‘Pre-existing illnesses’ holding up mediclaims

Mumbai:Disputes over medical insurance claims are on the rise in consumer courts across Mumbai and Thane, an increase attributed primarily to the fact that insurance companies are rejecting claims citing 'pre-existing illnesses'.
    Insurance companies agree that there needs to be more clarity on the term, but add that they have enough evidence to back their findings when they reject a claim. "The problem is mainly at the applicant's end when he does not disclose fully what medical problems he has and then we get medical evidence to prove that he was in the wrong,'' said a senior official with New India Assurance.
    According to the Insurance Regulatory and Development Authority (IRDA), applicants must submit medical records, details of ailments, diseases, diagnosis and hospitalisation for the last four years when buying medical insurance policies.
    But consumer activists say that many private sector insurance firms provide medical insurance without even a simple checkup for people below the age of 45. "The insurance firms are out to capture the huge market and hence do not realise that they may get many false claims,'' Rajan Alimchandani,a consumer activist, said.
    Consumer activist Jehangir Gai pointed out that the insurance companies' claim that the policy holder has been suffering from a disease for a long time is "proved wrong in the consumer court as they do not have solid evidence to deny the policy holder.''
    The IRDA has now decided to introduce a uniform definition of 'pre-existing illnesses' binding on all companies.

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Postal life insurance policies offer high returns with low premium.

SECURING THE FUTURE

Though not available to all, the eligible among us should grab the opportunity

POSTAL Life Insurance (PLI), a 125-year-old life insurance scheme run by the department of posts, is a good option for people eligible for it as it charges lower premiums and offers higher returns than comparable policies of life insurers.
    The policy, started in 1884 for the employees of Posts & Telegraphs Department, has since been extended to cover all central and state government employees and those working in staterun companies, or about 70% of organised sector employees in the country. In 1995, the department launched Rural Postal Life Insurance to take the benefits to all villagers who account for 60% of India's population.
    It offers better returns than other comparable products. For example, Postal Life Insurance has announced a bonus of Rs 70 per Rs 1,000 sum assured on its endowment policy – where the insured gets the sum assured plus annual bonuses when the policy period is over – irrespective of maturity since 2003.
    In contrast, average bonus announced by the Life Insurance Corporation (LIC), India's largest life insurer, for endowment policies was in the range of Rs 30-48 in past five years.
    Let's take the example of a 30-yearold government employee.
    If he buys PLI's endowment policy called Santosh for risk cover of Rs 1 lakh for a period of 20 years, he will be paying a premium of Rs 400 every month. For a similar policy offered by LIC, the Endowment Assurance Plan, the monthly premium is Rs 442.
    At the time of maturity, after 20 years, he will receive a total of Rs 2,40,000 at the current bonus rate of Rs 70 per Rs 1,000 sum assured. His net earnings, if subtracted total premium paid during the policy, will be Rs 1,44,000.
    In the case of LIC Endowment Assurance Policy, the proceeds could be Rs 2,04,000 (sum assured + accrued bonus + terminal bonus) at the current bonus rates.
    The rate of reversionary bonus is Rs 42 per Rs 1,000 sum assured, while terminal bonus is Rs 200 per Rs 1,000 sum assured. Thus, the net earnings in the LIC scheme will be much lower at Rs 98,000.
    The next obvious question is its tax treatment. Investment in PLI gets all tax benefits any life policy is entitled for. The returns are tax-free and premium payment is subject to tax exemption under 80c.
    A policyholder can pay the premium at any post office across the country. Some selected government departments have the facility of recovering premium from salary. But it is better to take a premium passbook.
    Postal Life Insurance, however, is not for investors who are looking for new-age products like unit-linked insurance policies (ULIPs) and pension plans. The postal department offers six plainvanilla plans: Suraksha (whole life assurance), Santosh (endowment assurance), Suvidha (convertible whole life insurance), Sumangal (anticipated endowment assurance), Yugal Suraksha (joint endowment) and Children's Policy.
    These policies just offer death cover while LIC and other insurance companies offer accidental death benefit with extra premiums. So, if you are interested in a plain vanilla insurance and if you are eligible for it, then Postal Life Insurance is a great value proposition.
pallavi.mulay@timesgroup.com 

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Why insurance cos prefer young customers?

Fears of Lifestyle Change At Later Stage Force Insurance Companies To Find Young Customers

 WHEN insurance companies say that it makes sense to start buying life cover early, they highlight how lower mortality charges enable you to buy a cheaper cover or how the power of compounding helps you earn better returns. But there is another reason why buying early makes sense. A little known section in the insurance Act makes it difficult for life companies from hiking rates for those whose life style changes subsequently or those who acquire harmful habits such as smoking or drinking later in life.
    In other words, any individual who buys a policy at age 20 and starts smoking at say 23 would continue paying the rates for a non-smoker. This is because according to Section 45 of the Insurance Act, an insurer cannot call in question any policy claiming that statements made were false or inaccurate after two years of the policy being taken out. This will make huge difference in the premium that the policyholder has to pay since the rate for smokers is almost 30% higher than what non-smokers pay.
    This holds for any person who later in life acquires a drinking problem as well. "But if it comes to our notice later that the proposer was suffering from clinical depression at the time of buying the policy, but did not disclose the same and took to excessive drinking later, we will not pay," said Andrew Cartwright, appointed actuary of Kotak Life Insurance, which had introduced a plan targeted specifically at non-smokers.
    Insurers say the rates are determined on the condition of the insured at the time of proposal, and continue to be in force later, despite any changes in the insured's lifestyle. According to Gorakhnath Agarwal, chief actuary at Future Generali Life Insurance, if any policyholder starts smoking or drinking after buying the policy, it is unlikely to result in a life threatening medical condition within two years of purchase - the time frame within which the proposal can be called to question. This is the practice followed by insurance companies world over because if insurers were not restricted from calling into question policies they would question every death claim on the grounds that it was because of a change in lifestyle which was not reported to the company.
    While nicotine content in the blood is the key indicator of the proposer's smoking/tobacco habits, flawed liver functioning as determined by blood tests would point to alcohol abuse. Alcohol consumption in excess of four units per day is also considered as abuse. "Though there is the possibility of some policyholders objecting to medical tests, the objections will be highest among clients with something to hide and hence, medical examinations are crucial," reasons Mr Cartwright.
    While buyers are not penalised for subsequent change in lifestyle, they are also not rewarded for more responsible behaviour. So even if a buyer chooses to give up smoking or drinking after buying a policy he will end up paying higher rates all his life. "At the time of issuance of policy, the company assesses the risk based on relevant medical and financial information provided by the customer. Thereafter the contract will continue between the company and the insured, irrespective of the change in the policyholder's financial or medical situation," explains Fabien Jeudy, chief actuarial officer, Birla Sun Life Insurance.

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Insurance biggies play on HNI fear

ICICI Prudential, HDFC Standard Life, Max New York Life & Birla Sun Life Widen Portfolio, Launch New Products

 IT'S a classic case of cashing in on people's psyches. With High Networth Individuals (HNIs) in the country being fearful of the erosion of wealth during the slowdown, many large insurance companies and banks have used this period to draw the interest of this premier segment.
    This would explain why many of the insurance biggies such as ICICI Prudential, HDFC Standard Life, Max New York Life and Birla Sun Life have widened their HNI portfolio and launched a slew of ULIPs and guaranteed return products. With most of these having a minimum premium of least one lakh rupees, the impact on their annual premiums hasn't been small either.
    In fact, insurers say that like retail investors, HNIs too seem to be showing a penchant for ULIPs and guaranteed return products. The predominant reason is that many of them have been portrayed as capital protection plans. With HNIs having a low risk appetite post the slowdown, they have largely seen these insurance products as an opportunity to hedge their portfolios in equity.
    Birla Sun Life, for instance, launched a ULIP in March 08 called the Platinum Plus 1 which had a minimum premium of 1 lakh rupees per year, but assured guaranteed returns based on the highest NAV in the first 88 months or at the 120-month maturity, whichever was higher. According to Vikram Kotak, chief investment officer at Birla Sun Life Insurance, the product was conceived at a time when the markets were high and aimed at protecting the interest of high networth clients if the markets took a downward turn. The success of the endeavour soon led to the launch of a similar product in September 08 and a slightly modified product in May 09, to the extent that HNI policies contributed about 6% of their annual premium.
    Tarun Chugh, chief of alternate distribution at ICICI Prudential Life Insurance agrees that ULIPs seems to have become the flavour among HNIs this year. Many HNIs have shown renewed interest in their existing Premier Life Gold Policy, which had a minimum premium of Rs 1 lakh. "In fact, about 1/3rd of the total premium of Rs 15,356 crore at ICICI Prudential was from HNI policies," says Chugh.
    Keeping in tune with market dynamics, even the relatively new entrant Future Generali Life Insurance, launched a product called Future Freedom targeted at HNIs in December 2008 which contributed nearly 30% of their revenue in 2008-2009. The company has announced plans of launching more products targeted at the same segment in the near future.
    However, the latest product targeted at HNIs seems to be the Unit Linked Wealth Multiplier, which was launched by HDFC Standard Life on May 15, with a minimum premium of Rs 2.5 lakh. Speaking of the reasons behind this, Sanjay Tripathi, executive vice president and head of marketing at HDFC Standard Life says, "Our research has indicated that the HNIs segment exhibits tremendous growth potential. Keeping in tune with this segment of population's requirements, we have launched Unit Linked Wealth Multiplier, providing an opportunity to multiply their wealth in the long-term."
    Even banks have begun to take the HNI mantra seriously. ING Vysya Bank, for instance, launched a wealth management solution combining banking conveniences, online wealth management and personalized services for mass affluent customers about six months ago. This product has single-handedly contributed about 25% to their monthly volumes.
    However, while most insurers argue that they have not relied exclusively on the HNI segment during the slowdown, many agree that the tangible fear amongst HNIs has made a lot more open to taking exposure to insurance products. In fact, the interest in many of the products which were initially launched for HNIs are now driving companies to look at launching similar products for other segments. Sonalee Panda, head of products and marketing at ING Vysya Bank agrees that the need to meet the constantly evolving needs of the HNI segment drives many innovations in the financial services industry.
    lisa.thomson@timesgroup.com 

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Is it so ‘Saral’, after all?

LIC's Jeevan Saral, with features such as low monthly premium and liquidity, is comparable with recurring deposits (RDs). But in terms of returns, a traditional instrument like RD has an edge

"BOOND Boond se sagar banata hai" If one goes by this saying, small but periodic investments can grow to a large sum at maturity. This is the basic investment logic behind recurring deposit schemes. Banks and post offices have been offering such schemes in India. LIC, the largest life insurance company in the country, has now joined this club. LIC launched a special plan called Jeevan Saral a couple of years back to cater to such investor needs.
    Jeevan Saral is nothing but an endowment assurance plan where the policyholder simply has to choose the amount and mode of premium payment. The plan provides protection against death throughout the plan term to the extent of 250 times of the monthly premium. For example, anyone opting to pay a monthly premium of Rs 1000 will get a risk cover of Rs 2,50,000 during the policy period. The policy term varies according to the age of the policyholder.
    The death benefit includes the total risk cover and loyalty bonus, if any. LIC also promises return of premiums, excluding first-year premiums and extra/rider premiums. This scheme also offers an accidental death benefit. In real life, it's rare for a policyholder to die during the term of the policy. Even LIC accepts that over 95% of its policyholders survive the policy period and for most policyholders, insurance becomes just another investment. However, unlike pure investment, in case of insurance policies, one would have to wait till end of the policy term to get back the amount assured. This may be as long as 20-25 years. Early policy surrender involves costs in terms of penalty. But this does not hold true for Jeevan Saral.
    The policy offers high liquidity to the policyholder. After five years of active policy (premium paid without default), which corresponds to the term for which premiums have been paid under the policy, one may receive 100% of the Maturity Sum Assured (MSA). (These MSA values are given by LIC). However, one can withdraw partial or full MSA amount after the 10th year.
    Moreover, this is a with-profits plan. Loyalty additions (i.e. bonus) are payable from the 10th year, along with guaranteed maturity benefits. Loyalty addition is nothing but terminal bonus, which actually depends on the profits of LIC's life insurance business. Thus, it is variable return that cannot be estimated at the beginning of the policy.
    Jeevan Saral as an investment option needs to be compared with other avenues such as recurring deposit (RD) offered by banks and post offices or periodical investments in Public provident Fund (PPF). Recurring deposits enjoy liquidity but no tax benefits, while PPF carries tax benefit minus liquidity. Since Jeevan Saral offers both the benefits, it is necessary to compare its returns with other schemes.
EXAMPLE
Suppose 30-year old Mr A opts for a policy involving monthly premium payment of Rs 1000 for 20 years. The total premium paid will be Rs 2,40,000 at the end of the 20th year, which assures maturity sum of Rs 2,73,500 and loyalty addition at the rate announced for the corresponding year. (The average rate at which the bonuses were offered for the past five years was around 5-6%). So if we assume that 6% loyalty will be paid in the 20th year, the total lump-sum earnings at maturity will be around Rs 3,48,000. Thus, the net earnings will be around Rs 1,00,000 in 20 years.
    Instead, Mr B opens a recurring deposit with a PSU bank for 20 years. (The maximum RD period offered is 10 years, but we have assumed RD of 20 years to make it comparable). The deposit rate offered by most banks for 10 years is 7% per annum compounded quarterly. So, the amount receivable after 20 years will be around Rs 5,21,000. Thus, the interest earnings will be Rs 2,81,000, much higher than the guaranteed returns on Jeevan Saral. But one should not forget that the interest income on RD is taxable. Assuming Mr B is in the highest income tax bracket, the total tax paid will be Rs 87,000 and the net interest earned after tax adjustment will be Rs 1,94,000, which is still higher than the returns offered by Jeevan Saral. But not all investors need to pay the highest applicable rate of income tax as RDs don't attract TDS.
    Now consider Mr C, who opts to make monthly investment of Rs 1000 in PPF account for 20 years. He enjoys tax benefit under sec 80c similar to Mr A. At the end of 20th year, he receives almost Rs 5,93,000. Thus, the net earnings for Mr C will be Rs 3,53,000, which will be absolutely tax-free. Moreover, these assured earnings may be much higher than the receivables of Mr A.
    To sum up, if one is looking for a pure long-term investment with periodical payout, traditional fixed investment avenues such as RDs and PPFs score for insurance based investment plans. As for risk cover, one may go for pure-term policies which have very low premiums.
    (With inputs from Bakul Chugan Tongia)
    Pallavi.mulay@timesgroup.com 

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This is a good time to invest in ULIP

This is a good time to invest in ULIPs, combining benefits of a life insurance policy & reaping the best from market upswing, says

 IT'S OFTEN hard to take a decision, especially when it includes forking out large sums of money towards investing in a market, which could take a downward turn any day. After all, you do not want to end up digging your own grave. So a couple of months ago, when financial experts began saying that people should look at buying stock at good valuations, you may have pushed the thought to the back of your mind.
    But now, with the semblance of stability returning to the government and the markets slowly inching their way up, the desire to invest has begun to set in. However, with many still wary of direct exposure to the market, investors have begun showing an interest in Unit Linked Insurance Plan (ULIP), which combines the benefits of a life insurance policy with possibility of reaping the best out of upward movement in the markets. But is this a good time for the retail investor to buy a ULIP? SundayET has the answers.
THE RIGHT TIME
If you're wondering whether you've missed up on the right opportunity to invest in ULIP, rest assured that your fears are unfounded. According to most financial planners, every time is a good time to invest in a ULIP, including the current scenario where markets are in recovery mode. In fact, Veer Sardesai, CEO of Sardesai Finance, says that on a psychological level, it is easier for an investor to park his funds now than earlier. "It is difficult for the lay investor to muster the courage to invest in equities at the bottom of the bear cycle (although that is the best time). Hence, today is a good enough time to commit to long-term equity investments," he points out.
    To a large extent, however, the choice of whether you want to invest in a ULIP or not, actually depends on your expectation from the product. Most financial planners reiterate that a ULIP is predominantly an insurance product with linkages to the market and should not be used to time the market. If your priority is to make short-term profits, then you are more likely to realize this goal by investing in a mutual fund or fixed deposits than a ULIP. According to Manik Nangia, corporate vice-president and head of product management at Max New York Life Insurance, "The sure shot way to get good returns from the ULIP, is to remain invested in the market for about 10-20 years, if not more." The rationale is simple and works on the basis of averaging. The longer you remain invested, you have the benefit of leveraging the losses of bear runs against the gains made during the bull runs.
    However, if you are comparing investing in a ULIP with investing directly in the market or in mutual funds, Sardesai warns that the initial charges of investing in a ULIP are fairly higher and may not be the most efficient way to invest in stock markets. For instance, up to 30% of your premium in the first year could go towards premium allocation charge and administration charges but this decreases in the subsequent years. In a mutual fund, however, the charges are extremely low in the initial phases. "Also, if you were looking purely at insurance, then it would make more sense to invest in a term insurance plan than a ULIP," adds Zankhana Shah, founder and owner of Money Care, Financial Planning.
THE ROSY PICTURE
However, you cannot deny that ULIPs give you the benefit of two birds in one shot: the security associated with the insurance component and the flexibility and the transparency associated with investments. ULIPs have a range of options available for customers ranging from the most aggressive to the extremely conservative products and give customers the benefit of being able to change their debt to equity ratio depending upon their risk appetite. In fact, most insurance companies allow individuals between four and eight switches a year without any charge. "However, these switches should ideally coincide with life-stage milestones. As a person gets closer to retirement, he could accordingly increase the allocation to debt within in his/her portfolio," says Nangia. For an extremely conservative investor, there is even the option of adding a capital guarantee clause in some cases. Also, if you buy a ULIP, then you can claim a tax deduction under Section 80 C of the Income-Tax Act.
WATCH OUT
According to most experts, the fundamental decision that people need to take while buying a ULIP is whether this in line with your risk appetite and complements your other investments. Evaluate factors such as your current income, your dependents and your lifestyle in mind. "If an investor has already bought sufficient insurance then going for ULIP may not be a good idea," warns Shah. Also you need to have a good understanding of the various charges that are levied and need to keep a track of the performance over a couple of years. If you have this information, you will easily be able to field yourself from the pitches of unscrupulous sellers who are likely to show you only the data pertaining to periods when the stock market was at its peak.
DOUBLE BENEFITS

• Combines security of life insurance with investment options

• Gives good returns over 10-20 years

• Allows you to choose debt & equity exposure according to risk appetite

• Allows 4-8 switches in the debt/equity ratio free of cost

• Gives tax deductions under Section 80 C of the I-T Act

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Why you should read the fine print of your insurance policy

State Consumer Disputes Redressal Commission sets aside compensation to businessman who suffered losses during July 26, 2005, saying his policy did not cover flood damage since July 2004

This will serve as a warning bell to those who opt for insurance policies without paying attention to details.
    A Kalyan businessman – awarded Rs 2.25 lakh compensation from an insurance company after he suffered losses in the July 26, 2005, floods by the Thane consumer forum – will now no longer get that amount. The State Consumer Disputes Redressal Commission set aside the compensation, observing that floods were not covered by the policy, which was signed way before 26/7.
FLOOD DAMAGE
Yusuf Hussain Khan, who ran his plastic goods factory at Kalyan, availed the cash credit limit facility (a working capital loan) from the Kokan Mercantile Co-operative Bank. To secure their cash credit facility, the bank took an insurance cover from the Oriental Insurance Company. The bank would debit the insurance premium from Khan's cash credit account.
    From 2004, the insurance cover did not cover flood damages. However, during the July 2005 floods, Khan suffered damages worth Rs 2.5 lakh and requested the bank to give him a flood victim's benefit, which was turned down. Khan's plea to the insurance company was also rejected on the grounds that risk due to flood was not covered under the policy.
    Khan filed a complaint with the Thane consumer forum, which asked the insurance company to compensate him with Rs 2 lakh towards goods damages, and Rs 25,000 towards mental trauma. The insurance company challenged the order before the Commission, which set aside the Thane forum's order last week.
    The commission held, "The forum on its own has drawn a conclusion that… the policy documents had been tampered with [to remove the flood cover from the initial policy]." The commission held that the Thane forum, "committed a serious error to infer accordingly."
    The commission also observed that neither Khan nor the bank, had at any point, objected to the exclusion of the flood cover in the policy in 2004. The insurance company's rejection of the claim "is proper and cannot be faulted with," the commission ruled.

The compensation was denied to Yusuf Khan as the policy did not cover damage due to floods

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