in Mumbai. Prashanth, an MBA (finance), works for the financial services industry. His wife is an engineer and works in the private sector. 
Cash Flow: The couple's gross yearly income is Rs 15.03 lakh. Their yearly outflow is Rs 8.04 lakh. This includes routine expenses and those incurred to support dependent parents, life and medical insurance premiums, EMI on the home loan and taxes. About 26% of their income is being utilized to service home loans. Net Worth: Total assets are worth Rs 95.04 lakh. This includes a house worth Rs 85 lakh. The outstanding home loan is Rs 33.50 lakh. Liability is about 35% of the assets. 
Health & Life Insurance: 
Health cover for himself and his spouse is Rs 4 lakh. In addition, there is another health insurance cover of Rs 2.50 lakh for his wife. His personal life cover through a term plan is Rs 25 lakh. In addition, a life cover of Rs 15 lakh has been provided by his employers. 
Savings & Investments: The balance in his savings bank account is Rs 41,000, his bank fixed deposit is Rs 30,000, direct equity Rs 2.64 lakh, equity mutual fund Rs 3.04 lakh, debt mutual fund Rs 50,000, EPF and PPF Rs 2.65 lakh and the balance in corporate FD Rs 50,000. 
QUERY: How much should the couple keep aside for contingencies? Is theirinsurance cover sufficient? They want to purchase a car worth Rs 4 lakh in the next few months. How should they fund it? 
FISCAL ANALYSIS: Their inflow is substantially higher than the outflow. This is a big positive. Borrowing is within permissible limits. Both health and life insurance covers are insufficient. Out of overall assets worth Rs 95.04 lakh, the cost of their house is Rs 85 lakh. Assets are skewed in favour of asingle illiquid, self-consumption asset. This is usual as most younger couples would purchase a house as their first asset. However, they should now concentrate on paying back their loan and create more liquid assets. 
WAY AHEAD Contingency Fund: 
Monthly mandatory expenses are in the range of Rs 67,000. Against this, their balance in the savings bank and sweep-in bank fixed deposit combine is Rs 71,000. This is about one month's reserve. It should be enhanced to about Rs 2 lakh; Rs 25,000 should be kept as cash at home and the rest in their savings bank account linked to a sweep-in FD. Health & Life Insurance: Ensure a health cover for self and spouse is Rs 5 lakh each. This could be either purchased directly from an insurance company or provided by the employer. Prashanth should have a life cover of Rs 1 crore for himself in the form of a term plan. 
Car Purchase: The couple is able to save about Rs 7 lakh every year. They only want a car worth Rs 4 lakh. Therefore, in the next 12 months, they should start a SIP of Rs 35,000 in a debt-fund to create the corpus. 
    Mumbai-based Sarath Babu works for a private company while his wife is a housewife. 
Cash Flow: Babu's total monthly income from his salary and rent is Rs 1.12 lakh. Against this, the couple's mandatory outflow is Rs 1.04 lakh. This includes routine household expenses, insurance premium, EMI on home loan, taxes and so on. About 52% of their income is being utilized to pay the EMI. They have two home loans. The EMI on the first is Rs 28,000 and on second one, Rs 30,000. 
Net Worth: They own 'self-consumption' assets in the form of jewellery, a car and real estate. Besides this, they only have an EPF/PPF worth Rs 5 lakh. They do not have any other bank savings. 
Health & Life Insurance: Combined medical insurance for himself, his wife and parents is Rs 3 lakh. The sum assured for the life cover of Sarath Babu is Rs 6 lakh and his wife is Rs 5 lakh. Both these are investment-oriented policies. 
QUERY: How should they get out of home loan debt at the earliest? Both the loans have a 10-year tenure. The first loan is two years into its term. The second loan was taken recently. FISCAL ANALYSIS: The couple's finances are cash-flow positive; they spend less than their earnings. There is absolutely no liquid money for contingencies, though. Their healthinsurance is insufficient and so is the life insurance. Their entire investment portfolio is illiquid. Borrowings are on the higher side. The situation is tougher considering it is a single-income family and has no other assets that can be liquidated to pay back the principal in case of eventualities. 
WAY AHEAD 
Other precautions: Even before repaying the loan, they should: 
    Keep aside funds equivalent to one month's mandatory reserve plus another two months' EMI for contingencies. 
    Enhance health cover for the family to Rs 10 lakh. 
    Cover themselves through a term plan to the extent of their outstanding home loan. 
Recommendations: For the time being, they must continue paying the existing EMI. Any increments, incentives or bonus should be utilized to pay back the home loan. 
    They must curtail the contribution to PPF/EPF to minimum/ mandatory requirements. The EMI must be enhanced to the extent of surplus. 
    Life insurance policies are causing a drain on the cash flow. Premium for the Rs 6 lakh policy is Rs 32,400 per annum and Rs 5 lakh policy is Rs 24,000.00 per annum. Either covert them into a fully paid-up policy or surrender them. Purchase pure term plans. Money saved on the premium should be utilized to enhance the EMI. 
    In case there is an income loss due to some eventualities, then either consider liquidating one of the homes or sell the jewellery. Selling jewellery, though, should be the last option. 
    (To be featured in this 
    fortnightly column, write to 
    moneymakeover@indiatimes.com)

Consumers often face problems in cashless mediclaim

In 2001 when the Insurance Regulatory and Development Authority (IRDA) paved way for the entry of Third Party Administrators (TPAs) as intermediaries in health insurance sector, they were expected to bring substantial qualitative changes in the health insurance service delivery,

particularly  in the area of 'cashless mediclaim' or  cashless system of claim settlement.

But a decade hence, policyholders continue to be victims of inefficiency, insensitivity, and lack of standardisation in the sector, particularly in the processing and settlement of claims. A 'cashless health insurance' policy, for example, must ensure that the policy-holder is free of worry over payment of medical bills in case of any treatment or hospitalisation. However, consumers often complain about long waits involved in getting approvals for cashless treatment from TPAs/insurers.

For example, a reader SM Sarin writes about how despite a health insurance policy for cashless treatment, he had to pay a security deposit of R55,000 to a hospital because the required authorisation did not come in time from the TPA. Even though the pre-authorisation form with all the relevant details was submitted three days prior to the surgery, the authorisation did not come for five days, despite repeated phone calls and reminders, he says. 

Eventually, even though he was discharged from the hospital at 10am, he had to wait till 3pm for the approval of the medical bill, as the hospital would not let him go without it.  "I wish the insurers would become more sensitive to the suffering of those who are sick and are already nervous about their health and not impose further anxieties on them," said Sarin.

In 2009, a committee constituted by the IRDA to evaluate the performance of TPAs, had recommended steps to improve customer service, including formulation of strict service standards with specific timelines for all services and penalty for their non-adherence. The committee, after detailed consultations with TPAs, insurers, hospitals and policy-holders, had also recommended standardisation of all claim-related procedures, including hospital billing and discharge protocols, so as to bring uniformity in the processes and facilitate faster and efficient pre-authorisation and claim settlement.

Another recommendation was the creation of a health insurance industry body — Health Insurance Development Council with representation from all stakeholders — to spearhead standardisation and quality improvement, besides collection and maintenance of data for efficient delivery of services.

Now that IRDA has issued an order (on Feb 2) constituting such a body — Health Insurance Forum — to create standard processes and definitions in the insurance industry as well as the health sector, hopefully, consumers can look forward to better quality of service.

Ramesh Sharma: I have a mediclaim policy (family fluter) from a public sector insurance company purchased on March 12, 2011. I lodged a claim in April 11. The company rejected it, but settled it after my application to the grievance cell of the TPA. Again, I lodged a claim for the same illness in August, but the company is not making payment. What should I do?

Answer: Without details, it is difficult to answer this question. But I would suggest that you file a complaint with the insurance company and if you don't get a satisfactory response, lodge a complaint with the insurance ombudsman. You can also register your complaint on IRDA portal: the integrated grievance management system www.igms.irda.gov.in. It provides for online registration of policyholders' complaints and helps in tracking the progress of the complaint. The portal also gives you a link to the grievance redress system of insurance companies.

You can get details of the ombudsman scheme and the addresses of the ombudsmen fromwww.irda.gov.in.