Buying a Pension Plan- Important points to be considered

Is insurance an investment tool?

Source: Money Control

In India, insurance is viewed largely as a tax-saving instrument. People put aside money every year to "invest" in insurance. Sure, there are products like Unit Linked Insurance Plans (ULIPs) and Endowment Plans, which promise to increase your money by a higher rate than a traditional insurance plan would. But are these really effective tools for investment? This question comes up repeatedly in the field of insurance.

The aim of insurance

Before we answer this question, let us look at the purpose of insurance. Any insurance plan aims to protect you against financial risk. Life insurance helps you financially secure your loved ones in the event of your death. Car insurance ensures that a sudden collision does not leave you bankrupt. Adequate health insurance ensures that you never have to scrimp on medical treatment. Thus, a good insurance policy is gold when it comes to risk protection.

Insurance as Investment

Things get a little murkier in the region of insurance as investment. Many policy buyers nowadays choose to overfund their life insurance plans. This is done in the hope of retaining the death benefit while also receiving an assured payout that can be withdrawn before the policyholder's death. This is common enough in the case of permanent life insurance policies, where some of the premium payments are diverted into investments to build a corpus for the policyholder to withdraw and use before his/her death. Naturally, the premiums for such policies will be higher than for traditional plans. Moreover, such an investment plan makes sense only for people who are in it for the long haul.

Should You Invest in Insurance?

If you do not trust yourself to make wise investments annually and to change your investment plans from time to time, an insurance plan may be a good savings instrument. By its very nature, an insurance plan forces you to save over several decades. It works for people who lack the discipline to save otherwise. Nevertheless, it is effective only if you are able to continue the payments over the duration of the policy term. To discontinue your plan midway would be a bad call, particularly if you have been using the insurance as an investment tool.

Insurance vs. Other Investment

Tools Take the instance of the endowment plan. This kind of a plan came along because buyers of term life insurance plans were disgruntled at receiving no benefit at all on surviving the term. What an endowment plan does is to provide a death benefit as well as a maturity benefit. If you survive the term, you will receive an accumulated amount. However, the premiums are considerably higher than in traditional insurance policies. The question you should be asking here is whether the returns on an endowment policy (or on a ULIP, if you prefer) matches up to the returns on a strong mutual fund. Unfortunately, insurance is a poor performer when compared to mutual funds and other traditional modes of investment. The lump sum payout that you receive at the end of the policy term will form only a fraction of what you could have earned had you diverted your money elsewhere.

Final Word

In conclusion, it is best not to combine insurance with investment. Insurance can be used for investment, but the returns will always be limited. 

How to choose best Term Insurance Plan

Source:- Advisor Khoj

Term insurance is the best form of life insurance. It is a straightforward protection policy and the premium is much less than life insurance cum savings products. With a term life insurance plan you can get the optimal life cover and generate sufficient investible surplus to meet your long term financial goals. Once you have decided on buying a term life insurance, you should know that half the battle to provide financial security to your family in the event of an untimely death is won. In this article we will discuss how to select the best term plan. You should go about the process of buying term insurance in a very methodical way and if you engage an experienced certified financial planner your job will be that much easier. There are 5 broad steps involved in buying the right term life insurance policy.

1)      Determine the right amount of Sum Assured

You need to consider several factors in deciding how much life insurance cover is adequate for you. The insurance cover, also known as sum assured, should be adequate to cover the following:-

·         How much debt do you have: If you are the only earning member of your family, your dependents may not be able to meet the debt obligation in the event of an untimely death. Home loan, car loan, credit cards and personal loans must be paid off in full. For example, if the outstanding principal balance on your home loan is र 25 lacs and your car loan is र 5 lacs, you need a minimum insurance cover of र 30 lacs plus a little extra for accrued interest (not paid). If your spouse is also working, you should determine how much loan can he or she service, the balance must be paid off in full.

·         Income needs of your family: This is the biggest determinant of how much life cover you need. In the event of death, the income earned from the investment of the policy pay-out (also known as sum assured) should replace your current income. For example if your current monthly expense is र 50,000 and assuming you can get an annual pre-tax return of 7 - 8% on your investment, you will need an insurance cover of र 80 – 90 lacs. You should always add an additional amount, as a guard against inflation. As a thumb rule you may add your annual salary as the additional inflation guard to your sum assured. Your total sum assured, including inflation guard, in the example above should be र 90 lacs - 1 crore. So if you have loans of र 30 lacs and an expense of र 50,000/month, total insurance cover or sum assured should be र 1.3 crores.

·         Future obligations: You also need to factor in your future obligations, like children’s education, marriage etc. For example, if you need र 10 lacs for your child’s higher education on an inflation adjusted, you should include that when you are calculating how much cover you require. If your child is 10 years old and if you can get about 12% returns from suitable child investment plans, you will need to make an investment of र 4 lacs. So, carrying on the above example, you should add र 4 lacs to your required sum assured.

You can see the above method of calculating insurance cover factors, in how much funds you will require immediately, how much funds you will require on an ongoing basis and how much will you require at a future point of time, in the event of an untimely death. Determining the right sum assured is a critical aspect of life insurance. Being under-insured is as worse or, at best, only marginally better than being uninsured.

2)      Determine the term of your life insurance policy

The term of your life insurance policy is as important as the sum assured. For example, if you are 25 – 30 years old and have a 15 year term plan, you will be left without life insurance by the age of 40 – 45. At that age health risks are much higher, particularly with respect to coronary and cardio-vascular diseases, than when you are younger. Buying new life insurance when you are above 40 is much more expensive than when you are younger. For example, the premium of a 15 year term plan for a 45 year old is more than double of 35 year term plan for a 25 year old (based on LIC Amulya Jeevan premium rates). If you take a longer term plan when you are young, you may be paying slightly higher premiums in the initial policy years, but your overall savings in your life insurance premiums over your entire working career will be much higher. You should try to get the right life cover for the longest term possible. Of course, there is the question of affordability. While you should not compromise on the amount of life cover or sum assured to get a longer term plan, term plans are advantageous in the sense that you can get a longer life insurance term at a much lower cost, compared to other types of life insurance plans. 60 is normally considered to be the retirement age, but nowadays, more and more people are working even beyond the age of 60. It is always a good practice to assess your life insurance needs from time to time, and if you feel that you will be working beyond the age of 60, it will be prudent to buy term plan to cover you even beyond the age of 60.

3)      Compare Plans before you buy

It is always advisable that insurance buyers compare different term plans before buying their life insurance policy, so that they can choose the right insurance policy for their needs. While cost is an important factor when buying an insurance policy, the claims settlement track record of the life insurance company is also an equally important factor. For example, while the premium of insurance plans of Life Insurance Corporation (LIC) is usually higher than other companies, the claim settlement ratio of LIC is also higher than other life insurance companies. There are a large number of term plans available in the market. You should note that, under the current insurance (IRDA) regulations an insurance agent are not allowed to sell products of multiple insurance companies. While the regulations may change in future, as of now, an insurance agent is not allowed to sell policies of more than one life insurance companies. Therefore, an insurance agent will obviously be biased towards the products of the company where he or she has the agency. A fee based independent financial planner or insurance advisor can help an insurance buyer buy the right policy. You can also buy term plans online after comparing different term plans.

4)      Choose a company with good claims settlement track record

A cheaper policy is no good, if the life insurance company for some reason or another cannot fulfil the claim of the insured in the event of an untimely death. It defeats the very purpose to buying life insurance. Even if the life insurer fulfils the claim, if it takes a very long time to fulfil the claim it is certainly not a desirable situation for family of the insured to be in.

5)              Monitor your life insurance needs on an ongoing basis

Some insurance buyers think that once they buy adequate cover in a good life insurance plan from a reputed company, they assume that their life insurance needs are taken care of forever. This is a mistake. Financial situations of insurance buyers change with time. Compare your current income with your income ten years back. Hasn’t your income grown several times? Your lifestyle would also have improved significantly. If you bought a life insurance plan ten years ago based on your income back then, the sum assured will not be enough to meet your family’s current lifestyle and needs, in the unfortunate event of your untimely death. Therefore you should buy an additional term plan to cover that risk. Life Insurance needs have to be re-evaluated at a regular frequency and any additional sum assured if required, should be bought.

Conclusion

In this article we have discussed 5 broad steps involved in selecting the best term life insurance policy that is most suitable for your needs. Life insurance is one of the most critical aspects of our financial planning. It is as important as investment planning in ensuring the financial well being of our families. I have seen many investors devoting much more mind space to investments compared to life insurance, while at the same time, spending much more on life insurance than investments. If you follow the steps outlined in this article and choose the right term plan for your life insurance, not only will you be able to provide adequate financial security to your family, you will also be able to free up substantial financial resources to invest towards your other long term financial goals.

Is it time to revaluate your term plan needs?

Source: IIFL

Buying a term insurance plan is deemed as a part of risk management plans. However, it is just the first step as the buyer needs to regularly evaluate if the term cover amount is adequate to meet his needs. It is stated that change is certain and is the only factor which remains constant. As life and situations change, people must revisit their term plan and check if there is a need of modification. Here are some instances when it becomes absolutely necessary to revisit term plans:

Changes in personal life

Whenever there is any change in personal life, it is important to reassess term plan needs. If a person gets married or becomes a parent, it is evident that the dependents have increased in family. It indicates there is a need of increased cover so that there is adequate financial stability in case of any unfortunate event. So, it is advisable to reassess family needs and accordingly change the term insurance plan.

Payment of liabilities

A term insurance plan helps dependents on important goals, and also assists the person in the repayment of his liabilities. For instance, a home loan comes in the list of the largest loans in a person’s life. If the borrower passes away during the loan tenure, the dependents/ family members are required to bear the liabilities. Failure to repay the loan could force banks to sell the property. If there is adequate term cover, the family members/nominees can utilize this fund to repay the loan. Thus, people should revisit term cover when they take on large loans.

Change in career

Whenever there is a promotion, demotion or job loss, it is advisable to reassess the term plan. For example, a job loss brings lower cash inflows, leaving dependents vulnerable in case of unfortunate event. At the same time, if income has increased substantially from the time when a person bought the insurance, then a new term cover would be required to support the new lifestyle.

 

No Concern For Cover- ( Term Insurance)

Source: Dalal Street Investment Journal.

It is essential to ensure that the insurance life cover or sum assured is large enough to compensate the loss of income of the departed person. Yet, a majority of people don't give this enough thought, observes Jay Sampat

KEY POINTS

Most Indians believe that insurance is more of an investment rather than a fee being paid to secure ones family from any unforeseen events.

Individuals need to allocate certain portion of their savings to buy pure term plans that guarantee adequate cover on life.

With the increasing levels of risk we face in our day-to-day life, life insurance has become a necessity. However, unlike the popular belief that one should have more than adequate insurance in case disaster strikes, insurance cover in India is inadequate in most cases. Data reveals that in a country of billion plus people just about 26 per cent are insured. What is even more worrying is that even among those insured the total cover is too insignificant to prove useful.

For instance, for an individual earning say about Rs 6 lakh per annum, ideally, the sum assured should be an amount which if invested would at least generate an income of about Rs 3.5-4 lakh annually. Assuming the interest rate of 8 per cent, this individual thus needs a life cover of about Rs 50 lakh, (generally 7-8 times the annual income), to ensure that near and dear ones are not forced to alter their lifestyle dramatically in the unforeseen event of the death of the breadwinner. This assumption is, however, purely theoretical and far removed from what actually happens on the ground.

According to the annual report of the Insurance Regulatory and Development Authority of India (IRDA), the total amount of sum assured (life cover) taken by all citizens of the country together is about Rs 24,00,000 crore which constitutes approximately 26 crore life insurance policies. This means that on an average, the sum assured per policy is over Rs 90,000. Hence, if one were to assume a family of 5 members, the average annual income per household would be an approximate sum of Rs 2 lakh - given the per capita income of Rs 38,000 for 2007-08. As most Indian house holds have just one breadwinner in the family, the current amount of average sum assured fails to cover even half of the average annual family income of the country. This statistic is truly appalling.

Why have Indians refrained from ensuring a comparable cover on their lives despite a rise in living standards? The answer lies in the belief held by most Indians that insurance is more of an investment rather than a fee being paid to secure one's family from any unforeseen events. It is for this reason that there has been a high demand for products like unit linked insurance plans (ULIPs), endowment and money-back plans in comparison to term plans. One of reasons for this is that a pure term plan does not provide any returns in case the policyholder survives through the term of the policy - all premiums being paid treated as an expense to cover the life of the insured.

Policies other than term policies are designed to provide not only an insurance cover but also serve as an investment avenue. The premiums paid are thus returned to the investor, on completion of the policy term, with very little or no returns. Thus, while one does feel good that the money spent is returned if one survives the term, yet, as the incomes are limited, the individual ends up taking a negligible life cover thereby defeating the very purpose of the exercise. For instance, in a term plan from LIC, an annual premium of about Rs 5,000 can fetch a life cover of Rs 15 lakh for a 30-year old healthy male individual. The same amount of premium will however buy a life cover of only Rs 1 lakh under the endowment and Rs 75,000 under the money-back plans.

Thus, for an individual being able to afford Rs 5,000 as annual premium and then buying an endowment or a money-back policy clearly implies buying an investment and not insurance. In fact, it is this mindset that has resulted in the rush for ULIPs in recent years. While these products promise high returns that are linked to the equity markets, the amount of life cover provided by them is negligible in most cases. Most ULIPs available in the market today offer a life cover equal to five times the amount of first year premium. Thus, a premium of Rs 10,000 would mean a life cover of Rs 50,000 only. These days there are, however, a few ULIPs from the likes of Metlife (Tata AIG) which provide cover up to 40 times the annual premium.

The householder's insurance policy

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Source: Dalal Street Investment Journal

The householder's insurance policy may be the best way to secure one's home and precious belongings at a small price. Prakash Patil delves into the fine print of the policy to find out the pros and cons of buying the policy

A short circuit caused a fire in the house of Shirish Patel (name changed) at Borivali in Mumbai, and damaged his wall unit, television set and few other valuable items. Fortunately, the Patel family was at home and the family members were able to put out the fire before it could do any further damage. Apart from damaging the wall unit and other electronic items, the flames partially burnt the false ceiling and blackened the wall behind the wall unit as well as the adjoining wall. The total loss, including the cost of repainting the living room and repairing the false ceiling, was estimated at Rs 55,000. Fortunately, Patel had taken a householder's comprehensive insurance policy and received about Rs 40,000 from the insurance company.

This is just one instance of how our homes are vulnerable to damage due to various reasons. Imagine how much risk our homes are exposed to due to natural calamities such as earthquake, typhoon, flooding, lightening, among others, as well as man-made events such as rioting, terrorist attack, accidental fire, explosion, etc. It is imperative, therefore, that every homeowner should insure his home and hearth against such natural and man-made calamities by taking a householder's insurance policy.

The natural disasters such as earthquake, typhoon, tsunami, lightening strike, fire, landslides or monsoon deluge (ala Mumbai's 26/7 in 2005) can strike any moment and leave a trail of death, destruction and devastation behind. Also, terrorist attacks by anti-nationals and foreign mercenaries are becoming frequent in metro cities and escalating social and communal tensions can trigger riots, endangering lives and properties of citizens. Then again, one cannot rule out the possibility of burglary and theft in the house by hardened criminals. If the survivors of these natural calamities and man-made disasters have insured their homes and belongings, they would be able to rebuild their lives in double- quick time and move on.

The policy

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HOUSEHOLDER INSURANCE POLICIES
Insurance Company	Name of the Policy	Premium amount	Sum Insured	Other Details and features
Tata– AIG Insurance	Home Secure- Privilege- 1	Rs. 1005	Rs. 5,02,500	Covers fire & other perils (Rs 2 lakh) burglary & theft (Rs 2 lakh), ATM cash (Rs 2500) & public liability (Rs 1 lakh)
	Home Secure- Privilege- 1	Rs 719	Rs. 4 Lakh	Fire & allied-Rs 3 lakh, burgl & theft-Rs 1 lakh
		Rs 853	Rs 6 Lakh	Fire & allied-Rs 5 lakh, burgl & theft-Rs 1 lakh
Oriental Insurance	Sweet Home Insurance	Plan- A Rs. 543	Rs. 8.30 Lakh	The premiums are for 75% or more of full value cover for fire and allied perils and burglary and housebreaking (excl. jewellery)
		Plan- B Rs. 810	Rs 12.50 Lakh
		Plan- C Rs. 1076	Rs 16.70 Lakh

The householder's insurance policy is specifically aimed at compensating losses suffered by homeowners due to damage to their houses and valuable belongings therein due to specified natural and unnatural causes. Of course, the policy does not offer cover against all calamities, but it does cover a whole lot of them which are most common (see box alongside). The policy can be taken by anyone, and it does not matter whether you are a landlord or a tenant. The best part is that the policy cover comes at a very low cost which everyone can easily afford.

There are two choices available in householder's policies: a comprehensive policy or a item-wise cover policy. The comprehensive policy covers the house as well as its contents, subject to specified upper limits for the value of the house and the value of each of the contents. For example, Tata-AIG's `Privilege' policy provides a cover of Rs 5 lakh against fire and allied perils on home and a content cover (excl. jewellery and valuables) of Rs 1 lakh against burglary and theft at a premium of Rs.853 per annum. Oriental Insurance offers three householders' insurance plans: Plan A offering sum insured (SI) of Rs 8.30 lakh at a premium of Rs 543, Plan B with SI of Rs 12.50 lakh at Rs 810 and Plan C with SI of Rs 16.70 lakh at Rs 1076. Other insurance companies such as New India Assurance, National Insurance, Bajaj Allianz, ICICI Lombard, Reliance General Insurance and IFFCO-Tokio General Insurance too offers householder's insurance policies. It must be noted that some of the insurance companies offer only comprehensive policies, while other companies offer choice of both, and offer discounts to those who insure items in excess of certain minimum number of items.

The Valuation Matrix

It must be noted that the value of the house for the sake of the householders policy is not the market value, but the cost of reconstructing the house if it is damaged. While market value is a combination of cost of land, cost of construction and demand and supply scenario, the policy takes into account only the cost of reconstruction. The sum insured is calculated by multiplying the built-up area with the construction rate per sq. ft. which may vary between cities. For example, ICICI Lombard recommends rates of construction depending on the city you live in. So for large cities such as Mumbai, New Delhi, Bangalore, Hyderabad, Kolkata, etc. the rate recommended is Rs 1,800 per sq. ft., while for mid-size and smaller cities, the rate is Rs 1,500 per sq. ft. However, the value is revised if expensive material such as marble flooring has been used in construction. Also, if the home has a lawn/garden surrounded by a perimeter wall, the reconstruction rate would be revised to include the cost of construction of the wall.

However, in the case of the contents of the house, the current market value of the item is taken into account. This is because the replacement cost of, say, a five year old refrigerator with a new refrigerator of the same make and size would be much higher than the depreciated cost of the old refrigerator.

However, while declaring the value of the contents, it is important to ensure that there is no under insurance. This means that the declared value of the property should not be less than the actual value of the insured property at the time of loss or damage due to fire and allied perils. If the value of the insured property is found to be higher than the sum insured, then the claim would stand reduced in the same proportion. "It is essential that all the contents in the household be insured. It should also be ensured that the identification details of the contents covered are correctly conveyed to the insurance company. Please furnish clear description, proper identification particulars and serial numbers of items proposed for insurance. They must be insured for their correct values. Kindly note that the under-insurance leads to reduced compensation. The sum insured for the covered items should be selected keeping in view the market value to avoid under insurance, except in case of jewellery where the sum insured should be the purchase cost. Please ensure that while proposing for insurance or at the time of submission of claim there is no misstatement or misrepresentation of the fact," says Rajan Srivastava, Regional Manager, Oriental Insurance Company.

Inclusions & Exclusions

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WHAT'S COVERED & WHAT'S NOT
INCLUSIONS	EXCLUSIONS
Fire & allied perils, explosion, implosion, earthquake, lightning	Willful destruction of property
Earth quake, lightning, landslide & rockslides	Theft and burglary by servants, employees and relatives
Riots, strike & malicious damage, terrorist attack	Loss and damage caused by war, civil war, mutiny, military rising, revolution
Storm, cyclone, tempest, tornado, hurricane, flood	Loss due to wear and tear and atmospheric conditions
Burglary, housebreak and theft	Loss due to confiscation, commandeering or destruction by the government
Damage due to impact by vehicles, railway accident and aircrash	Cash, bullion, painting, works of art, curios, manuscripts, antiques,etc.
Pipe burst and water tank overflow	Loss or damage due to radiation anc contamination from nuclear fuel
Note: Policy inclusions and exclusions given above are only indicative and may vary between policies of different companies. Readers are advised to check the inclusions and exclusions carefully before buying a policy

Most of the disputes between the insured and the insurance companies arise because of the fine print giving the inclusions and exclusions. It is absolutely necessary to read these carefully before taking householder's policy. Most of the companies do not cover valuable items such as gold and diamond jewellery, silver jewellery and silverware, precious stones, etc. or cover such items separately at additional cost. No company provides any cover for works of art, paintings, curios and antique items. Also, some of the insurance companies do not provide cover against terrorist attacks. Then, although damage due to rioting is covered, damage due to war, civil war, rebellion, military uprising or revolution is not covered. Damage due to confiscation, commandeering, requisition or destruction by the order of the government is not covered. It is interesting to note that theft and burglary by thieves and burglars are covered, but loss due to theft by servants, employees and relatives is not covered by the policy. (See details in box). "At the time of settlement of claim the loss is assessed by an independent licensed surveyor keeping in view the market value of the item damaged on the material date of loss (normally arrived at after applying depreciation for the year which it has run on the present new value) and comparing the same to the sum insured. It also may be understood that the Policy is based on the "principle of strict indemnity" i.e one has to be placed exactly in the same position in which he was before the loss none the better none the less with sum insured as the maximum liability of the insurance company," says Srivastava.

Be Safe & Secure

Considering the manifold benefits offered by the householders policy at a very small price, it is better to be safe and secure by buying it than to be sorry by avoiding it. After all, your peace of mind is certainly worth a few hundred bucks in a year. So, go get it!

Get It In Writing

Source: Dalal Street Investment Journal.

An insurance claim denied by the company should always be taken in writing so as to check whether the reason is justified or not

Key Points:

1) The customer has the right to know why a particular claim was denied.

2) With insurance policies becoming specialised it is tough for the common man to understand what is covered and what is not.

I experienced the insurance claims process first hand when my mother was in hospital for two months in the beginning of 2008. In spite of having a mediclaim policy with the same insurer for the past 20 years, our cashless claimwas rejected on flimsy grounds of pre-existing illness. Her condition was critical and hospitalisation couldn't wait. Hence, we had to admit her, pay the bills, and hope the claim would be honoured. By the time she expired in May she had been to three hospitals and the bills had reached astronomical proportions. This led to a lot of pressure to get the insurance claim cleared. Finally, close to six months after she was admitted for the first time (and we had submitted zillions of documents to prove that it wasn't a pre-existing illness), we received a substantial portion of the claim. The entire credit for this must go to my father's meticulous filing and written documentation.

With insurance policies becoming extremely specialised, it has been getting tough for the common man to understand what is covered and what is not under his or her insurance policy. Only when a claim is made does one get to know anything for sure. Often, the innocent customer is told by the insurance company that his bills won't be taken care of by his mediclaim policy. Very often, companies either do not specify a reason for denying a claim or provide a vague reason such as `the claim is not covered under the insurance policy'. While one can blame the insurance agent for not providing proper information about exclusions in an insurance policy, there is no getting back the premium already paid.

The customer however has the right to know why a particular claim was denied. Once the reason has been communicated by the company, the policy-holder can go back to his or her policy document and check whether the denial of claims was justified. For instance, assume that the health insurance policy offered by a private insurer states that it will pay a specific sum in case the policy-holder suffers from a `major inflammation'. In this case, what percentage of inflammation can be called major? The product brochure never mentions any specific percentage and hence you can challenge the insurer if it denies your claim. But to do so, you must know the reason why you have been denied the claim.

There are several ways one can know the reason for refusal: call the insurance company's helpline, its customer grievance cell, the customer service department or visit their office. The insurer's website usually carries contact details such as email address and telephone numbers. In all cases, experts advise that the reason/s for denial should be taken in writing. If the reason given is unsatisfactory or if the company does not respond within a reasonable time frame stipulated on its website or in the papers given to you, you can contact a consumer forum or the insurance ombudsman. Subsequently, you can also decide whether to continue with the same policy or change over to another company or product.

Take Home

While you cannot control what happens at the TPA end, follow the apt procedure in a timely manner to make matters easier for you. To begin with, you need to know very well what your policy covers and what it doesn't. For example, does it cover room rent and doctor's fees? More importantly, initiate the claim well in advance since hospitalization is pre-planned in a majority of cases. Since the authorisation is valid for 15 days to a month, it pays to start the process early. Also, store the TPA's number as it helps to get directly in touch with the TPA in emergencies. Whatever you do, remember to keep all correspondence in writing.

Further, how long does it take to settle a claim? It usually takes a week to 10 days after all the relevant documents are verified by the insurer. The Insurance Regulatory and Development Authority (IRDA) have stipulated that claims should be settled within 30 days of receipt of all the relevant documents. The insurer can ask for clarifications or supporting evidence if he is dissatisfied with the documents. A deadline of six months from the date of intimation of the claim is laid down for its settlement. If the insurer fails to meet the deadline, he has to pay an interest on the sum assured

Term Insurance: High Cover with Low Premiums

Source: Dalal Street

It's a good time for consumers to revisit their insurance allocations with term plan premiums being slashed by up to 40 per cent, suggests Jay Sampat

• With the IRDA reducing the solvency ratio requirement for insurance companies, term plans have now become cheaper.
• Term plans are a god-send for all concerned as they offer maximum cover at the minimum of premiums.

My young neighbour was in a great mood to insure himself this Diwali. At 26, single,he decided to insure himself. Great idea, I told him, advising him to opt for a term plan. The reason? It's the cheapest form of insurance cover and moreover, you will be able to reap the benefits of youth by locking yourself in at a low premium. Subsequently, a trip to several insurance companies convinced him that while term covers may have takers, it's the sellers who are hard to come by. Almost all the companies were bent on selling him unit-linked insurance

plans. The reasons they gave him were many. For instance, one insurance agent claimed that he would lose the entire amount if he didn't die. Another's contention was that unit- linked insurance plans (ULIPs) always beat mutual funds in the long run.

It happens to most of us all the time. In spite of term policies offering the best risk protection at the minimum cost, we often end up buying high cost endowment or unit-linked plans. The argument we buy is that there should be some returns from any investment. As a result, term plans have been given a second class status by life insurance companies. In fact, if one wants to buy a term policy, most insurance agents would try to sell you anything but a simple term plan. However, times are now changing. With the IRDA reducing the solvency ratio requirement for insurance companies, term plans have now become cheaper.

The reduction in prices offers an opportunity to consumers to revisit their insurance portfolio. Here are some tips based on factors like your age and on what you could be doing, in case you already have endowment plans and ULIPs instead of term plans

Between 20 and 30:

The odds are that you are unmarried and a policy may have been bought just to save tax. In such a situation, if only a couple of premiums have been paid, you can consider the option of surrendering the policy after it becomes eligible. In case you are married you can take this option and opt for a term plan as you will get a higher assured sum for a lower premium. You can proceed to invest the remaining amount in an avenue which generates higher returns.

Between 35 and 45:

You are likely to be married with young children, dependent parents and financial liabilities such as home and car loans. The need for a life insurance cover at this stage is extremely high. Many situations are observed wherein people are paying premium in lakhs of rupees and yet the cover is inadequate simply because they want tax savings and investment returns. In such a scenario, analyse your overall liability and buy a term plan of a larger amount. Once this has been done, surrender your traditional policies, especially if they are long term in nature and there are 10 or more premiums to be paid. Experts suggest retaining such policies only if 60 per cent of the premium has already been paid.

Between 45 and 55:

People in this age group would mostly be moving towards the end phase of their policy tenure. Continuing the policies makes much more sense now because you do not have much to gain by terminating the policy at this juncture. If you are stuck with a recently bought investment-oriented policy, it is best to quit it.

Take home – commissions offered to the agent on term plans are the lowest as compared to any other plan. Another reason for term plans being a more prudent option than other plans is its suitability to all individuals irrespective of their age, sex, earning capacity, lifestyle and risk-taking ability. Term plans are a god-send for all concerned as they offer maximum cover at the minimum of premiums. Ideally, a term plan should be taken for the maximum tenure.