Life insurance and general insurance fundamentals

Let’s discuss about insurance basics and evolution of insurance in India.

There are two main entities called insurer and insured/policyholder.An insurer is a company selling the insurance policy and an insured or policyholder is the person/company buying the insurance. The insurance premium is an amount to get sufficient coverage for policyholder.

India’s oldest insurance company is the National Insurance Company Ltd. which was founded in 1906. There are two more insurance companies 1) Life Insurance Corporation of India(LIC) 2) General Insurance Corporation of India(GIC).The GIC had four subsidiary companies 1) Oriental Insurance Company Limited 2) New India Assurance Company Limited 3) National Insurance Company Limited 4) United India Insurance Company Limited.

Since 1999, the government allowed private companies in the insurance sector. They also allows joint venture with FDI up to 26% with 75% stake of Indian companies.

There are two type of insurance in India 1) Life insurance 2) General insurance
Life insurance key features:
- The aim of policy is to cover life of a person with sufficient amount of coverage.
- There are many plans available in different categories like Term insurance plans, Endowment   plans, ULIP plans, Pension plans, Money back plans Whole life plans.
- The insurance premium will be eligible for tax benefits under section of 80C.
- The following companies offer such plans are
   Bajaj Allianz Life Insurance Company Limited .
   Birla Sun Life Insurance Co. Ltd
   ICICI Prudential Life Insurance Co. Ltd
   Life Insurance Corporation of India(Govt.)
   Max New York Life Insurance Co. Ltd
   Met Life India Insurance Company Ltd.
   Kotak Mahindra Old Mutual Life Insurance Limited
   SBI Life Insurance Co. Ltd
   Tata AIG Life Insurance Company Limited
   Reliance Life Insurance Company Limited.
   Aviva Life Insurance Company India Limited
   Sahara India Life Insurance Co, Ltd.
   Shriram Life Insurance Co, Ltd.
   Bharti AXA Life Insurance Company Ltd.
   Future Generali India Life Insurance Company Limited
   Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd.
   DLF Pramerica Life Insurance Co. Ltd.
   Star Union Dai-ichi Life Insurance Co. Ltd.
   IndiaFirst Life Insurance Company Ltd.

General Insurance key features:
- The aim of policy is to cover non life related product with sufficient of coverage .
- The categories look like motor policy, householders policy, personal accident, critical illness, mediclaim policy.
- The most of the policies do not offer tax benefits except mediclaim policy in section 80D.
The following companies offer such plans are
  Oriental Insurance Company Limited(Govt.)
  New India Assurance Company Limited(Govt.)
  National Insurance Company Limited(Govt.)
  United India Insurance Company Limited(Govt.)
  Tata AIG general insurance
  Royal Insurance and many more

Important Statistics: The two million (0.2%) people of India are insured under Mediclaim.LIC holds more than 55% stake in policy holding in India which has 1.2 million agents serving all over India.

More details:
The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of India, with Mission "to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto."
http://en.wikipedia.org/wiki/Life_Insurance_Corporation_of_India
http://en.wikipedia.org/wiki/Insurance_Regulatory_and_Development_Authority


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ULIP fundamentals #3 with Fast Facts

Which is the most complex policy?
ULIP

Which is the costliest policy ever?
ULIP

Which is the worst policy for policy holder?
ULIP

Which product does not guarantee your premium amount too?
ULIP

Which product is least transparent for the policy holder?
ULIP

Which product has highest no of terms and conditions?
ULIP

Which product does not guarantee any return?
ULIP

Which is the most selling product by agent/company?
ULIP

Which is the most profitable product for company?
ULIP

Which product gives you more frustrations when you really understand product better?
ULIP

Which product has the highest terms and conditions for surrendering the policy?
ULIP

Which product gives high commission to the agent?
ULIP

Which product misguide policy holder the most?
ULIP

Which is the best policy for life Insurance company?
ULIP

Which product selling force your agent calls you twice in a day, each day?
ULIP

Which is the hot product in the market?
ULIP

I had taken ULIP policy four years back by just looking at the illustration at the end of policy document as shown by insurance agent of Max new York life insurance Company. I have rectified this big mistake in 2010 by surrendering this policy even if I am making of loss of 15%.

My total investment in ULIP is Rs 60,000 and current fund value is Rs 49,500, So far they have deducted more than Rs.15, 000 as ULIP charges. If I would have done investment in Mutual funds, my fund value should be nearly Rs.1 Lakh.

Summary: Basic and final fact is you are not getting enough insurance coverage and enough return on your investment in any ULIP policy for short term or long term.

Just say “NO” to any form of ULIP policy.


More details please read – 
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ULIP fundamentals #2

What is Net Asset Value (NAV) of ULIP?
A NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on the website of the respective insurers. As per IRDA rule, Insurers do not have to disclose portfolio details as done by Mutual fund.

Definition of ULIP charges:
The insurers have the right to revise fees and charges over a period of time.
1) Premium Allocation Charge
This is a percentage of the premium appropriated towards charges before allocating the units under the policy.
2) Mortality Charges
These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc
3) Fund Management Fees
These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV).
4) Policy/ Administration Charges
These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate.
5) Surrender Charges
A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.
6) Fund Switching Charge
Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.
7) Fund redirection charges
Generally a limited number of fund redirects may be allowed each year without charge, with subsequent redirects, subject to a charge. this is to divert your future premiums into different fund.
8) Service Tax Deductions
Before allotment of the units the applicable service tax is deducted from the risk portion of the premium. 

What is a Top up premium?
Yes, one can invest additional contribution over and above the regular premiums as per their choice subject to the feature being available in the product.

What is a SWITCH of fund?
Yes. “SWITCH” option provides for shifting the investments in a policy from one fund to another provided the feature is available in the product. While a specified number of switches are generally effected free of cost, a fee is charged for switches made beyond the specified number.

What is a partial encashment/withdrawal?
Yes, Products may have the “Partial Withdrawal” option which facilitates withdrawal of a portion of the investment in the policy. This is done through cancellation of a part of units.


More details please read – 

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ULIP fundamentals #1

What is a ULIP?
Original definition by IRDA - ULIP =Unit Linked Insurance Policy. A ULIP is a life insurance policy which provides a combination of insurance and investment.
My definition : It’s full of charges for policy holder and  a profit making policy for insured and loss making for policy holder.

How does ULIP work?
Once you decide your premium,They decide your sum assured amount for insurance and they will invest remaining premium after deducting high charges in the stock/debt market based on your fund.

List of charges for ULIP plan-It varies based on company:


ULIP Plan Charges

Premium Allocation charges
Fund management charges 

Policy Year
As a % of Annual Premium
As a % of Top Ups
Fund Category
as % Annual of Net Assets 

1
25-40
2-5
Dynamic
1.25

2
15-20
2-5
Growth
1.25

3
3-5
2-5
Balanced Fund
1.10

4
2-3
2-5
Conservative
0.90

and On
2-3
2-5
Secure
0.90

Policy Administration Charges

Rs.50-75 Per Month

Mortality Charges rate (means insurance charges)

It varies based on S.A. and Age

Switching Charges (if move to different fund category now )

2/4 Switches free per year then Rs.500 Per Switch

Redirection Charges(Want to move to different fund for
future premium)

2/4 redirects free per year then Rs.500 Per redirect

Partial Withdrawal charges

Not allowed before 3 to 5 years.

High Surrender Charges before 3 to 5 years

Morbidity charges (For Dread disease Cover)

Govt. Service tax on all above charges

Am I getting both Insurance and return of investment?
No,The sum assured amount of insurance will be very less – No use of insurance and they will invest premium after deducting high charges so cant get good return too.It’s not guaranteed

What Types of Funds do ULIP Offer?
Most insurers offer a wide range of funds to suit everyone’s risk profile like secure (Debt) fund, balanced fund(Mix), and growth (Equity) fund.



Fund Category and portfolio exposure(%)

Asset Type
Secure
Conservative
Balanced
Growth
Dynamic

Govt. Securities
50-100
50-80
20-50
0-30
0-100

Corporate bonds
0-50
0-50
20-40
0-30
0-100

Money        Market
0-20
0-20
0-20
0-20
0-100

Equities
NIL
0-15
10-40
20-70
0-100

Why does an ULIP plan look attractive?
When you look at illustration of ULIP plan, it shows only positive sides. It shows after 15 year you will get 5-6 lakh by just paying annual premium of 15K-20K.It totally misguides us.

Can I make Rs. 25 Lakh after 25 years in ULIP plan?
No,It’s not possible in ULIP and it’s not guaranteed for sure.
Just ask your insurer to give written confirmation of paper.

More details please read – 
ULIP Fundamentals#2 
ULIP Fundamentals#3 with fast facts
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