Choosing the right tax-saving product!

The tax season is just round the corner! And there are too many tax saving options available broadly categorized under two heads: one equity and two debt products!

There is your financial consultant but more often than not he might suggest only those products that will get him the highest commission!

Obviously you are confused! How about analyzing the right tax saving product for you? Want to know how?

To begin with ask yourself these two questions: your risk tolerance level and what stage in life you are in. But why should you do it in the first place?

Importance of finding your risk profile

Finding answer to this question can lead you to the right tax saving plan! Analyzing your risk tolerance level will help you shape up your investment portfolio and get the best out of it.

Now what is risk tolerance?

Your investments are prone to both positive and negative changes. In the risk of negative changes the big thing is to find out how much you can afford to lose on your investment. This is your risk tolerance level.

How to find your risk tolerance level?

There are two sides to it: one is financial and the other is emotional. The financial risk tolerance level is self explanatory. That is the amount of money you can afford to lose.

If you can afford to lose more money then you have a high risk tolerance level and if you cannot afford to lose huge money your financial risk tolerance is moderate and if you do not want to take risk at all your financial risk tolerance is called low.

Emotional risk tolerance is all about the stress level that you are put into when you lose money on your investment. The more your stress is, the lesser is your risk tolerance.

Investors fall into three categories based on their risk profile:

Conservative, balanced and aggressive

As the name implies conservative investors are averse to taking risk. Typically they have a low risk tolerance and prefer investing in safe havens like Public Provident Fund (PPF), National Savings Certificate (NSC), and Employees Provident Fund (EPF), Endowment plans when it comes to life insurance and on tax-saving bank fixed deposits.

The balanced investors are those who wouldn’t mind taking some amount of risk but still would park their investments in low-risk products like balanced unit linked insurance plan or ULIPs. In other words, their risk tolerance is moderate.

Those investors with the highest risk tolerance levels belong to the aggressive investor’s category. They have an appetite for taking risk. If you belong to this category you could invest in tax saving products like the equity linked savings scheme or ELSS.

Let us see the pros and cons of each of the tax saving products in all three categories of investors.

Products for conservative investors

With low or almost nil risk tolerance level the conservative investors usually go for fixed income products that would secure their investment.

Product	Returns (%)	Pros	Cons
PPF	8% annual tax free return	Min amount: Rs. 500Max amount Rs. 70,000/year for 15 years till it matures. Loan facility available. Enjoys ‘EEE’ status that is ‘exempt-exempt-exempt’ from tax. Your contribution, accumulation and withdrawal are exempt from tax.	Long lock in period. You cannot withdraw until the beginning of the sixth year. The loan amount is limited to a maximum of 25 percent of the balance at the end of the first year.
NSC	8 percent annual pre-tax return	Min amount: Rs 500 per year. No maximum limit. Enjoys ‘exempt-exempt-tax’ (EET) that is no tax on contribution but the interest is taxable on an accrual basis that is on each-year basis.	Maturity period: 6 years. No premature encashment option. Interest income is taxable. The effective post-tax return for the highest tax bracket is only 5.53% every year.
Employees Provident Fund	8.5 percent tax-free returns every year.	PF withdrawal is not taxable if contributions for over five years.’EEE’ status that is the contribution, accumulation and withdrawal is ‘exempt-exempt-exempt’ from tax.	PF withdrawal before five years is taxable. Premature encashment is available but only with conditions.
Endowment plan	Lower returns compared to products like the PPF.	Life coverage and returns.	High premiums. Compared to the premiums that are paid in the first few years the surrender value might be lower.
Tax saving fixed deposit	6 to 8 % returns every year.	Min amount: Rs. 100 but varies with banks. Lock in period: 5 years, comparatively lesser than investing in products like PPF.	TDS is applicable for interest income of more than Rs. 10, 000 in a year. No premature withdrawal.

Products for the balanced investors

The risk tolerance level of these investors is moderate and they invest in low-risk products as the conservative investors and also in unit linked insurance plan or ULIPs.

Product	Pros	Cons
ULIP	Provides both insurance and investment. Long term saving products hence absorbs market volatility. Investing in debt funds is also available. Tax free returns.	Subject to market risk as a percentage is invested in stock markets. For better returns premiums for the entire duration should be paid.

Products for the aggressive investors

These investors with high risk appetite can invest in tax saving products as the conservative and the balanced investors do. Apart from this they can also invest in equity-linked products, which generally do better than the conservative products but returns may vary with funds.

Product	Pros	Cons
Equity-Linked Savings Scheme (ELSS) Invest in Shares	Minimum amount is Rs 500. Lock-in period: Three years. Dividend and returns at maturity are tax-free. No lock in period, less charges etc.	ELSS invests in stock market and hence is prone to market risks. Wrong selection of stocks leads to capital erosion

Importance of having goals

Your stage in life will also have a say in deciding your investment portfolio composition. If you are someone young then you could consider investing in equity like ELSS, ULIP or take a home loan or educational loan to save tax. Once you grow older you can slowly get out of these avenues and invest in fixed income tax saving products like the PPF, FDs etc.

How to use risk profile + goals to choose the right option?

Returns on your investment are important but this alone should not be the driving factor in deciding your investment choice. There is no investment per se that can save you tax and simultaneously secure your investment and give highest return. Your final choice of tax saving investment should be guided by both your risk profile and your goals in life which again depends on the stage of life you are in. Remember, the goal is to have an investment portfolio that can give you decent returns and the risk tolerance level you can handle.

PPF as a tax saver and investment option

On 15 September 2010, the Employees’ Provident Fund Organisation (EPFO) raised the interest rate for EPF accounts by 1% for 2010-11. The organisation increased the interest rate to 9.5% for 2010-11 from 8.5% in the previous year.

This 9.5% is the highest in the last five years. However, one needs to understand that the 1% increase is only for EPF accounts and not for Public Provident Fund (PPF) accounts. A PPF account interest rate will continue to remain 8%.

What is the difference between EPF and PPF?

Where Employees Provident Fund serves all salaried employees, the Public Provident Fund serves everyone- the employed, the unemployed, even children and housewives.

The access to the fund is also quite easy as any post office and some State Bank of India branches can help you open the fund.

The purpose of a provident fund is to provide individuals some form of savings for their retirement years.

Naturally, the EPF and PPF are for long term savings.

What kind of income can I one expect from PPF?

The returns from the fund are in the form of interest paid. The interest rate currently is 8% compounded annually.

However the interest is not paid out but is compounded (like a bank recurring deposit) till the maturity or withdrawal. With the current levels of inflation, the returns from the PPF fund are not very encouraging to me.

Is there any capital appreciation?

Being a typical debt investment, there is no capital appreciation for the investment.

What is the risk involved with this investment?

There is hardly any risk for the capital or the returns from the PPF deposit. The risk however is with inflation which could possibly reduce the value of the returns in the long term and the other disadvantage is the long lock-in period of 15 years.

 How about liquidity of the investment?

The PPF gives very little liquidity too. The fund, as mentioned earlier, is for a minimum of 15 years. This can be extended for a further period of 5 years each indefinitely.

The liquidity is in the form of withdrawals that can be made from the fund from the 7th year onwards. The withdrawal value is however limited to a maximum of 50% of the average of the last 3 years’ fund values. After the 7th year, one withdrawal can be made every year, based on the same condition.

 What happens in the case of the death of the account holder?

In case of death of the account holder before the maturity of the account, the fund will be paid to the nominee/ legal heir.

How is PPF treated for tax?

This is where the PPF scores very high. The PPF comes under the Exempt- Exempt- Exempt category currently.

This means that the amount invested gets tax benefits, the interest is not taxed and this applies for the final maturity amount as well.

The investment gets benefits under Section 80C of the IT Act. The investment however is limited to a maximum of Rs.70,000/- per year per person.

This limit of Rs.70,000/- includes the deposits made in the name of any dependent children.

Are there any other specific benefits that I need to know?

Some other unique benefits from the fund are:

1. There is no wealth tax on the value of the fund.

2. In case of insolvency the money in the fund will not be attached to the assets. So only this investment is truly ours, come what may. (Except for education in a philosophical sense).

This feature can be very useful particularly for business people in high risk industries / businesses. The fund cannot help anyone if there is tax evasion though. 

 How does it score on convenience?

The fund scores high on convenience. As a savings tool, it is incomparable in terms of the flexibility of payment and quantum. You can make up to 12 contributions per year.

Each contribution can be as low as Rs.100/- subject to a minimum of only Rs.500 per year.

There has to be at least one contribution per year.

In case no payment is done for a whole year, there is a charge of Rs.50/- when the next investment is made. The objective is to make savings as comfortable and convenient for the minimum possible investment.

A minor disadvantage is that the fund is yet to go online. So we have to carry our passbook and also face a queue to make the payment every time.

Sumup

PPF is a typical savings tool but one has to invest for the long term. This means that there is an asset class mismatch. But on the convenience side, the fund scores pretty high for the flexibility that it offers.

There are additional unique advantages in the form of wealth tax and insolvency benefits from the Public Provident Fund. On the flip side, the long term (minimum 15 years) of the plan is a limitation.

Nominee for your investments

Many of us invest in shares, deposits and mutual funds without bothering to fill up the nomination details. Since choosing a nominee is not mandatory while making an investment, the decision is often postponed.

However, this process simplifies for nominees the realisation of investment proceeds in case of the original investor’s demise. This is even more critical when an investment is held in one person’s name since death makes it difficult to access his fund still several formalities are completed.

If nominees have been appointed, they can produce basic documents, such as a death certificate, to access the funds. The absence of a nominee may require more documentation, such as the probate of will and certified list of legal heirs, before the investment can be transmitted or withdrawn.

Nominees are deemed to hold the investment proceeds in a trust if it is disputed by legal heirs, pending a decision by the courts.

Documentation: Most investment forms provide a space for selecting a nominee. If it is not filled up at the time of investing, other prescribed forms can be used later.

Multiple nominees: Most investments allow more than one nominee and the percentage of share that each would be entitled to.

Signature: The nomination form has to be filled up by all joint holders, irrespective of the mode of operation of the investment.

Transmission: Nominees can have investments transferred in their names for redemption later. For this, they need to complete the KYC and PAN formalities.

Points to note

Who cannot nominate: Kartas of HUFs and power of attorney holders are not authorised to make or change nominations or be appointed as nominees to an investment.

NRIs: Non-resident Indians can be named as nominees of investments made in rupees. However, the proceeds cannot be repatriated and have to be continued to be held in rupees.

Who can be the nominees: Certain investments permit the nomination of a trust, religious or educational institutions. Others only permit individuals to be nominated.

Reduce tax on your retirement benefits

Perhaps one of the most ignored challenges after retirement is to manage your benefits. Ironically, you are anxious about everything else: the sharp fall in income, life without colleagues, lack of drive, and so on. 

But for obvious reasons, you are excited about the benefits—provident fund, gratuity, leave encashment, superannuation fund, etc. 

However, not all these returns are exempt from tax. So, it is important to distinguish the ones that are tax-free from those that are not. You should also be aware of ways to steer clear of such tax ‘traps’. 

If you are a government employee, there can be a marked difference in the way your funds are taxed. “There is tax exemption on certain receipts such as commuted pension, gratuity, leave encashment, etc. 

Private sector employees are generally taxed on the basis of prescribed rules. Let’s take a look at the taxable and tax-free benefits and learn how to reduce your burden. 

Provident fund: 

It is completely tax-free. However, ensure that your office invests it in a recognised provident fund. Unrecognised provident funds have different tax structures compared with the recognised ones. Further, the employer’s contribution and interest credited to such funds are taxable as income in the year of receipt.

When it comes to the Employee Provident Fund (EPF), the interest and amount paid at retirement are not tax-free if your employer had been contributing more than 12% of your salary to the account. Similarly, the interest “credited in excess of 9.5% per annum is included in gross salary.

The benefits of working continuously for five years with an organisation are widely known. The payment of accumulated balance from a recognised provident fund (RPF) is taxable unless the employee has worked continuously with a firm for five years.

However, if you know you are going to retire in less than five years of joining a new company, you can secure tax-free RPF on retirement by making sure you transfer the EPF account from the previous company to the current one.

Gratuity:

This is one corpus where government employees have an edge over others. Gratuity is a lump-sum payment made by an employer for long and meritorious service rendered by an employee.

Any amount that the government employees receive is exempt from tax, but there is a cap for non-government staffers. For employees covered under the Payment of Gratuity Act, the cap is the least of the following: a) actual amount received b) 15 days’ salary for each year of service c) Rs 10 lakh. 

The salary for 15 days is calculated by dividing your last drawn salary by 26, which is the maximum number of working days in a month.

There could still be situations when you end up paying tax on gratuity. Any gratuity received by an employee who is covered under the Payment of Gratuity Act and has worked for less than five years is fully taxable.

The clause, ‘completion of the five years’ service’ is not applicable in the case of death or disablement of an employee.

 Also, employees who are not covered under the Act do not have to complete five years of service to get tax-free gratuity. 

Superannuation fund: 

The amount received as superannuation is exempt from tax if it is paid on death, retirement, in lieu of or as annuity. 

Any commutation of pension is exempt up to one-third of the commuted value of pension, where the employee receives any gratuity and half of such value otherwise.

The interest that is accumulated on the superannuation fund is taxed under certain circumstances. “This exemption is not available if the employee resigns.

The escape route in cases where the amount becomes taxable is to purchase SAF (state annuity fund)-related annuity without any commutation.

 If you don’t do this, TDS (tax deducted at source) will be applicable on the average rate at which the employee was subject to during the preceding three years or during the period, if it is less than three years, when he was a member of the fund.

 The rest of the amount is exempt from tax only if annuities are purchased from life insurance companies.

Leave encashment: 

The tax treatment of leave encashment depends on the status of the employee as well as the point at which the leave is encashed, that is, during employment or at the time of retirement.

Leave encashment during the period of employment is taxed, but not at the time of retirement or leaving a job.

Any amount received as leave encashment by the state or central government employees is exempt from tax. However, the bar is stricter when it comes to others. 

The amount of encashed leave that is exempt from tax is the lower of Rs 3 lakh and the amount paid according to a calculation specified by the Income Tax Act. 

The taxable portion of leave encashment would form a part of the normal salary income and would be taxed as per the normal slab rate applicable to the employee. There is no special rate for this.

Voluntary Retirement Scheme:

VRS is applicable only to those employees who have completed 10 years of service or are over 40 years of age. 

When you opt for the voluntary retirement scheme, the company will pay you a compensation, which is tax-free if it is lower of the two: Rs 5 lakh or the last three months’ average salary multiplied by the number of years of service. 

Beyond that, it is added to the income and taxed accordingly. 

There are ways to avoid being slotted in the higher income tax bracket because of the hefty compensation paid in the year of retirement. This exemption is also available if the VRS amount is paid in installments spread over several years.

Staggering this amount would mean that the employee not have to pay the entire tax upfront but is subjected to TDS as and when the installments are paid.

Moreover, employees will also benefit from the interest on the outstanding VRS amount at a rate much higher than the market rate and from a safe source: his erstwhile employer. 

How to get out of a bad insurance

A life insurance policy is a key component of a financial plan. Chosen well, it safeguards the financial future of a family if the breadwinner passes away. If, however, it is bought for the wrong reasons, the same policy can become a drain on resources and prevents the policyholder from meeting crucial financial goals.

A lady entrepreneur told me that she is paying a premium of Rs 1.06 lakh a year for six policies that gives her a combined cover of Rs 20.4 lakh. "I feel I have over invested in insurance. These plans take up a huge chunk 

of my savings. I must resort to some course correction here," she says

.

My solution to her

Of her six policies, an Ulip offers her a reasonably high cover of Rs 12 lakh for a premium of Rs 30,000. If she discontinues the other policies, she will free Rs 76,000 every year. Of this, Rs 22,000 can be used to buy a term plan of Rs 90 lakh for 20 years, and the remaining Rs 51,000 can be invested in other asset classes.

One of my friend who is agonizing over his inability to save enough for his dream house. "I'm in a financial mess. My insurance policies take up too much of my savings, leaving me with very little for my house" he said to me. 

Worse, it leaves this sole breadwinner grossly underinsured. He is getting very low coverage at a very high cost. 

The high premium outgo not only prevents him from investing in other asset classes but also leaves him underinsured. His current life insurance is just one-fifth of the required cover of Rs 1 crore.

Getting stuck with an unsuitable insurance policy is a malady as widespread as the common cold. There's one wrong insurance policy in almost every household. A few buyers realize their mistake, but most policyholders don't. You can, however, find out whether your insurance policy suits your needs. Many blame the agents for their predicament. However what I found Very few investors spend time on understanding their policies and features as it is very much important to buy the right plan that suits your need. Buying anything blindly on the basis of high projected returns is not a wise thing.

Another young chap feeling depressed for his investment in ULIP’s. Despite the rise in the stock markets, his fund value is lower than the amount invested by him. Besides, he does not need insurance because he is a bachelor with no dependents.

My Solution

 He should stop paying the premium for Ulip and traditional plans and surrender them after five years. Thus he can free Rs 67,500 a year. However, he can continue with the pension plan. When he gets married, he should buy a term insurance plan of Rs 1 crore for 30 years. This will cost him around Rs 13,000 a year.

 What do you do if you find that you have the wrong insurance?

Escaping from an insurance policy entails a very high cost. You can lose up to 50% of what you have paid. In extreme cases, you might have to forfeit your entire investment. This is what keeps people from junking a plan, however unsuitable it is. There is a psychological barrier of losing money, which is why people avoid exiting an insurance policy. But it is better to incur a loss at the initial stage rather than continue and compound the mistake.

Mr.Arun Singh In the past three years has picked four insurance policies to save tax. He is paying Rs 42,000 for a cover of Rs 6.75 lakh! Tax-saver plans are a burden to him!!!

Another example: Mr.Vinod Dubey is a homoeopath & the sole breadwinner of his family, he is grossly underinsured. He needs a cover of at least Rs 60 lakh. Three of his policies are traditional plans that offer very low returns. The fourth is a Ulip that provides a very low cover. The premium outgo prevents him from executing his plans to buy a house.

My solution:

 He should convert his traditional plans into paid-up policies after paying the premium for three years. This will free Rs 26,000 a year. He should stop paying the premium in case of the Ulip and surrender after five years.

Now the big question is what is or what are the ways to stop this?

Option I:

Let the policy lapse

Don't pay the premium and the policy ends automatically.

This is the easiest way to exit a policy. It is also the costliest if the policy has not completed three years. The premium paid in the first two years is forfeited and the policy ends. You also stand to lose the tax benefits availed of in the first two years on the premium payment. You get nothing, except freedom from the policy.

Financial planners say this option should be chosen only if you realise that the policy is grossly unsuitable to your needs. If the policy doesn't meet your objective, it is better to let it lapse even though you stand to lose the premium for 1-2 years. It's much like junking a bad stock to minimise the loss and move on to a better investment.

The rule is different for Ulip. Even if it is discontinued after the first year, the policyholder is entitled to some amount after paying surrender charges. However, this sum comes to him only after the lock-in period of five years (three years, if bought before 1 September 2010). The fund value, after imposing all charges and penalties, is frozen in the account and earns 3.5% returns till this period.

The investor gets the money only after completion of five years now. The policies that are most likely to be allowed to lapse are traditional endowment and money-back plans. There's a widespread perception that they are a good way to save for the long term and cover against the risk of death. In reality, these plans offer very low returns and provide too little cover. The average return on traditional policies is 5-6%, which doesn't even beat inflation.

If anyone has taken a 20-year Ulip last year for an annual premium of Rs 34,000. It covers him for around Rs 2 lakh. If he were to let it lapse this year, he will not lose the entire premium. He might be better off if he buys a term cover of Rs.50 lakh for an annual premium of around Rs 8,000 and invests the remaining Rs 26,000 in some other option such as a Bonds, in metals, mutual fund or in a fixed deposit as per his risk appetite.

Option II:

 Surrender the policy

After three years, an insurance policy fetches a surrender value. Remember, the surrender amount is calculated over its actual premium!

If you have paid the premium for three years, your insurance policy would have built a reasonable corpus value. So, if the plan is surrendered after this period, the policyholder can get some money back. It will, however, be a fraction of what he has paid over three years because of the surrender charges levied by the insurer. In the third year, the surrender value is roughly 30% of the total premium paid, but this figure goes down as the term of the policy progresses.

Till last year, insurers used to levy very high surrender charges on Ulip in the first three years. But last year, the Insurance Regulatory and Development Authority (IRDA) put a cap on these charges. This is Rs 3,000 or 20% of the annual premium in the first year. For plans with a premium of over Rs 25,000, the cap is higher at Rs 6,000 or 6% of the annual premium. The surrender charges come down progressively to zero in the fifth year. No surrender charge is levied on insurance policies that are more than five years old.

Surrendering a policy gives you some money back, but it also ends the life cover. So, before you decide to junk your policy, find out if you have enough cover. Also, calculate the cost of a fresh insurance policy at the time. You might discover that the premium is very high because you are older.

Option III

Turn it into a paid-up policy                   

Stop paying the premiums, but don't discontinue the policy.

A better alternative to surrendering your insurance policy and losing the life cover is to turn it into a paid-up policy. As in the case of surrendering it, you can use this option only if you have paid the premium for three years and the policy has built up a minimum corpus. Instead of returning the money to the investor, the insurance company uses it to offer him a life cover.

 Every year, it deducts mortality charges from the corpus. However, in case of traditional endowment and money-back plans, this cover is proportionate to the number of years for which the policy was in force. For instance, if a policy offers a life cover of Rs 10 lakh for 20 years and the policyholder converts it into a paid-up plan after five years, the life cover will be reduced to about Rs 5 lakh. On maturity of the plan, the diminished corpus and the accumulated bonus will be given to the policyholder.

This feature has been widely exploited by agents to miss sell Ulip to gullible investors. They would tell investors that they need to pay the premium for only three years and their life insurance policy would continue for the rest of the term. What they really meant was that even if you stopped paying the premium, the corpus would be big enough to sustain the deduction of mortality charges for the entire term.

 Last year, the IRDA issued new rules for Ulip. If the premium of a plan bought after 1 September 2010 is stopped, the policy will be discontinued. This is meant to reduce the incidence of miss Selling.

When it comes to miss-selling, the charges on Ulip is the biggest point of contention. Insurers have brought down premium allocation charges to nil under some plans, but they raise policy administration charges every year or make them a percentage of the sum assured. One should look at these charges too to weed out bad plans from the portfolio.

The paid-up option is by far the best way to exit an insurance policy because it gives the policyholder the best of both worlds. He is freed from the burden of paying the premium that are a drag on his finances, but continues to enjoy the life insurance cover that was the primary objective of the plan.

Option IV: 

Let it continue                                                                  

If close to maturity, pay the premium till the full term.

Of course, if the insurance policy is only 2-3 years away from maturity, one should continue with it for the full term. This is because the painful period of high charges in the initial years has already gone and it doesn't make sense to let go of the accumulated benefits at the end of the term.

If you are finding it difficult to pay the premium, withdraw from the Public Provident Fund or any other long-term investment to pay the premium for your policy.

In this manner, you will not lose the life cover and will be eligible for a tax-free lump-sum payment on maturity. You could also consider taking a loan for this.

How to know if you have the wrong insurance

Low cover: Though insurance needs vary for individuals, a policy should give you a life cover of at least 40 times the annual premium. If it does not, you are paying too much for the cover.

High premium: According to a thumb rule, you need a cover of at least five times your annual income. The premium for this cover should not account for more than 6-8% of your annual income.

Tenure: Insurance is meant to replace the income of the policyholder and should, therefore, cover him for his entire working life. If the policy ends before he retires, it won't be of much help when he needs it most. Buying a fresh cover later will be costly.

Return projections: An endowment policy appears attractive because of the projected corpus on the maturity of the plan. But one must factor inflation into the calculation. In 25 years, a moderate 5% inflation will reduce the value of Rs 20 lakh to a mere Rs 5.5 lakh.


So be careful while choosing your new Insurance.

Resolve your insurance grievances of your own

Few moths back a person who is close to me had undergone two surgeries simultaneously, incurring a total cost of Rs 33,000. When the claim was lodged, the insurance company's third-party administrator held that though the surgeries pertained to two different body parts, these were conducted at the same time and, hence, the eligible claim was only Rs 10,000!!!

Despite explaining that the company would have had to shell out a higher amount had the insured decided to have the surgeries on different dates, the company refused to budge. Ultimately, the person approached the insurance ombudsman, who held that the eligible claim amount was Rs 30,000.

This is not the only instance of insurance companies trying to wriggle out of their commitment to policyholders. You no longer need to rely on the whims of insurance firms. Here's how you can resolve your grievances.

Round one

most insurance companies offer various channels, branch office, phone, and e-mail and snail mail, to register complaints. You can also approach to the company's grievance redressal officer. Insurance companies have to send a written acknowledgement within three working days of receiving the complaint and specify the period within which it is likely to be resolved. If the complaint is resolved within three days, the insurer has to inform the individual along with an acknowledgement. If this is not possible, the company will have to resolve it within two weeks of receiving the complaint and send a final letter of resolution to the aggrieved.

If the insurance company decides to reject the complaint, it has to give a reason, along with information on further redressal avenues that the complainant can pursue. In case you are not satisfied with the insurer's response, you have to inform it within eight weeks, or the company will assume that the complaint has been resolved.

Round two

if the above approach doesn't solve your problem, you can contact either IRDA’s Grievance redressal Cell or the insurance ombudsman, depending on the nature of the complaint. The ombudsman can make recommendations within one month of the receipt of the complaint and give a verdict within three months. If necessary, he can award compensation to the policyholder.

If you are satisfied with the settlement, you have to send your acceptance within 15 days. If the insurance firm does not comply with the order, you can approach consumer forums or civil courts. These offices handle cases dealing with insurance contracts with a value of up to Rs 20 lakh. The ombudsman addresses issues related to rejection or delay in settlement of claims, disputes on premiums, and non-issuance of a document after collecting the premium.

IRDA's Grievance Redressal Cell

Though this cell does not have the authority to pass orders, complaints addressed to it are taken up with the insurers. These could include delay or lack of response pertaining to policies or claims and complaints about agents' conduct. IRDA's toll-free number, 155255, has been publicised widely to create awareness about the recourses available to policyholders. One can approach the cell directly, and where required, you will be redirected to the ombudsman under whose jurisdiction the complaint falls."  

Ensure that you send the complaint yourself as the ones forwarded by third parties, including lawyers or agents, are not entertained by the cell. Also, the complaint should have complete information. So, disclose all the details in the complaints registration form available on IRDA's website @ www.irda.gov.in

AT YOUR SERVICE

you must first register your complaints with the insurer. You can approach the ombudsman only if you have not received any feedback from the insurer or are not satisfied with the given response.

After you have received a copy of the ombudsman's recommendations and are satisfied with it, you have to send a written communication, indicating your acceptance within 15 days.

The ombudsman handles cases with a value of up to `20 lakh and has the authority to mediate and give a recommendation, or award compensation, which is binding on the insurer.

You can also get in touch with the Insurance Regulatory and Development Authority's Grievance Redressal Cell through a toll-free number (155255).

The ombudsman does not hear matters related to the conduct of agents. This can be taken up by IRDA’s Grievance Redressal Cell.

You can approach the civil and consumer courts directly to resolve your grievance. However, the ombudsman will not accept your case if it is pending with other courts.