The five-point insurance guide

Choosing an insurance policy needs as much attention as choosing other investment avenues. Nikhil Walavalkar gets you started on some basics to help you make a sound decision

 WHETHER it is for protection, retirement savings or to bequeath some capital, a large section of the working population today owns an insurance policy. To make the best out of this investment, there are some factors that should be kept in mind while buying an life insurance policy.
Keep it simple
    Several policies do not make sense because by splitting the cover across policies, a buyer loses 'large sum assured discounts'. Also in the context of marketlinked policies, multiple policies mean big money spent on charges. If you are only briefly exposed to certain risks you can go for specific covers. For example, an individual who has to travel extensively for work can consider buying a personal accident policy. Besides being cheap, the policy can be bought for short terms such as one year.
Nominations
    Insurance is primarily aimed at meeting protection needs. The product must function when the insured is not around. This need is best served by the concept of nomination. Hence, the policyholder should ensure that the right person is registered with the insurance company as a nominee. All so often a policy is bought when an individual is single and single persons usually nominate either their parents or siblings. Post marriage, it becomes imperative to consider if there is a need to change the nomination. Cover yourself
    Large businesses often provide their employees with insurance covers. This is usually up to a maximum of three times the annual cost to company of the employee. Some companies also go as far as to offer an option to buy voluntary covers for their employees.
    In an age where job hopping is the norm, it becomes imperative that individuals don't depend on their employers for protection needs. The insurance cover offered by the employer may not be enough to satisfy your individual insurance needs. The risk is higher when an individual quits a job and takes a break before joining another organisation. Health insurance is important in the golden years. Idea of buying it post retirement is good, for those who have health insurance from employer if and only if they remain in good health at their superannuation age.
Buying policies for children
    In India, there are many who buy life insurance policies for their children. This is primarily done to provide for their education and marriage. However, many forget that the child does not earn for the family, and hence, it makes sense to buy insurance for the bread winner and keep the investments in his name. Parents can always liquidate their investments and provide for their children's needs. A point to note is that the policies bought on the life of a child (minor) vests in the child's name till he or she attains majority. In other words, the parents have no say in the proceeds of the policy.
Opt for loan insurance
    If you are a borrower and the lender entity offers you an insurance cover on group insurance platform, consider it. Especially if you are 45 years and above because purchasing insurance at this stage in your life becomes tougher as multiple factors come into play, such as more number of medical tests and health guidelines.
    nikhil.walavalkar@timesgroup.com 

ADAG eyes AIG’s Asian life insurance business

RELIANCE Anil Dhirubhai Ambani Group (ADAG) is looking to buy out the Asian insurance business of AIG. If it goes through, the deal — which would exclude AIG's Indian businesses — would make Reliance South-East Asia's largest life insurer. It could well be the secondlargest overseas buyout by an Indian firm. ADAG is likely to be one of several bidders looking to buy these AIG businesses.
    Sources told ET that the asking price for American International Assurance Company (AIA), AIG's wholly-owned arm, has been pegged at around $10 billion. Sources said Citibank, acting on behalf of AIA, has approached ADAG to buy out AIA. AIA is AIG's flagship life insurance company for South-East Asia and is the largest life insurer in the region with businesses across South East Asia.
    Last month, the US nationalised AIG which was on the brink of collapse with an $85-billion loan and restructured its top management. This was followed by another $38 billion last week. Now, the insurance giant is 80%-owned by the US government.
    Last year, Tata Steel had acquired Anglo-Dutch steel major Corus for $12 billion and Hindalco had acquired Novelis for around $7 billion. In comparison, Indian financial services firms have been rather conservative in their international acquisitions. Indian venture may be kept out of deal
    INMOST geographies, AIG operates as AIA while in some like Australia and New Zealand, it functions as AIG.
    When contacted, the R-ADAG spokesperson declined to comment. Sources, however, told ET that the group is interested in the deal, given AIA's dominance in the region. The Indian group has been spreading its financial service businesses overseas through Reliance Money, the retail brokerage and distribution arm of Reliance Capital. The company recently acquired a 15% stake in Hong Kong Mercantile Exchange, which came on the back of a partnership with local firm Goldride Securities, for distributing financial products and services.
    Reliance Money, which is looking to generate half of its revenue from abroad by 2013, is actively expanding operations in the Middle East. Top group executives are currently evaluating options and likely to take a decision soon. "Chances of a deal are 50:50. R-ADAG could be looking at a modest valuation, in the $5-6 billion range. The deal is still at a nascent stage, and there's no certainty that it will go through," said a source.
    R-ADAG already has a life insurance venture in India — Reliance Life Insurance — which is an associate company of Reliance Capital, the flagship financial services firm of the group, which has interests in asset management, stock broking, insurance, proprietary investments, private equity and other activities in financial services.
    In India, AIG has a 24:76 life insurance joint venture with the Tatas. This business is unlikely to be part of the proposed deal with Reliance-ADAG, as the Tatas may have a right of first refusal in any sale by AIG.
    AIG, which had assets in excess of $1 trillion in 2007, has been looking to sell parts of its businesses and assets and focus on the core general insurance business. AIG's move to sell AIA is at variance with its earlier statement to retain a continuing ownership interest in its foreign life insurance operations.
    Life insurance and retirement services business is the largest revenue generator for AIG. Out of the total revenues of $110 billion in 2007, life insurance generated $53.6 billion and general insurance $51.7 billion. Asset management and other financial services are comparatively smaller business areas of AIG globally. In 2007, AIG generated $92.7 billion worth of aggregate business.
    chaitali.chakravarty@timesgroup.com 

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New marketing code to be issued for insurance: MF

THE spat among the insurers and mutual fund houses is set to end with the regulators expected to come out with detailed set of guidelines for MF houses wishing to sell schemes bundled with insurance cover. The guidelines could ask for enhanced disclosures from fund houses while selling these products, that include the source of the insurance provided, with all the future advertisements adhering to the code.

    "We are waiting for Sebi or Irda to give us the Irda guidelines that govern the selling of insurance products," says AP Kurien, head of Amfi, a trade body of all the mutual fund houses in the country. "Once we receive it, we have no issues in following the guidelines to be followed for marketing of such products," he said.
    Moreover the heads of Irda and Sebi are expected to meet over the next few weeks to further consider the issues that trade bodies in the MF and insurance sector have raised. Life insurers complain that while insurance companies have to compulsorily sell a fraction of their policies in rural areas, fund houses concentrate only on metros for their customers. This distorts the level playing field, they claim.
    The dispute over group covers for mutual fund is the second phase of the turf war between life companies and mutual funds. In the first phase, mutual funds were complaining about the insurers stepping into mutual fund territory with ULIPs. Mutual funds decided to get back by offering systematic investment plans (SIPs) with life cover, structuring it on the lines of ULIPs. A handful of companies such as Kotak Mahindra AMC, Birla Sun Life AMC, and Reliance AMC had taken a lead in this direction.
    Selling such products was banned by Life Insurance Council, Amfi's counterpart in the insurance industry. But on Tuesday, after the intervention of finance ministry, this ban was lifted and fund houses would now get to sell insurance laced products too. But this compromise was reached after it was decided that the marketing of such products was done as per new rules and an established code to be announced by Sebi soon.
    Firstly the code could involve telling the buyer the source of the insurance company that is providing the cover and a disclosure that it is not structured by the fund house. Mr Kurien says that fund houses have always pointed that the cover provided is just an add-on, but they would be willing to accept additional disclosures.
    The code could also involve more details about the advertisements made by fund houses. Currently all the ads made for selling funds adhere to a Sebi code, and is essentially a self-regulatory process. But the code could be modified to include a few clauses on insurance cover loaded MF products.