Life Insurance Buying Tips

Which life insurance policy to buy? It’s a tricky yet critical question that does not have a simple answer.The market offers a bouquet of products which look very similar but boast unique selling propositions (USPs). Each person’s peculiar requirements and needs - what, when, how much - vary. Then there is the free advice dispensed by friends, advisors, colleagues and family membe. Information overload, therefore, could confuse the prospective policy-buyer.


Unlike in tangible products, the quality of a life insurance policy is discernible only when a claim is made either on maturity or upon death. For vehicles, the sum assured is directly correlated to the vehicle cost. Not so for people, including vehicle-owners The sum assured could be half the value of the vehicle! In many cases, the policy-holder does not even know how much he is insured for. Some people might even wonder whether they need insurance.

Here’s a story, probably apocryphal, that typifies the Indian life insurance market. On a village road, a person ran his car over a hen suddenly, killing it. The hen-owner demanded compensation. The driver offered `200 which the hen-owner rejected, and instead demanded `25,000. The stunned driver wondered at the figure.

The hen-owner explained that the bird used to lay two eggs per day, each one fetching Re 1. That’s `2 a day in earnings, or `730 a year. Since he expected the hen to lay eggs for at least 30 more years (!) before it was sold off finally (or dies a natural death), he valued the hen at `25,000.

Well, that is an example of the value of future life. Isn’t it amazing that, unlike the hen-owner in the story, most people fail to make the right assumption about their own worth, and even conveniently neglect the task?

To be fair, every person’s needs are unique, so how can two individuals be recommended the same products? But insurers do precisely that, that too for millions of potential customers, by playing on the latter’s fear (mainly of death and of the bereaved dependents’ woes) and perceived tax benefits.

Yet, life insurance is a must, irrespective of whether people die prematurely or live long. Oddly, most insurance-buyers do not fully understand the features, advantages and benefits of insurance products. This ignorance and indifference need to change, particularly if it is a long-term product whose benefits go to the nominee(s).

The best way of buying a life insurance policy is to start with a detailed ‘Need Analysis’ (NA), based on accurate information relating to income, expenses, liabilities, assets, responsibilities and obligations. Any incorrect, manipulated or distorted information in this regard could result in the purchase of a wrong plan.

Generally, it is seen that the buyer has needs relating to protection, savings, investments, pension and annuities. Based on the available Net Investible Surplus (NIS), one or more products can serve the purpose. NA should be done on a yearly basis as one’s life situation tends to change over time.

Here’s an example: A married, male, 35, employed in the private sector, needs to support his homemaker wife, two kids (son, 5, is about to begin schooling; daughter is just 2) and dependent parents.His liabilities include a home loan of `30 lakh payable over 20 years, a vehicle loan of `5 lakh payable over seven years, a debit card outstanding balance of `1 lakh. His investments include a small life insurance policy (with a total sum assured, or ‘SA’, amounting to `3 lakh) of `2 lakh. His monthly income is `50,000 and expenditure is `35,000. So, his NIS is `15,000 per month (or Rs1.8 lakh per annum).

His NIS needs to serve his NA which shows a need for a regular flow of income that can maintain the existing standard of living for his family even in his absence. His liabilities should be fully covered and not affect his family in case of his sudden death. His children’s education, the daughter’s wedding-related expenses in future and post-retirement needs like pension need to be prioritised as well.

His options include banking products, post office investments, mutual funds, shares, bonds, property and gold. He should consider immediate needs (debt repayments, capital for day-to-day needs, children’s education, dependents’ sickness), collective needs (unforeseen or sudden things like sickness, house renovation, overseas travel, school donation, capitation fee) and retrial needs (build-up of capital for post-retirement needs).

With an NIS of `1.8 lakh per annum, no single investment option can cover the three kinds of needs. But, life insurance plans would help in the following way.

Protection plan: A term insurance plan of a minimum SA of `1 crore (at a nominal premium of about ` 20,500 per annum), which would take care of his home loan (Rs 30 lakh), vehicle loan (Rs 5 lakh) and other loans (Rs5 lakh).In case of death, even after paying the first premium of `20,500, the nominee of the insured would get the SA of Rs1 crore.

Child plan: Two policies, each of `25,000 per annum and of different tenures (13 years for son, 16 years for daughter).The children would get lump sum when they turn 18 (when the savings plan involving periodic payments offers end-of-term sizeable capital, and waives off future premiums, if the insured dies prematurely).

In addition, the person could invest in unit-linked plans (with monthly or quarterly premiums; and with ‘65%in equity and 35% in debt’ as a guideline), and in plans relating to annuities and pension.

Well, that is just an example. Buying the right life insurance plan is an art, but it must be done scientifically, paying attention to various factors.

The Author is executive director - marketing,SBI Life Insurance Company.
Article Source: http://www.dnaindia.com/money/report_a-few-things-you-should-know-when-buying-life-insurance_1631037

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Life Insurance Premium Fall Down 19% in Apr - Nov. 2011

However, premium collected by general insurers rises 24%.


Premium collection numbers by the life insurance industry remain south-bound, as policy issuances by the industry continue to decline in the current financial year.

During the April-November period, the number of policies issued by the 23 life insurance players shrunk 12.45 per cent, resulting in a fall of almost 19 per cent in premium collection at Rs 62,429 crore, compared with Rs 76,990 crore collected in the same period a year ago.

According to data collected by the Insurance Regulatory and Development Authority, during 2011-12, the life insurance industry sold 23.07 million policies, compared with 26.35 million policies last year. This was largely due to fewer policies sold by private players, from 6.99 million in the year-ago period to 4.75 million, a decline of 32 per cent.

The largest life insurer, Life Insurance Corporation (LIC) of India, too, saw policy issuances decline by 5.3 per cent to 18.31 million.

During the April-November period, premium collection by LIC fell 17.57 per cent, while for its private peers, the collection was down 22.4 per cent. While LIC collected Rs 45,759 crore by writing new policies, private insurers collected Rs 16,670 crore.

Considering the choppy equity market and the high inflationary environment, sales of unit-linked insurance products are unlikely to pick up in the current financial year. Experts fear the growth of the life insurance india is likely to remain subdued over the next six to 12 months.

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Convenient and Cheap Life Insurance Cover in 2011

Life insurance cover became cheaper and more convenient to buy in 2011. The new online term plans launched during the year were 25-30% cheaper than the existing ones and 50-60% less expensive than the most competitively priced offline product. Experts believe that the online mart will only become bigger in 2012.

"The Indian amazon.com is on the horizon. Consumers will find true value for money for any purchase, including insurance, through the Web," says Sanjay Tripathy, executive vice-president and head of marketing and direct channels, HDFC Life. The company launched its Click2protect online term plan in November, joining the seven others who already offer such plans. Some companies even offer Ulips through the online platform. 

There was good news for health insurance buyers as well, with the much-awaited medical policy portability finally becoming a reality. However, a lot of glitches could crop up in the arrangement. For one, when a buyer shifts to a new insurer, only the policy benefits and waiting period shifts, but the accrued no-claim bonus doesn't. This could mean a higher premium for the buyer. Still, the introduction of portability has put the fear of losing business into insurance companies and should result in improved service. 

Not everything went the customer's way during the past 12 months. The insurance market saw a major shift in the types of life insurance policies being pushed by agents and companies. With the charges on Ulips capped, insurance companies moved away from the market-linked products to focus on traditional endowment and money-back plans. Experts see this as a mixed blessing. "The reduction in the hardselling of Ulips is a good thing provided policy holders do not blindly substitute them with traditional products," says Jayant Pai, vice-president of Parag Parikh Financial Advisory Services.


As we enter 2012, the one big fear for many insurance buyers is the lower tax deduction for life and health insurance plans under the new Direct Taxes Code. From Rs1 lakh for life insurance and Rs15,000 for health insurance (plus another Rs15,000-20,000 for parents' medical cover) the combined deduction will only be Rs50,000 a year. 

What's more, other deductions, such as children's school fees, will also be included in this combined limit. There is also a clause that insists on a life cover that is 20 times the annual premium for a policy to offer tax deduction and tax-free income. 

"The important lesson for buyers is that insurance provides financial security to their families and is definitely not an instrument for investment," says Kamalji Sahay, managing dircetor and CEO, Star Union Dai-ichi Life Insurance Company. Not everyone is happy about the imminent changes. "

The DTC is too dramatic a shift. It should occur in phases, not as an overnight jump from five times to 20 times. Let us start with 10 times and then scale it up to 20 times after a few years," says Rajesh Sud, managing director and CEO of Max New York Life Insurance. 

For complete story visit here: http://articles.economictimes.indiatimes.com/2011-12-26/news/30559031_1_online-term-insurance-agents-insurance-market 

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A Week Time for Pension Rules and Regulations

The Union government will be tweaking some provisions in the pension reforms Bill to facilitate easier passage in Parliament. It will also alter certain norms in the current pension scheme, to make it more attractive for the poor in the unorganised sector.


The moves come in the wake of lukewarm support to the much-touted Swavalamban scheme till now. It could manage a little over 365,000 enrollments till this September as against a target of 2 million lakh subscribers, according to the finance ministry.

The scheme is a co-contributory pension scheme for the unorganised sector. Thus, the government would chip in Rs 1,000 per annum for three years for each subscriber. Now, the government plans to extend its contribution to five years for all subscribers who had joined the scheme in 2010-11 and 2011-12.

A Cabinet note is being drafted for this purpose. As part of it, the finance ministry is talking to the Pension Fund Regulatory and Development Authority, according to officials. The interim pension regulator administers the scheme.

The government is mulling allowing subscribers to exit from the scheme at the age of 50 or a minimum tenure of 20 years, whichever is later. Currently, subscribers can exit from the scheme at the age of 60. The proposals were part of the 2011-12 budget.

The Swavalamban scheme, being funded by government grants, was announced in the 2010-11 Budget. To be eligible under it, a person will have to make a minimum contribution of Rs 1,000. The maximum contribution is Rs 12,000 per annum. The contributions of subscribers under Swavalamban are collected by agencies — under the government or NGOs — in flexible instalments on monthly or quarterly basis. They are then invested in financial instruments. The returns and the contributions would be used to build a pension corpus of the subscribers.

The subscriber could be eligible to get pension from a life insurance company at 60 years of age by using 40 per cent of the pension corpus. However, if the amount of pension corpus is not sufficient to get a minimum amount of pension of Rs 1,000 per month, then the percentage of corpus would be increased so that the pension amount becomes Rs 1,000 per month. Failing this, the entire pension corpus would be used to give pension.

For retirement pension plans visit here:  http://www.hdfclife.com/Products/RetirementPlans/retirement-Pension-plans.aspx

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All About Term Insurance Plan

Term insurance plan is a must for a person who has dependents or a family. It is a well accepted fact that a term insurance plan provides the most ‘value for money’ proposition. So, what is the difference between a term plan and any other life insurance plan? Term insurance is the simplest or the purest form of life insurance. In this case, provisions are put in place in the event of the demise of the insured person, The family of the deceased is paid a pre-determined amount as part of the coverage.


Say for instance, a person bought a term insurance plan for a sum of Rs. 30 lakh. The tenure or the term of the policy is 20 years. So, if the insured person passes away in the duration when the policy is valid, the family will be paid a sum of Rs. 30 lakh. But there is also a downside to it.

So for instance, the insured person happens to outlive the tenure of the policy, all the amount paid in the form of premiums will be forfeited by the insurance company without any benefits to the insured or his/her family. Essentially all the premium will go down the tubes.

Another important aspect of life insurance is to ascertain the safety net which the family of the insured will require in the event of the demise of the insured. The calculation is done by keeping a view on the present standard of living of the family and the funds that would be required in order to continue living with the same standard of living. Also to be considered are the various important events that are imminent like marriages, higher education etc; and the debt that the deceased must have left behind unpaid.

After the calculation of the aforementioned future expenses the person can come to a definite number or the coverage which he/she may require in order to provide for the family or dependents so they can continue their present standard of living.

However, there is one major hurdle that prevents people from purchasing a term insurance plan; it tends to create a mental block as it deals with the death of the person. But it is morbid. As the rationale behind buying car insurance is exactly the same as buying a term insurance plan.

If the car, a person is driving, meets with an unfortunate accident or in the event that the person has to pay damage charges to the other party, the insurance provider will compensate for him/her. On the other hand if the person is a relatively safe driver and avoids any accident, the premium goes down the tubes.

Thus, there are apparent advantages and disadvantages of term insurance plans vis-à-vis other forms of life insurance.

Article Source: http://www.indiainfoline.com/Markets/News/What-is-Term-Insurance-Plan-in-India/5316085005

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Life insurers to see 7.5% premium growth in 2012

 The life insurance sector will rebound from the slowdown seen this year to post a 7.5 per cent growth in new premium, while strong demand in the motor and health insurance businesses will help the general insurance business in India grow by 7.9 per cent in 2012, according to a forecast report by reinsurance firm, Swiss Re.

Unlike other Asian markets, which saw a strong growth in life insurance business in 2011, the business grew only 2.5 per cent in India due to various regulatory issues. China too saw negative growth of 6 per cent, also due to regulatory tightening of product distribution and design. Other Asian markets, like Indonesia (11.9 per cent) and the Philippines (12.9 per cent), saw strong or stable growth.

“Growth in life insurance premiums is expected to rebound in India and China in 2012 at real rates of 7.5 per cent and 11 per cent, respectively. Annuities and health products are likely to continue growing robustly, along with demand for protection-type products,” says Amit Kalra, Swiss Re India’s head of economic research and consulting team.
Life insurance premium amounts will see a moderate growth of 4.5 per cent in 2012 due to factors like slower economic growth and higher unemployment. The uncertainty will also favour the growth of traditional, protection-type products, the forecast said.

In the non-life insurance business, 2011 saw most developed markets in Asia record stable growth in premium. Growth was at 8.6 per cent in life insurance India sector compared with a 15 per cent seen in China and 10.3 per cent in Indonesia. The growth in India was due to an increase in vehicle sales and higher demand for health and personal accident products, according to the report.

However, a slower economic growth in 2012 is likely to affect most non-life insurance business across the region, the report reasons. In 2012, non-life insurance premium in India is expected to ease to 7.9 per cent due to the higher base effect and the slowdown expected in vehicle sales.

Author: R Shrividya

Article Source: http://www.mydigitalfc.com/insurance/life-insurers-see-75-premium-growth-2012-865

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Standing Committee rejects proposal to hike insurance FDI

New Delhi: After the fiasco on retail FDI, the UPA government is facing failure in another key reform it has long contemplated - hiking FDI cap in insurance from 26 per cent now to 49 per cent to give Indian insurance firms an avenue to raise much-needed growth capital.
The Parliamentary Standing Committee has rejected the government's proposal to raise FDI in the Insurance sector. The government is likely to accept its recommendations which went on to say that given the present global scenario a hike in FDI would not benefit Indian companies.
Apart from various aspects of the insurance bill, the Standing Committee on Finance also asked the government to bring an integrated modern banking law for India, instead of bringing piecemeal amendments.

The Committee, which adopted its report on Insurance Laws (Amendment) Bill, 2008, said keeping in mind the present global scenario, any hike in foreign equity would not be in the interest of Indian companies.
It also recalled that Parliament was assured that the present cap of 26 per cent will not be breached in future.
The Committee also recommended that the present statement of objectives of the Bill should be redrafted as it gives a "misleading" impression that the issue of foreign participation in Indian insurance companies was decided upon the recommendations of an expert committee, which is not a fact.
It also said that in health insurance business, a company with with a minimum Rs 100 crore capital should only be allowed to set up shop and hence the present requirement of Rs 50 crore should be accordingly increased.

Source News: http://ibnlive.in.com/news/par-panel-rejects-proposal-to-hike-insurance-fdi/210103-37-64.html

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Accident, health insurance to grow by 22% by 2015: BRICdata report

While public-sector insurance providers constitute the majority of the market, private participants will continue to increase their market share by 2015, states BRICdata report

According to the BRICdata report, ‘Personal Accident and Health Insurance in India, Key Trends and Opportunities to 2015’, India’s accident and health insurance market is expected to continue its growth trend and forecasted to grow by 22% over the next five years. The report stated that a decrease in capital requirements will create an attractive market for new entrants into the market.

While public-sector insurance providers constitute the majority of the market, private participants will continue to increase their market share in the forecast period. The introduction of new distribution channels is another key factor in the growth in the overall volume of new policies.

Four public companies hold more than 50% of the market share in the personal accident and health insurance market, although this dominance will be severely challenged by private companies in the forecast period. The key entry barrier into the market is brand recognition, and companies are expected to work towards aligning with stronger brands, both domestic and foreign, to create opportunities for collaborations or joint ventures.

The report highlights that growth in the Indian personal accident and health insurance market can be attributed to increasing healthcare expenditure, economic growth, and changing demographics. During the forecast period, public-sector insurers are expected to retain a major share of the market, while the private accident and health insurers are expected to increase their market share gradually in India. The increasing penetration of major insurance companies and banks selling insurance policies to second- and third-tier cities in India will lead to an increase in accident and health insurance plans volumes in India during the forecast period. However, key challenges include low awareness of personal accident and health insurance, low penetration in rural areas, a lack of coverage for many existing diseases, and the ineffective distribution model in the country.

Article Source: http://www.moneylife.in/article/accident-health-insurance-to-grow-by-22-by-2015-bricdata-report/22030.html

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Irda issues IPO norms for life insurance company in India

Mumbai: India’s insurance regulator has released the long-anticipated norms that will govern initial public offerings (IPOs) by life insurance companies in a bid to help them raise capital from the public.
Given the market uncertainty, however, there isn’t likely to be a rush to sell shares, analysts said.
The rules issued by the Insurance Regulatory and Development Authority (Irda) on Thursday stipulate that only those life insurers that have completed 10 years of operations will be allowed to float IPOs. A senior Irda official clarified that in addition to this, a company needs to have embedded value twice the paid-up equity capital.

Embedded value, or EV, is the future value of the current business of a company based on present assets and liabilities, and net value of future income flows. “Most of the companies eligible for an IPO would have an EV twice their paid-up equity capital, but if the direct taxes code (DTC) is continued with, the EV will erode by 15-20%,” said Amitabh Chaudhary, chief executive officer of HDFC Standard Life Insurance Co. Ltd. “We are awaiting clarity on DTC.”
Insurance companies contend that the tax outgo will increase under the proposed DTC.
There are 24 life insurance companies in India with total assets worth at least Rs13 trillion. Life insurers, including ICICI Prudential Life Insurance Co. Ltd, SBI Life Insurance Co. Ltd, HDFC Standard Life Insurance Co. Ltd and Reliance Life Insurance Co. Ltd, have evinced interest in tapping the public markets to raise capital. However, none of them has finalized their plans. Adverse capital market conditions, recent regulatory changes for unit-linked insurance plans and consolidation have compelled the companies to review listing plans.
The broader equity indices have fallen 20% so far this year.
“Though the guidelines seem to be fine, IPOs will not happen unless the equity markets improve and the industry finds a sustainable model for improved margins,” said the chief executive of a leading life insurance company. He declined to be named as he’s not authorized to talk to the media directly.
The guidelines provide detailed norms on disclosures to be made by life insurers wanting to raise capital from the public. The rules further require issuer companies to get their EV reviewed by two independent actuarial experts, apart from internal valuation exercises.
While floating public issues, Irda will hold the right to dictate the extent of dilution of stake by promoters, the maximum subscription that can be allotted to foreign investors and the minimum lock-in period for promoters after the issue. The current rules allow a maximum of 26% to be held by foreign investors.
“Even if the foreign partner of a JV (joint venture) life insurer is not a selling shareholder in an IPO, the fresh issuance of shares will bring down the foreign promoter’s stake and a new (overseas) investor can come in, in accordance with the present cap of 26%,” the Irda official said. According to the official, the regulator will soon release detailed disclosure requirements.
No life insurer can approach market regulator Securities and Exchange Board of India (Sebi) for IPO approval without going to Irda first, the guidelines say.
Irda’s approval for an IPO will only be valid for a year, within which the company can approach Sebi. This is in line with listing norms laid down by Sebi for companies wanting to raise capital through public markets.
Companies going public have to mandatorily disclose a record of policyholder protection and the pendency of the policyholder complaints for the last five years in the draft red herring prospectus to be filed with Sebi.

Article Source: http://www.livemint.com/2011/12/02005513/Irda-issues-IPO-norms-for-life.html?h=A1 

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