Birla Sun Life to have simpler Ulip offerings

MUMBAI: Birla Sun Life Insurance (BSLI) has decided to reposition all its unit-linked insurance plans following the insurance regulator’s decision to cap charges.Instead of having highly flexible schemes, the company will now have a bouquet of plans under a new programme christened Swagatam. Each plan will be standardised and structured so that it can be explained and sold with less effort. The biggest advantage of the new product is the higher return following the reduction in charges.

“We have decided to take advantage of the IRDA directive to cap charges on all ULIPs as an opportunity to enhance competitiveness. Based on feedback, we are revamping our entire portfolio to make them simpler to understand,” said BSLI CFO Mayank Bathwal.
Instead of offering the same product with a variety of investment option, the companies has decided to pre-package products according to the buyer’s profile and sell products that are specific to the individual’s requirements.

For instance, the earlier Saral Jeevan has been replaced with three plans, Saral Jeevan Wealth, Saral Jeevan Health and Saral Jeevan Guaranteed option. Those who have a low risk taking ability can go for the guaranteed option under the same scheme.
The cap on charges imposed by the regulator has forced all insurers to cut distribution costs and reduce frills on policies. However, since the amount being deducted from policyholder contributions has come down, the overall return to policyholder has improved.

In absolute terms, the returns under BSLI’s reworked plans on maturity can be higher by up to 10 per cent compared to BSLI’s old policy. For instance, under the earlier Saral Jeevan, with an annual premium of Rs 20,580, a 35-year old could buy a Rs 2.2 lakh policy that would accumulate savings ranging from Rs 5.6 lakh to Rs 8.9 lakh at maturity. Under the new Saral Jeevan, the same policy holder would get a sum insured of Rs 1.2 lakh and accumulate savings ranging from Rs 6.18 lakh to Rs 9.57 lakh. The returns are calculated estimating a yield of six per cent at the minimum side and 10 per cent at the higher end.
“The biggest contributors to the charges are the fund management charges which are fixed for the entire term of the policy. We have decided that the ceiling on fund management charge 135 basis points will apply not merely on new plans but on all existing policies as well” said Mr. Bathwal.

source: The Economic Times 11 Dec 2009, 0328 hrs IST, ET Bureau

New Policy of Swarup committee’s proposal and the out come

India’s insurance regulator, Insurance Regulatory and Development Authority (Irda) has written to the finance ministry, objecting to a government-appointed panel’s proposal that wants agents’ commissions removed from policyholders’ premiums. If the government sees merit in Irda’s argument, 3 million life insurance agents in the country will heave a sigh of relief. IRDA chairman J. Hari Narayan says the insurance regulator has written to the finance ministry, opposing the proposal to remove the agents’ commission from policyholders’ premiums.

“We have protested the Swarup committee’s proposal to remove commission from the premium,” Irda chairman J. Hari Narayan said on Thursday, confirming the development. “We have written to the ministry.”
The mandate of the six-member committee headed by D. Swarup, chairman of the Pension Fund Regulatory and Development Authority (PFRDA), was to suggest measures to protect and educate investors. One of the key recommendations in the consultation paper released by the committee in early September was the elimination of upfront commissions paid to life insurance agents by April 2011. Swarup said the panel was meant to represent customers. “The remit of the committee is the consumer’s side of the equation. Therefore, we are focusing on that.”
The committee includes representatives from the Securities and Exchange Board of India, or Sebi, the Reserve Bank of India, Irda, PFRDA, and the finance and corporate affairs ministries. The recommendation on commissions is one of a total of 33 made by the panel.
The Insurance Act currently allows agent commissions of up to 40% in the first year for some life insurance products. In the second and third years, the firms can pay commissions of up to 7.5%, and a maximum of 5% thereafter. Life insurance agents in India earned Rs15,000 crore in commissions last year, according to the panel’s report. In defence of the commissions, R. Kannan, member (actuary), Irda, said agents play an important role in the insurance sector and one of the reasons behind non-life insurance penetration stagnating at 0.6% of population could be low level of such incentives.
Life insurance penetration in India increased from 1.77% in 2000 to 4.1% in 2006, before declining to 4% in 2007, a survey tabled in Parliament in July by finance minister Pranab Mukherjee shows. India’s life insurance industry collected annual premiums of Rs2.23 trillion in 2008-09 through the sale of new policies and renewals.
The current system of sales incentives encourages insurance agents to tailor advice in such a way that it promotes the interests of the industry rather than the insurance buyer, Swarup said in the paper. The Life Insurance Council, a representative body of life insurers in India, has written to IRDA against the Swarup committee’s recommendation on the removal of commissions.
“The recommendation will not work in a retail-based industry like life insurance,” said S.B. Mathur, the council’s secretary general. “IRDA should discuss the matter with the pension regulator.” According to him, at least 80% of sales in the life insurance industry come from agents. A senior official at a large life insurance firm sees merit in Mathur’s argument.
“Mr Swarup’s recommendations are simply not practical,” the official said on condition of anonymity as he did not want to be quoted on regulatory issues. “Whatever penetration we have in life (insurance) industry today is because of the huge agency force. Adopting the committee’s recommendations will hamper the growth.” The recommendations can be adopted if the insurers agree to incentivize the agents by matching the commissions paid to them by the customers, but such a move will increase the expenses of the insurers and impact their profitability, the official added.
Some insurers, such as ICICI Prudential Life Insurance Co. Ltd and HDFC Standard Life Insurance Co. Ltd expect to break even in the next two-three years, but if the commissions are removed from customers’ premiums and transferred to the expense books of insurers, they will take longer to break even. “I haven’t come across any part of the world where you do not have agents when it comes to insurance products,” said IRDA’s Kannan. “We should not bring any measure which could jeopardize  this  industry.”
Mint had reported last month that the regulator has proposed the scrapping of agent commissions from premiums for policies sold directly. Currently, customers have to pay agent commissions even when they buy insurance directly from companies, either online or by walking into an insurance company’s office. The objective behind the move to abolish agent commissions for direct applications is to ensure that the entire premium paid by investors is put to work, increasing returns on investments.
This critical recommendation follows a similar investor-friendly move by the capital market regulator. Seb, discontinued distributor commissions in the mutual fund industry after August. Following this, the asset management companies, or AMCs, had to start incentivizing the agents and distributors to retain their interest in the business.
While investors benefit from the move, the profitability of AMCs will be affected. A recent study by McKinsey and Co. said AMCs will see profit erosion of up to 50% in FY10 due to the new Sebi rule. “The industry is likely to witness consolidation as smaller AMCs may not be able to accommodate the acute P&L (profit and loss) stress,” the report said.

Ref: http://www.livemint.com/2009/10/12180351/Irda-wants-agents8217-commi.html

Raw deal for life insurance Agents?

The recent report of the Committee on Investor Awareness and Protection, headed by D. Swarup, Chairman, Pension Fund Regulatory and Development Authority, has rattled life insurance agents throughout the country.
The committee has recommended that instead of paying commission, insurance companies should ask their agents to charge their clients a fee for the advice given. This will lead to a cut-throat competition and end up in customers preferring agents charging the lowest fee over those capable of giving the best advice.
Sec. 41 of the Insurance Act prohibits an agent giving part of the commission to his client since such rebating will give rise to unfair trade practices and induce the customer to prefer an agent giving higher rebate. When the Insurance Regulatory and Development Authority (IRDA), the Life Insurance Corporation and agents’ organisations are striving to rid the industry of this unfair practice, it is unfortunate that the committee has recommended it as a desirable practice.

Much maligned lot
The committee has stated that a huge sum of Rs. 14,704 crore is being paid as commission to agents. When divided by the number of agents, this would amount to just Rs. 8,000 a month per agent, much lower than what a clerk in government service gets. The agent can only dream of job security, guaranteed pay with regular increments and fixed hours of work.

On an average, he has to meet 10 prospects, at times convenient to each, to procure one policy. Not only that. The first year commission constitutes a major portion of his income and about 50 per cent of it goes towards expenses for procuring the business.

To make matters worse, the effect of the Insurance Amendment Bill introduced in Parliament will be to remove some of the existing provisions for protection of agents. In 1993, a sample survey, covering cities, towns and villages across the country, was conducted by an independent agency. More than 95 per cent of the persons interviewed could recognise the LIC’s emblem and had a good opinion of the organisation. The credit for creating such an awareness for insurance goes to the field force. Why then is this class of insurance workers being meted out such a bizarre treatment? It defies all logic.

High lapsation ratio
What about high ‘lapsation and churning of policies’ pointed out by the committee? This is to be measured by the average number of policies that last through maturity, as a proportion of the number of policies issued each year. This is about 40 per cent in Indian and less than 20 per cent in developed countries. The private insurance companies which suffered high lapsation during the initial years have shown good improvement over the last three years.
An agent cannot continue to earn his living unless he keeps abreast of the fast changing financial environment, rules and regulations. Many institutions, run by agents themselves, have come up throughout the country to give continuous training and the agents pay from their pockets for this periodical training. The IRDA has enough funds. But, it requires will and vision to make proper use of these funds. It should extend liberal assistance to the institutions engaged in making the agents better professionals.

Front loading myth
The committee has also criticised the front loading of the cost by life insurance companies. This refers to the practice of recovering upfront from the policyholder the cost across many years. In actual practice, however, just the reverse happens.
The higher first year cost of insurance companies is not due only to agency commission. It includes the cost of (a) agency managers, whose duty it is to recruit and train the agents and also guide them continuously about the new products and changes in rules and regulations (b) sales managers (c) medical examinations, underwriting of risk and issue of policies and (d) publicity and promotion. This higher first year cost and other renewal costs are spread uniformly over the entire term of the policy and included in the premium charged. That is, the companies first spend and recover the amount spent over the years. In many developed countries, the high first year cost is collected upfront separately as policy fee and does not form part of the premium. Not so in India. Only under unit linked insurance products, which are a recent phenomenon, is there some front loading.
The LIC enjoys the distinction of having the lowest first year cost ratio among insurance companies of all countries. The new insurance companies in the private sector will reach this comfortable level in the next ten years. The Indian consumer is thus in a better position than his counterparts elsewhere.

Policy lapses plague life insurers

The life insurance industry is seeing a sharp rise in policy lapses as subscribers are not paying renewal premiums on time.


The rate of policy lapses in the country has increased more than three-fold in the last three years — this is the highest since the industry was opened to private players in 2000-01.

Industry-wide data available from the Insurance Regulatory and Development Authority (IRDA) and the Life Insurance Council revealed that the retention ratio which was at 95 per cent in 2002-03 had declined to about 83 per cent in the year ended March 2009 (See chart).

A decline in the retention ratio means an increase in the policy lapse ratio.

While the retention ratio fell 2.5 percentage points to 92.51 per cent by 2005-06 from 95 per cent in 2002-03, between 2006-07 and 2008-09 it declined nearly 10 percentage points to 82.96 per cent. Besides, the lapse ratio had increased significantly in 2008-09 compared with the previous years.

A large part of the rise in the lapse rate is attributed to the introduction of unit-linked insurance plans (Ulips) and their mis-selling. Currently, more than 75 per cent of all life insurance policies sold in the country are Ulips.

In most cases, Ulips were sold as an investment instrument rather than as an insurance product; a majority of those who bought them didn’t properly understand the risks and charges under such policies.

In 2008-09, the bloodbath in stock markets affected fund values under the unit-linked plans, leading to the non-renewal of policies.

“We have seen higher policy lapses under unit-linked plans than under traditional schemes,” said Sunil Kakkar, chief financial officer of Max New York Life, a private sector life insurance company.

In many cases, Ulips were wrongly sold to people, who could not take market risks.

In other instances, agents sold regular premium policies as single-premium policies to customers. “To pre-empt the occurrence of such incidents, we made our policy proposal forms in different colours for single-premium and regular-premium policies,” said P. Nandagopal, chief executive officer of Reliance Life Insurance Company.

Even the insurance regulator had expressed concern many times over the gross mis-selling of Ulips.

During a visit to the city a few months back, IRDA chairman J. Hari Narayan had expressed apprehension about the predominance of Ulips in the portfolio of life insurers. “The percentage of Ulips has to be brought down to at least 50 per cent if life insurers want business sustainability,” he had said.

However, it is not solely because of the high commission structure of individual agents that mis-selling happens.

Agents have to meet steep sales targets, failing which their agency gets terminated.

The high attrition rate of individual agencies explains the high prevalence of “orphan” policies.


Source: The Telegraph,Kolkata,13/10/2009.

Points to remember before Buying an Insurance Policy

Insurance is a necessity in this fast moving life full of contingencies, therefore it is really important to get yourself insured to secure your loved ones in such unforeseen moments of your life. Nowadays Insurance is sold more as a product rather than a service where the insurance seekers are misguided while buying a policy. So before taking a plan you should be aware about your need to buy insurance policy.

What do you want your Insurance policy should stand for?

The most important element to buy Insurance is your need. The various elements that Insurance can be bought are mentioned below. Read to know which one is best suited to fulfill your requirement in life:

1) Term Plan: Required for people who want life cover in case of there death. The sum assured will be given to your nominee. In case you survive, then there is no amount that will be paid back to you. Get Term Quote Here


2) Pension Plan: This plan ensures fixed monthly income for you in your golden years by investing small amount today you can cherish all the moments in your life post your retirement too. Check Here to Calculate your Monthly Pension Amount


3) Children Plan: The plan offers to secure the future of your child. With the help of a children plan you can design the future of your child the way you want it. There dream of becoming a doctor or an engineer or a professor can easily be fulfilled by just investing small amount


4) Investment Based Plans: Insurers offer two kinds of plans to stay invested to earn returns along with a Life Cover. A) Conventional Plans B) Market-Linked Plans.


A) Conventional Plans: These are those plans wherein your money is invested in government backed securities, AAA+ rated bonds & etc., having minimal risk.


B) Market-Linked Plans: These are typically known as ULIPs & wherein the investments are done in market-linked instruments, as per your risk appetite you can choose the debt-equity proportion varying across different funds.


Points which must be taken care while buying an Insurance policy to avoid mis-selling:



1) Charges: There are different set of charges which an insurance company charges like Fund Management Charges (FMC), Mortality charges, Admin Charges, Allocation Charges etc. The agents sometime don’t disclose these charges but you really need to check before buying an insurance policy.


2) Illustration: Always ask for an illustration from the agent as it helps you to get exact figure of your fund value @ 6% & 10%. It also helps you to know all the charges & taxes included in the policy.


3) Documentation: An Insurance policy can not be logged in without proper documents of the customer like Photograph, Address proof, Identity proof & Income proof(if required), always mention on the documents purpose of providing the documents ex- For purchasing Insurance cover only .


4) Terms of the policy: Always cross check all the terms of the policy explained by the agent must be same in the documents/bond you’ve received against the policy you have bought. If it seems to be different, then according to IRDA rule you can return your policy within 15 days time period from the date of policy issued. This period is called "Free Look-up Period".


5) Tax-Planning: If you are sincerely planning to secure your family with a policy, then you must do it after a proper examination of the plans & their charges insurers offer. Most of the customers procrastinate their insurance buying decision till March so as to save taxes, however during this time there is a lot of rush and you might just select a plan in a hurry without looking at the charges & fee, therefore its always advisable to take a plan in advance so that you have good enough time to look at the plan details comprehensively.


6) Go for a comparison: Always try to get comparison from different Insurance companies' agents to understand the things better. Compare the benefits as well as the charges of the different companies & chose an appropriate plan best suited for your requirement.


So, do check these things before buying an insurance policy. It is better to do your home work before buying an insurance policy. You can compare and buy the insurance plan you feel important for yourself and can live a secured life.To get a better comparison it’s really important to meet the advisors of different companies so that you can sort all your doubts regarding the plan you require and want to buy.


Term Plan

I strongly recommend Term Plan is a Must Buy for the every people who have dependents. Buying a term insurance plan is really important as this is the cheapest form of Insurance where you can secure your loved ones life by only investing a little money. Only after paying a small premium amount you can save up an adequate amount to fulfill your families' needs in your absence.

New Brand Ambassadors of BSLI

Birla Sun Life Insurance (BSLI), one of India's leading life insurance player, a part of the Aditya Birla Financial Services Group, announced its association with ace cricketers Yuvraj Singh, Virender Sehwag, Suresh Raina and Rohit Sharma as brand ambassadors of the company in Bangalore, today. The partnership kicks of with the launch of BSLI's first campaign for its 'Wealth with Protection Solutions' category.
The campaign is a series of 3 TVCs featuring the cricketers in a very fresh format, striking a direct connect with the consumers. The central idea of the TVC revolves around the theme 'Jab Tak Balla Chalta Hain, Thaat Chalte Hai Warna....’ ('You rule till your bat rules'). The theme creates a common thread between cricketers and the common man, both of which need a systematic and disciplined approach to meet their wealth creation goals over a long-term in order to confidently face uncertainties of life. The TVC captures the real individuals behind the cricketers, as they talk about their insecurities through the high and low points in their cricketing career. Through this TVC, BSLI intends to provoke consumers to realize that even successful individuals have their ups, downs and insecurities but are able to confidently overcome these fears by planning for their future in advance.

Commenting on the occasion, Mr. Ajay Kakar, Chief Marketing Officer - Financial Services, Aditya Birla Group, said, " Cricket, today reflects the attitude of today's Indian who is confident, driven and committed to earning his space, one who believes in the fact that 'Nothing is impossible'. Our brand ambassadors, too represent the entire spectrum of the Indian consumer. While, Suresh Raina and Rohit Sharma represent the young and aspiring icons who have found their space. Sehwag and Yuvraj are the seasoned players who have witnessed success and have realized the need for working towards continued successes since its only hard work that brings in true recognition. He further added "Keeping this in mind, Birla Sun Life Insurance provides 'Wealth with Protection Solutions' for its consumers to help them navigate through the ups and downs in life with confidence".

Details on the Campaign:

Category: Birla Sun Life Insurance 'Wealth with Protection Solutions'

Concept: The TVC aims at building awareness amongst consumer for a systematic plan to build wealth which can be met through, 'Wealth & Protection Solutions' offered by BSLI. These solutions are aimed at providing customers financial security and help build wealth for purposes like an emergency fund or specific goals like the down payment to buy a house. The TVC has been created around the insight that most individuals while in their peak earning years tend to forget the need to actively save and build wealth to tide over the ups and downs in life.

This insight is captured in the phrase - 'Jab Tak Balla Chalta Hai....Thaat Chalte Hai, Warna...’ The campaign will be series of three TV commercials with four leading cricketers as the protagonists. The commercials will show the cricketers in a totally different light than has ever been seen on television. It will bring to front the real individuals behind these cricketers who have some of the same fears and insecurities as all of us have.

Creative Execution:
The essence of the brief was captured in the line 'Jab Tak Balla Chalta Hain, Thaat Chalte Hain Warna....’. The cricketers are portrayed as common individuals by bringing out their insecurities associated with the highs and lows of the game and therefore need for them too, to train and practice regularly.

Creative Agency: JWT (Mumbai)

Production House: Chrome Productions

About Birla Sun Life Insurance

Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla Group, a well known Indian conglomerates and Sun Life Financial Inc, leading international financial services organization from Canada. With an experience of over 9 years, BSLI has contributed significantly to the growth and development of the Indian Life Insurance industry and currently is on of the leading life insurance companies in the country. Enjoying trust of its over 2 Million customers, BSLI is known for innovation. It was the first Indian Insurance Company to introduce "Free Look Period" and Benefit illustrations, which were subsequently made mandatory by IRDA for the industry. BSLI offers a complete range of pension, health and life insurance products and has an extensive reach in over 1500 markets through its network of 651 branches and 1,58,429 empanelled advisors. This is well supported by the sound financial that the Company has. The AUM of Birla Sun Life Insurance surpassed Rs. 11,670 crs and it has a robust capital base of over Rs. 2000 crs as on June 30, 2009.

For more information, please visit http://www.birlasunlife.com/

About Aditya Birla Group

A US $28 billion corporation, the Aditya Birla Group is in the league of Fortune 500 worldwide. It is anchored by an extraordinary force of 100,000 employees, belonging to 25 different nationalities. The group operates in 25 countries across six continents - truly India's first multinational corporation. Aditya Birla Group through Aditya Birla Financial Services Group (ABFSG), has a strong presence across various financial services verticals that include life insurance, fund management, distribution & wealth management, security based lending, insurance broking, private equity and retail broking. In FY 2008-09, the consolidated revenues of ABFSG from these businesses crossed Rs. 4763 crs, registering a growth rate of 36%.

For more information please visit http://www.adityabirla.com/

About Sun Life Financial Inc.

Sun Life Financial is a leading international financial services organization providing a diverse range of protection and wealth accumulation products and services to individuals and corporate customers .Chartered in 1865, Sun Life Financial and its partners today have operations in key markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. As of March 31, 2009, the Sun Life Financial group of companies had total assets under management of $375 billion.

For more information please visit www.sunlife.com

India membership at MDRT soars 80%

Financial advisors (or agents) in the domestic life insurance business promise to strike it big at Indianapolis, where the annual meet of the Million Dollar Round Table (MDRT) is to be held from June 7 to 11, 2009. The MDRT is a gathering of almost 40,000 members from 87 countries and 497 life insurance companies across the globe. The growth in membership of MDRT professionals from India has been phenomenal, with a 80% growth logged over the last couple of years. SBI Life, HDFC Standard, LIC, Max New York Life have grown their MDRT numbers substantially. A MDRT membership is recognised internationally as the standard of sales excellence in life insurance business. For starters, to be an MDRT qualifier in 2009, he or she should have earned a first year commission of Rs 7,59,100 or a first year premium income of Rs 30,36,400 in the calendar January to December 2008. Anand A Jathan, member of Whole Person Task Force, MDRT, and former country chair for MDRT, told DNA Money, "India today holds the fourth position in terms of membership worldwide and the first position in terms of membership growth. Its membership has grown from just 229 members in 2003, 618 members in 2005 to 1999 members in 2007 and 3991 members in 2009. The number of qualifiers is much higher. In LIC, for example, number of qualifiers are 1196 but members are only 335." A qualifier has to pay $625 to become a MDRT member. "It is important to showcase yourself in the international space. These days many life insurance companies give incentives to agents to become a member. However, number of members who attend the meeting are less as this involves Visa issues and other registration charges," Jathan said. What's more, LIC's Rajesh Satoskar and R K Shetty will be the first two Indian life insurance agents in the history of MDRT to deliver speeches in the focus session at Indianapolis. How difficult was it to sell policies over the last few months? Satoskar said, "Obviously there was an impact of the recession on selling of big policies. Many people had blocked their funds and, due to the liquidity crunch, many big sales were in difficulty. Most high networth individuals were regular investors in stocks and properties and hence fund flow was restricted for life insurance. But a strong set up and a new product Jeevan Aastha geared sales". Rajender Sud, director and head, agency distribution, MaxNYL, said, "MDRT is one of highest pinnacles of success achieved by an agent advisor. At Max NYL, we provide and encourage our agents to look at insurance sales from a more holistic frame of mind." While their core responsibility is sales, our systems also encourage them to look at it as a viable career option. We have set in place certain processes that encourage our advisors to follow certain 'must do' items. Source: DNA / Kolkata: Wednesday, June 3, 2009 2:58 IST

Birla sunlife Insurance business has grown by 305% in 2008-2009

* Achieved first year weighted annualized premium of Rs. 2,959 crore, as against Rs. 2,205 crore in the previous year o a growth of over 34% o improved market share to 4.3%, from 2.9% in FY08 and grew market share to 8.5% from 6.6% amongst private sector players o ranked number 5 amongst private sector players o among the fastest growing life insurance companies in 2008-09 * Total premium revenue growth of 37% to Rs. 4,414 crore from Rs. 3,223 crore last year * Launched 5 new products in individual life segment to widen the customer offering o penetrated new segments such as Pension, Health and Traditional * A substantial growth in customer contact points o number of branches have grown to 600 from 339 last year o number of advisors grew to over 1,65,000 from 1,15,000 in March 2008. * All the funds have beaten benchmarks * The AUM reached an all time high, close to Rs 10,000 crores * The company has an enviable zero outstanding claims ratio · Emerged as only one of two life insurance companies in the top 10 to have shown YOY growth in each month of 2008-09

Satyam back to track with Rs 1,000 cr on salaries

Scam-hit Satyam Computer today said it has spent over Rs 1,000 crore onpaying salaries to its employees in the first three months of this year. According to the cash outlays information of the company for the first threemonths of this year, Satyam spent a total of Rs 1,026 crore on paying salariesand another Rs 342.72 crore in other employee-related segments. The company made a cash outlay of Rs 91.17 crore on medical insurance foremployees and Rs 251.55 crore on statutory compliance, the company said in thefiling to the stock exchanges. Overall, the company's total operating cash outlays stood at Rs 1,836 crore atthe end of March this year.The other expenditures of the company include — subcontractors, rent and utilities, travel and forex and other operating expenses. At the end of March this year, the company's total headcount stood at 41,622,while its key subsidiaries, including Satyam BPO, had an employee strength of3,828 associates. Further, the non-operating cash outlays by the company in the three monthsperiod include — capital expenditures (Rs 52.54 crore), marked to market losseson account of foreign exchange contracts (Rs 147.81 crore) and repayment ofloans (Rs 103.86 crore). It also includes — deposits and margin money for bank guarantees and other nonoperative expenses, it added. For the quarter ended December 2008, Satyamreported a consolidated net profit of Rs 160.50 crore and the total incomestood at Rs 2,327.21 crore.

Promise of big leap in Ulip returns

Come October, unit-linked insurance plans (Ulips) will give more returns to policyholders. The Insurance Regulatory and Development Authority (IRDA) today issued a circular capping overall charges that life insurers can levy on Ulip subscribers. The cap will come into effect on October 1. The insurance regulator has also decided to approve only those new Ulip filings that conform to the provisions of the circular. “All existing products that do not meet the requirements of this circular should be withdrawn or modified by December 31, 2009,” the regulator said. “Insurance companies have a number of Ulips and under each product there are various charges which are recovered from the contribution or from the fund value. It is decided that the IRDA will prescribe one cap on all charges put together,” the regulator said. The charges include a mortality levy, fund management fees, policy or administration fees and a surrender charge. The regulator has said the cap on charges will be based on the difference between the gross return showed in benefit illustrations and the actual return that policyholders get after adjusting for all charges. Benefit illustrations give policyholders an idea about how much they will get taking into account all charges. For unit-linked plans having a policy term of less than or equal to 10 years, the differences between gross and net returns shall not exceed 300 basis points (100 basis points is equal to one percentage point) and of this, fund management charges shall not exceed 150 basis points. For policies above 10 years, the differences between gross and net returns shall not exceed 225 basis points, of which fund management charges shall not exceed 125 basis points. At present, while selling Ulips, life insurers are required to show prospective policy-holders benefit illustrations assuming two gross returns — one at 6 per cent and the other at 10 per cent. Let us understand this with the aid of a benefit illustration of a unit-linked plan of a leading private insurer. A 40-year-old male paying an annual premium of Rs 1 lakh, with a sum assured of Rs 5 lakh for 15 years, will get Rs 26,88,132 at the end of the 15th year provided his investment grows at a gross rate of 10 per cent. Under the new rule, he should get at least Rs 28,69,336 on maturity, which is a gain of Rs 1,81,204. Post-October, insurers will also have to give on maturity a certificate to policyholders showing year-wise premiums, charges deducted, fund values, partial withdrawals by policyholders and the final payment. The new rule will certainly put private insurers on the back foot because over 90 per cent of their total business come from Ulip sales. The initial expenses on Ulips are very high, varying between 20 per cent and 60 per cent of the premium. A large part of this initial charge is spent by insurers on agency commissions. The new directive of the IRDA is expected to result in reduced commissions for insurance agents. Justifying lower caps on charges for longer term Ulips, the IRDA said, “Insurance products are long-term saving vehicles and the policy prescriptions should help the customers to move towards long-term-savings-cum-protection rather than short-term one.”

Prop for new pension plan

Subscribers to the New Pension Scheme (NPS) won’t have to pay any tax on maturity provided the sum is used to purchase an annuity plan in the year of exit. To make this possible, the finance bill of this year’s Union budget has proposed to amend section 80CCD of the income tax act and insert a new sub-section (5) . Under the proposed amendment, the assessee (who is a subscriber to the NPS) shall be deemed not to have received any amount (from the NPS) in the previous year if the amount is used to purchase an annuity plan. The New Pension Scheme allows for the receipt of 60 per cent of the corpus on maturity, while the contributor will have to buy an annuity plan with the remaining 40 per cent and get a monthly pension. If contributors invest the 60 per cent in an annuity plan of a life insurance company they won’t have to pay any tax under the proposed sub-section (5). The monthly pension income from the annuity plan will, however, be considered as income and suitably taxed. Contributions to the NPS and fund accumulation therein are already tax free. The New Pension Scheme, which was rolled out for all other individuals besides government employees from May 1 this year, didn’t find much favour with investors. Only 650 people joined the scheme since its launch, accounting for a total fund size of Rs 80 lakh. Though the NPS is a relatively cheap retirement product — only the Employees Provident Fund and the Public Provident Fund are better in terms of cost as they don’t have any charges — it failed to attract investors because the withdrawals on maturity were taxable. Even pension plans offered by life insurance companies allow for the receipt of one-third as lump sum on maturity without any tax liability. Thus, despite having the highest cost compared with all other products, premium income from pension plans accounts for 20 per cent of a life insurers’ total business. “The new provision on tax treatment will make the NPS more attractive to investors,” said Anil Chopra, group CEO, Bajaj Capital. “However, people should consider investment in the NPS in conjunction with the PPF or the EPF where withdrawals are tax-exempt,” he said. Chopra said that the exemption of the NPS Trust from paying the securities transaction tax and any tax on income would increase the return on investment for beneficiaries. Source: The Telegraph,Kolkata.Friday,10/07/2009

Annuities Story

• Did you know that the biggest risk for an average 30-40-year-old Indian without an inflation-linked guaranteed pension is that of living too long? And if your reaction to the above statement refers to working till you die or that your progeny will take care of you in your reclining years, stop. And think. About the time when you will be 80 years old, without a means of income on your own, completely dependent on someone else. Pension planning, therefore, is critical. Some retirement products like the public provident fund (PPF) allow you to accumulate over the years, and return a corpus. A pension product, on the other hand, takes in your regular contributions over your earning years, and then pays you regularly starting your vesting age the age at which you intend to retire. Insurance companies offer two kinds of pension plans - endowment and unit linked. Endowment plans invest in fixed income products, so the rates of return are very low. Unit-linked plans are better, as they are more flexible. You can stop contributing after 10 years and the fund will keep compounding your corpus till the vesting date. You can opt for higher exposure in the stock market for your plan if your risk appetite allows it. Lower risk options like balanced funds are also offered. Though insurers may try to sell you a life cover bundled with your pension plan, stay with your pure term policy and buy a pure pension plan to maximize post-retirement benefits. Select a plan that gives the maximum maturity value. The ultimate value of your pension fund corpus will depend on costs, fund management, and market performance over the years you pay into the fund. Fund management and market performance is never under your direct control; so you might not be able to do anything much about them. But you can definitely shop around to find a plan with the highest projected maturity value based on past performance as well as lowest costs. Did you know that, after retirement, you can ask your insurer to transfer all the funds to another that gives a higher pension, at no extra cost? Such tips will help you to maximize your capital appreciation that will ensure your golden reclining years.

A review of the new plan -- Jeevan Saral

Recently in the market a life insurance policy has made sensation due its uniqueness. What is the uniqueness is all about? When I went to a my old client he told me that he recently took the new plan of LICI that gives him 250 time sum assured. I really shocked. I thought why not other companies at least mine can’t produce a plan close to this. 

The client even told that it is far better than the plan he took from BSLI named saral Jeevan From me. I argued with him but he was just fanatic about the new plan he took. He told, we private players are only interested to sale the product wrongly because he thinks if we state the client the right scenario he /she will not take the policy….. .Crazy does not it sounds? Let’s find what is Jeevan Saral is all about?

Under a life insurance policy there are two types of Sum Assured. The Sum Assured payable on maturity and the Sum Assured payable in case of death claim.

Under most of the Plans both are equal. Under some plans (ex: Jeevan Mitra Double Cover) the sum assured payable on death is twice the sum assured payable on maturity. It is thrice in the case of Jeevan MitraTriple Cover.

 Once the customer chooses the Plan and the Sum Assured required on maturity. Sum Assured payable on death gets automatically determined, whatever be the age and policy term. The Premium Rate can then be obtained from the agent’s manual, on the basis of age and policy term. 


Under the Jeevan Saral Plan, the customer has to first decide the amount of premium he wants to pay per year. Once the Premium is chosen, The Sum Assured payable on death gets automatically determined, whatever be the age and policy term. This is called the Sum Assured under the policy. 


The Sum Assured payable on maturity can then be obtained from the agent’s manual on the basis of age and policy term.

Suppose a person decides to pay a premium of Rs.1200 per year. The Sum Assured payable on death will then be Rs.25000, whatever be the age and policy term. The Sum Assured payable on maturity can then be obtained on the basis of age and policy term. 

Why this odd amount, 1200 per year?

It is the same as Rs.100 per month. In other words, by paying Rs.100 per month, a person can get a Risk Cover of Rs.25000, whatever be the age and policy term.

What is the advantage of starting from the premium and finding the Sum Assured payable on maturity, instead of starting from Sum Assured and finding the Premium?

The advantage can be seen when we come to Surrender Values. A Unique Feature There is also a Unique Feature under Jeevan Saral. In case of death claim, in addition to the Sum Assured payable on death, All Premiums Paid, (excluding the first year premium, extra premiums and premiums for rider benefits), will be refunded. This is the first time that such a feature has been introduced. The result is a continuously increasing Risk Cover from the second year onwards. 

Is Jeevan Saral a With Profit Plan?  

 YES. But bonus will not be declared each year as under other plans. Only “Loyalty Addition” will be given. The Loyalty Addition is payable only if premiums have been paid under the policy for at least Ten Years and Ten Years have been completed since the date of commencement. This Loyalty Addition is payable even when a policy is Surrendered and also under Death Claim, Paid-up and Surrenders. 

A policy will acquire paid-up value provided premiums have been paid for at least three full years. Once a policy acquires a paid-up value, it can be surrendered. 

But there is a unique feature when it comes to Surrenders. Provided premiums have been paid for five full years, Surrender will be treated as a maturity for a reduced policy term.

 What does this mean? 

 Take for example a policy for term 20, being surrendered after premiums have been paid for 12 years. This will be treated as if the policy was originally taken for a term of 12 years, and the maturity value corresponding to term 12 will be paid. Since premiums have been paid for 12 full years, the Loyalty Addition corresponding to term 12 will also be paid

 What is the significance of this novel provision?

 It is quite simple. A policyholder need not decide the policy term at the time of completing the proposal. He/She can first opt for the maximum permissible term corresponding to his/her age, and postpone the decision on a suitable term to a convenient date in future. 

How does this work? 

Take, for example, a person aged 30. He can initially opt for the maximum term permissible, 35 years. If, after 17 years, he decides that the policy term can be 17 years, he can surrender the policy. He can even decide to have a term of 17 years and six months. Since the Risk Cover (Sum Assured Payable on death) is independent of age and term and policy surrender will be treated as policy maturity, there will be NO LOSS due to the postponement of decision. In this sense, Jeevan Saral can be called a Flexible Term plan. One can now appreciate the advantage of starting from premium and going to the sum assured payable on maturity. 

Can a person have multiple terms for the same policy?

The answer is YES. Let us see how this is possible. Consider, for example, a person paying a premium of Rs.700 per month (i.e. Rs.8400 per year) under his Jeevan Saral policy and initially takes the maximum term permissible (say, 30 years). 


The initial Risk Cover will be for Rs.175,000, increasing by Rs.8400 each year from the second year onwards. Later, he decides to have a term of 12 years under One Seventh of the policy.


It will be presumed that there were two policies originally, One with the annual premium of Rs.1200 for a term of 12 years and another for an annual premium of Rs.7200 for a term of 30 years. 


At the end of 12 years, the Maturity Value, along with Loyalty Addition, will be settled under the portion for term 12 years. Under the balance policy, the annual premium will now be Rs.7200, Risk cover Rs.150000 and Term 30 years. If death claim occurs at any time later, say during the 14th year, the claim amount payable will be, [Rs.150,000 + (14 - 1) x 7200 + Loyalty Addition for term 15 years). 


After another 3 years, he decides that under another Two Seventh of the original policy, the term should be 16 years. It will be presumed that there were three policies originally, One with the annual premium of Rs.1200 for a term of 12 years (which has already matured), another for an annual premium of Rs.2400 and term 16 years, and another for an annual premium of Rs.4800 for a term of 30 years. At the end of 16 years, the maturity value corresponding to annual premium Rs.2400 and term 16 will be paid along with the Loyalty Addition.


Under the balance policy, the premium will be Rs.4800 and Risk Cover Rs.100000. If death claim occurs during, say 20th year, the claim amount payable will be, [Rs.100,000 + (20 - 1) x 4800 + Loyalty Addition for term 20 years). Later he decides that under the balance policy, the term should be 26 years. 


At the end of 26 years, the policy will be closed and the maturity value along with loyalty addition, corresponding to annual premium of Rs.4800 and term 26 years will be settled. 



It can thus be seen that the decision regarding policy term need not be taken at the outset. Take the maximum permissible term first and take the decision, in installments, at later dates, without any loss. 


It is like Partial Surrenders, with the surrender being treated as maturity. It can also be said that with this facility, Jeevan Saral is almost like a Flexible Money Back Plan, with the customer choosing the dates of survival benefits and the amount of survival benefits. Only almost, not exactly equal to. 


Under the Money back plan, the Risk Cover remains the same throughout. But, in this case the Risk Cover reduces with each maturity benefit taken. This can however be compensated by taking a suitable Term Rider along with the main policy. The agents dealing with high-end customers can readily appreciate the value of this flexibility. But, one word of caution. 


It may also be a source of confusion in the case of customers not much interested in such flexibility. So, use this feature with utmost caution while talking to a prospective client. 

Are there any Restrictions on such Partial Surrenders?

Yes. But only a few and very reasonable restrictions. These are, the reduced annual premium after the partial surrender, excluding rider and extra premiums, should not be less than Rs.3000, where the admitted age under a policy is less than 50 and, Rs.4800 when the admitted age is 50 or above and should be a multiple of 600 (i.e. the equivalent monthly reduced premium has to be a multiple of 50).


The amount by which the annual premium can be reduced for the purpose of a partial surrender has to be a multiple of 600 and should not be less than Rs.1200. A minimum waiting period of one year is required between successive surrenders. 


When a partial surrender is made and the Sum Assured payable on death gets reduced, the sum assured under Accident and Term rider benefits, if any, will get correspondingly reduced. Before making a partial surrender, any outstanding loan under the policy has to be repaid in full. Rider Benefits Accident and Term cover can be availed of as rider benefits. 


The sum assured under rider benefits has to be the same as the sum assured payable on death under the main policy. 

Loyalty Addition- A policy will be eligible for loyalty addition only after payment of premium for full 10 years and after completion of 10 years from date of commencement. A loyalty addition is payable on death or maturity or when a policy is surrendered. If a death claim occurs in the 10th year of a policy, provided the policy is in force at that time, it will be eligible for loyalty addition even if the premium for the 10th year has not been paid in full.

 When will the Loyalty Additions be declared?

 The loyalty additions will be declared after each actuarial valuation. It will be based on policy term. In the case of death claim & surrenders, and in the case of policies under paid-up condition, the period for which premiums have been paid will be taken as the policy term. For example, suppose a policy taken in the year 2004 becomes paid up in the year 2015 after payment of premiums for 11 years. 


It is then surrendered in January 2017. The loyalty addition under the policy will be that corresponding to term 11 as declared in the valuation results declared in September 2016. That is, the valuation just preceding the date of surrender. 

What will be the surrender value?


The surrender value as on the date of lapse (i.e. due date of first unpaid premium) will be equal to the maturity value corresponding to the policyholder’s age at entry and Term 11. Suppose the period between the date of lapse and date of surrender is 1 year and 9 months. Interest (compounding yearly) will be paid on the surrender value for a period of 1 year and 9 months. To this will be added the loyalty addition. The rate of interest to be used each year for this purpose will be declared at the start of the Financial Year. 

Why only Loyalty Addition and not the Conventional Regular Bonus?

It is technically difficult to combine regular yearly bonus with the flexibility built into the product. So, the concept of Loyalty Addition has been introduced instead of the regular bonus. Some may feel, going by the experience of recent years, that amount given by way of loyalty addition may be negligible.


It will not be so in the case of Jeevan Saral. Actuarial analysis will show that the actual loyalty addition that can be paid will not be less than the total regular bonus payable on death claim, surrender or maturity. It is only a change of concept. 


The policyholder will be the ultimate gainer by this change of concept. One has to keep the policy in force only for ten years, and not till maturity, to be eligible for loyalty additions. Freedom has been given to surrender the policy at any time after 10 years without any loss.

 In the case of surrenders within ten years and death claim within nine years, there will be no terminal bonus. In the case of the latter, since all premiums except the first year premium are being refunded along with the sum assured, paying also loyalty addition will be difficult.

In the case of death claim after nine years, after refunding all premiums (except the first year premium) along with the sum assured, expenses are being met and payment of loyalty addition becomes possible.


Miscellaneous Issues


a) In all the examples given under “Surrenders”, the number of years for which premiums have been paid was taken as integral number of years. Suppose a person desires to surrender the policy after paying premiums for 11 years and 3 months. Then find the maturity values corresponding to terms 11 and 12. 


For term 11years and three months the surrender value can be obtained on pro-rata basis from these two maturity values. That is, it will be equal to Maturity value for term 11 +one fourth of the difference between the maturity values for terms 12 and 11 +Loyalty addition corresponding to term 11. 



b) If premiums have been paid for three full years, then surrender value will be equal to 80% of the maturity value corresponding to term 3.


c) If premiums have been paid for four full years, then surrender value will be equal to 90% of the maturity value corresponding to term 4. 


d) The minimum term under this plan is 10. But, for the purposes of calculating the surrender value, the Sum Assured payable on maturity has been given for terms 3 onwards. 


e) There is no rebate for high sum assured. But, rebates of 1% and 2% are given for half yearly and yearly modes respectively.

Term Plan of Birla Sun Life Insurance

Birla Sun Life Insurance Term Plan is beneficial for those people who want to avail the benefits of life insurance at low cost. It is a low premium plan with pure risk coverage and it takes care of your financial commitments towards your family or dependants, if anything unfortunate happens to you. Benefits: . Riders: 1)Accidental Death and Dismemberment Benefit Rider: It provides additional amount of cover in case of death due to accident or loss of more than one limb or sight in both the eyes and partial coverage in case of loss of one limb or sight in one eye. 2)Critical Illness Rider: It provides a cover in the event of life insured being diagnosed as suffering from any of the specified critical illness (i.e. heart attack, stroke, cancer and surgery to coronary arteries). 3)Waiver of Premium: This rider waives payment of future premiums on the happening of any of the unforeseen events as covered under this rider. You can even avail of riders even in the case of Single Premium Policy. . Favourable Term: Favourable Premium Rates for Female Clients. . Age Benefit: Maximum age for maturity is 70 years. . Face Value Rebate: Attractive Rebate for Face Amounts equal to or greater than Rs.5 lakhs for regular pay and for face amount greater than or equal to 7 lakhs for single pay. . Free Look Period: You can review your decision for 15 days from the date of receipt of the policy document. . Tax Benefits: You can avail the tax benefits under Sec 80C and Sec 10 (10D) of the Income Tax Act 1961. Eligibility: Entry Age: 18-55 years Minimum Face Amount (Sum Assured): Rs.2,50,000 in case of single premium and Rs.2,00,000 in case of regular premium for a person fulfilling the eligibility criteria. Benefit Period: As per policy terms 5,10,15,20 or 25 years. Premium Paying Period: Single pay or over the duration of the plan. Premium Payment Frequency: Annually, Semi-annually, quarterly, monthly or one time payment. Grace Period: Pay your premium within 30 days after the premium due dates. Amount due to nominee in event of death of the Life Insured Face Amount (Sum Assured)

Birla Sunlife Insurance Money Back Plus Plan

Birla Sunlife Money Back Plan, a non-participating endowment plan offers you the Power of Guarantee with Safety and Liquidity. Your family comes first for you and so does their future. Your dreams for your family require strong financial planning. Your savings today may not be enough to power those dreams of tomorrow. Birla Sunlife Money Back Plan helps you to fulfill your dreams. Benefits: The Birla Sunlife Money Back Plan offers: 1)Growth and Liquidity: This plan offers you a chance to earn survival benefit at the end of every policy year from the 3 years onwards. The Survival Benefit can be withdrawn by you or may be used to pay the premium dues. 2)Assurance on Maturity: At maturity, your policy returns you an amount equal to your Guaranteed Maturity Benefit, plus your survival benefit. 3)Increasing Safety: Every policy anniversary, the plan increases your existing cover by an amount equal to the annual base premium. As a result, your cover increases with successive year, thus offering you increasing safety. 4)Survival Benefit: At the end of every policy year starting from the 3 year, you will earn a survival benefit calculated as your total base premiums paid till date multiplied by: . 5% + 60% of any excess of the GSec rate over 7.50%; or . 5% - 75% of any excess of the 7.50% over the GSec rate. Eligibility: 1)Age: 60 years of age or younger. The plan cannot be sold to less than 30 days old babies. 2)Term: Looking to invest for more than 10 years. The maximum term for this product is (70 minus your current age) subject to maximum of 40 years. 3)Amount of Investment: Looking to invest at least Rs.9600 per annum. While there are no limits on the amount you can invest in this plan. You can choose your annual base premiums only in multiples of Rs.1200 per annum over the minimum premium of Rs.9600.

Where will India be if the Dow breaks 7500?

The Dow Jones has hit its lowest level since November as stocks started the week off on a sour note. It finished the session down 298 points, Nasdaq lost 64 and the S&P 500 shed 38 points. India did not exactly lose as much in today's trade, probably because of short covering, which in turn was the fallout of relentless selling for the past two days following diappointment in the Interim Budget. The 30-share BSE Sensex closed at 9,015 points, down 19.82 points after swinging 191.61 points during the day. The 50-share NSE Nifty swung nearly 70 points before closing at 2776, up 5.65 points. Experts, however, feel India cannot escape the wrath of US meltdown for long because the gap between the events in the US economy and the rest of the world is narrowing. Some experts have predicted Dow can break the crucial support level of 7500 and can go as low as 6000, paving the way for India's devastation. Infact, Shankar Sharma of First Global feels the Indian markets may hit new lows of 7,200 by February or March. The main cause behind US crash: There has been a record contraction in New York manufacturing, which spurred concern that the government's stimulus package won't be enough to curb the deepening recession. The road ahead: For the Dow Dow Jones is on the verge of breaking 7500, which would lead to 6700 quickly and eventually down to 6200. 7449 is the key support level on the Dow with a target of 6000 points on the downside. As for the S&P 500if it breaks 740, it may go down to 540. That the Dow will touch 6000 seems to be the general consensus among experts.

Gold Run

Gold is trading at a seven-month high above USD 950 per ounce. The yellow metal has hit record high above Rs 15,000 per 10 gram in India. It is trading near record highs in currencies such as euro, pound, Canadian dollar and Swiss frank. In India, gold touched a high of Rs 11,500 per 10 gram on February 17, 2008 vs Rs 15,000 per 10 gram today. There are speculations that it may go up to a high of USD 965 per ounce and then, USD 1,165 per ounce. Gold has gained 30% over the last one-year. Gold prices are moving up due to a lot of newsflows on the currency front. Yen is at a five-week low compared to the dollar. Pound has also declined and is at a 2-week low, ahead of UK inflation data today. Asian currencies have also declined, Korean won is trading at 2-month lows. There are also speculations that exports and regional economies will contract further. Political scenario in Japan is further aiding the rise. Finance Minister of Japan has said that he will resign after budget bills are passed in Parliament. Other factors like an unstable global economic scenario, low interest rates, weak equity markets and depreciating rupee are also pushing the prices much higher. Factors - Unstable global economic scenario - Low interest rates - Weak equity markets - Central bank buying - Depreciating Rupee

LIC lifeline for lapsed policies

Tardy policy-holders have time till February 28 to revive their lapsed insurance policies. The Life Insurance Corporation (LIC) has given clients who haven’t paid their premia for up to seven years the opportunity to win back their risk covers by forking out a small penalty. “This is the first time that we are offering our clients the opportunity to revive policies that lapsed seven years ago,” said D.K. Ghosh, general manager (customer relations), eastern zone, LIC. The insurance giant has offered to revive these policies by charging 20 per cent less on the penal interest rate. LIC charges 8 per cent annual interest as penalty for not paying premium within the grace period from the premium due date. The penal interest becomes applicable from the premium due date till the time the premium is paid. The insurer allows customers to revive policies that lapsed for shorter durations. “However, there is a restriction in the case of policies that lapsed seven years ago. Such policies should have acquired the surrender value, that is the premium should have been paid for the first three years after the policy commenced,” said Ghosh. It is estimated that for an insurer, a life insurance policy achieves breakeven if the premium is paid for three years. The insurer begins to make profits on premiums paid after three years. Hence, a life insurance policy acquires a paid-up value — or a surrender value — after premium is paid for three years. “Policies which have lapsed for more than five years (but up to seven years) will be revived with a fresh underwriting, which means that the policy-holder will have to submit all documents and undergo a fresh medical check-up,” Ghosh explained. In the case of lapsed policies up to five years, a medical check-up would be required only for those who are above 50 years of age. “People who are below 50 years won’t have to undergo any medical test provided their policies lapsed five years ago,” Ghosh added. “In fact, we are mailing policy-holders all the forms and documents required to revive their lapsed policies in addition to public advertisements about the campaign,” Ghosh said. The ongoing campaign offers a 20 per cent discount on penal interest. However, the discount is capped at Rs 10,000. This means that if the penal interest amounts to Rs 60,000, the policy-holder will have to pay Rs 50,000 plus the outstanding premium to revive his/her lapsed policy. “In earlier offers, the lapsed period was capped at five years and restricted to some specified life insurance plans,” he added. The current campaign, in contrast, covers almost all plans launched by the public sector insurer. When a policy lapses, the contracted benefits become non-payable to the policy-holder. Till November last year, LIC used to treat a policy as lapsed if the premium was not paid within six months from the due date. The Insurance Regulatory & Development Authority (IRDA) came up with a uniform definition of lapsed policies for all insurers. The insurance regulator capped the grace period to one month for quarterly, half-yearly and yearly and 15 days for monthly premium payments and if the premium is not paid within the grace period, a policy is considered lapsed. However, the regulator said a lapsed policy could be reinstated by paying the due premium with penal interest in two to five years. “Till now, lapsed policies for more than five years could not be revived,” said Ghosh. “However, if a policy-holder has paid the premium for the first three years and then discontinued the payment but holds on to the policy for its full term, he or she would get back the premium paid on maturity,” he added. According to data available with IRDA, the total number of lapsed policies in the industry at the end of March 2007 stood at 86.57 lakh. The aggregate sum assured of these policies was Rs 79,300 crore. As for LIC, the total number of lapsed policies as on March 31, 2007 was 77.73 lakh and the aggregate sum assured of these policies was Rs 63,206 crore. Ghosh agreed that in the last few years the lapsed policy revival campaign was not done in such a large scale. “In fact, lapsed policies entail losses for both the insurer as well as the policy-holder,” he said. The insurer loses premium income and hence profitability when policies lapse, while the insured person loses the risk coverage and the financial benefits from the policy. Courtsy:The Telegraph,Kolkata,05/02/2009

Strike a balance

It’s that time of the year again: the financial year is drawing to a close while you are yet to chalk out an investment plan to save tax. There are many who choose to make tax-saving investments towards the end of the financial year. This is why life insurance companies get 40 per cent of their total annual business in the January-March quarter, while there’s a mad rush among mutual funds to launch products under the equity-linked savings scheme (ELSS). Given the bear run on the bourses since January last year, the investment scenario is different this time. What every investor is worried about now is the ‘return of capital’ and not the ‘return on capital’. Hence, unlike the last few years, people are wary of taking risks and would rather prefer to play it safe. The right mix So, how can one assure capital protection along with a decent return? There are instruments such as NSC, PPF and tax-saving fixed deposits (for a minimum of five years) with scheduled commercial banks or post offices that give assured returns as well as tax relief under Section 80C. However, the interest earned on all these instruments, except for PPF, is taxable. Banks will deduct tax at source (TDS) on the interest income at the rate of 10 per cent. Depending on the tax bracket, any additional tax liability will have to be paid by the depositors themselves. TDS is not applicable to NSC or a five-year post office fixed deposit. The onus of paying tax on the interest income is entirely on the depositor. Also, each instrument offers different rates of interest. Moreover, the calculation of interest is different for different schemes (see table 1). So, while all these instruments offer assured returns and same tax benefits under Section 80C, the effective return differs significantly from one another — PPF is the best followed by bank fixed deposits. But a PPF has a lock-in period of 15 years compared with five years in tax-saving bank fixed deposits and one cannot invest more than Rs 70,000 a year in a PPF account. Balancing act However, there is another way in which one can assure capital protection and yet look for a higher return. This involves a simple strategy of splitting one’s investment corpus between bank fixed deposits and equity-linked savings schemes of mutual funds. While the fixed deposit assures capital protection, ELSS promises a higher return as well as lower tax liability on the overall portfolio — investments in equities are tax-free after one year. Let us explain this. The maximum deduction one can claim under Section 80C is Rs 1 lakh. If you plan to invest Rs 1 lakh, split it between a bank deposit and ELSS. You choose a tax-saving deposit with a scheduled commercial bank that offers the highest interest rate (see table 2). After the latest round of reduction in deposit rates, some public sector banks are still offering an interest rate of 8.5 per cent on their tax-saving fixed deposits. At an interest rate of 8.5 per cent compounded quarterly, you need to deposit Rs 66,000 for a period of five years to get a maturity amount of approximately Rs 1 lakh. While you are left with Rs 34,000 more to invest, the bank deposit ensures protection of your entire investment of Rs 1 lakh. However, you will have to pay an income tax on the interest income of Rs 34,000 (maturity amount of Rs 1,00000 — the original investment of Rs 66,000). Assuming that you are in the highest tax bracket (30 per cent), your income tax liability on the accrued interest will be Rs 10,200 (30 per cent of Rs 34,000). Your interest income after tax will be Rs 23,800 (Rs 34,000 — Rs 10,200). After five years, your maturity amount after tax will be Rs 89,800 (Rs 66,000 principal+Rs 23,800 interest). Equity link The next step would be to find an ELSS that has a good performance record over a period of five years and invest the remaining Rs 34,000 in that scheme. In the past five years, tax planning schemes of mutual funds have given an average annualised return of 11.39 per cent — the best fund gave a return of 24.71 per cent and the worst fund generated 0.94 per cent. These returns take into consideration the recent mayhem in the equity markets. It is to be noted that none of the tax-planning schemes that are around for five years gave a negative return. Even the minimum annualised return generated by diversified equity schemes over the last five years was zero — that is, neither gain nor loss on the original investment. Thus, the probability of a capital loss on an investment in an ELSS is almost zero if you invest the money for five years or more. Let us consider three situations. n You get a 10 per cent annualised return on your ELSS investment. In this case, your investment of Rs 34,000 will grow to Rs 54,757.34 (compounded return) in five years. Taking into account the investment in a bank fixed deposit, your initial capital investment of Rs 1 lakh grows to Rs 1,44,557 net of tax (Rs 89,800+Rs 54,757). The effective return on investment thus works out to over 7 per cent. n Your ELSS investment doesn’t grow. In this case, your investment at the end of five years will be Rs 1,23,800 net of tax (Rs 89,800+Rs 34,000) and the rate of return will be over 4 per cent. n Your ELSS investment suffers a capital loss of 20 per cent, which is Rs 6,800 (20% of Rs 34,000). Post loss, the amount will come down to Rs 27,200. At the end of five years, your investment will stand at Rs 1,17000 (Rs 89,800+Rs 27,200) — a 3 per cent rate of return. The way many stocks have been battered on the bourses may prompt most to stay away from equities. But, remember, equity as an asset class generates the highest return. The markets are sure to make a U-turn. Hence, plan a judicious mix of fixed deposits and equities to save the maximum and reap the highest return.