O

11
THE TIMES OF INDIA, MUMBAI
TUESDAY, JANUARY 10, 2012
How To Buy An
Insurance Cover
Life insurance is crucial to financial planning but
the key to its effectiveness is informed buying
Mayur Shetty | TNN
ne of the principles that govern a life insurance agreement is that of utmost good
faith. Unlike purchase of
other goods where sales are
on a 'as is' basis, in insurance both parties - the company and the buyer - have
to disclose all material information and
not mislead each other.
Unfortunately, in recent years this
principle has taken a beating. Distributors, including relationship managers
in banks, sold policies by passing them
off as investment schemes from which
one could exit in three years. As it turns
out, today there are many who have
bought a life policy without knowing they
have invested in one.
However, the misadventures of some
distributors in the past should not be the
reason for investors to shun insurance
forever. Life insurance is crucial to financial planning but the key to its effectiveness is informed buying. Rather
than react to a sales push, insurance is
best purchased after doing a need assessment. Since it is that time of the year
when agents and relationship managers
get active, ask yourselves these questions
before being cornered.
O
risk increases as you age, your premium
remains flat throughout your policy term.
How much term cover?
If you come to the conclusion that you
do need insurance, then how much
should you buy. The rule of the thumb
is that the compensation should be at
least seven years of your income. So, if
your annual income is Rs 10 lakh, you
should have a term cover of Rs 70 lakh
at least. Secondly, if you have an additional loan the outstanding loan amount
should be added to the insurance you
buy. It is most likely that the agent calling to sell you a policy wants to push a
new endowment plan, but if you do not
have enough protection
NEXT WEEK
I
t is that time of the year when most
salaried people rush to invest money
in select investment products that
could help them pay lower amount as
income tax and thus save some more
money. Next week we will deal with the
popular tax savings options and tell you
how and how much you can save and
lessen your tax outgo.
which company charges the least online.
But insurance is a service and price
should not be the only criteria. Since badly managed companies are a risk even if
they are cheaper, buy it from a brand you
trust. This will be a tough decision considering that the difference in rates
charged between two companies
Illustration: Ram
can be as much as 100%.
of the premium goes toward buying insurance and the rest goes to create a corpus known as 'endowment', which is returned on maturity. The savings can be
under a traditional 'with profits' platform where most of the money is in
bonds and surplus distributed in the
form of 'bonuses'. The second type
is the 'unit-linked' policy where the
investor can choose between
bonds, equity and a mix of the
two for investment. In Ulips,
the returns are based on the
net asset value of the units,
just like in a mutual fund.
Since traditional policies invest largely in
bonds, average returns are in single
digits. In Ulips
there is no cap
on the up-
Already have a term cover
On the face of it a longterm return in the range
of 6% to 9% may seem
quite boring. But factor in the power of
compounding and
the savings can be
substantial. A
6% return can
result in an
annual saving of Rs
50,000
I have a Ulip which was sold as a
three-year scheme
side, but there is no
capital protection either.
Do I need it?
Most people with dependents need insurance except if they are super rich and
have more money than any policy can
provide. You may be single without any
dependents but you could get a dependent family going ahead. The advantage
of buying protection, i.e term insurance,
early is
that unlike
say health insurance, life covers are longterm contracts and you pay level premium. In other words although
don’t look
at other policies
until you have your term
cover in place.
From whom should I buy?
L
Types of Insurance
Insurance is broadly categorised as life insurance and
general insurance. A life insurance policy aims to protect
one’s family against financial
risks arising from loss of life
or permanent disability. General insurance provides financial support for health-related
disorders, loss or damage of
movable and immovable assets
due to natural / accidental
calamities or disasters.
Need for life insurance
If adequately insured, one can
be covered for a large part of future financial liabilities in case
of death or accidental disability of the earning member. The
need for life insurance changes
through different life stages and
depends on age, number of dependents, income, expenses,
lifestyle, future fund requirement and risk-taking appetite.
Types of life insurance
Traditional plans: These are
insurance products. It uses a
systematic approach that takes
into consideration the
he wealth management
customer’s profile and
solutions that we offer to
background, cash flows based on
our customers is
earnings and commitments, life
anchored in a
stage events and also factors in
“needs-based”
his risk appetite. The process
process, which
thus effectively helps customers
focuses on
to identify, quantify and
providing
prioritize their financial needs
solutions to meet
and goals over their lifetime,
the diverse needs
including retirement and legacy
of a customer that arise at
needs. They estimate the
various customer life stages.
resources available at
The backbone of
this need-based sales GURUSPEAK various points in time to
meet such needs and goals, and
process is a proprietary financial
chalk out a plan to bridge the
planning and needs analysisgap, if any, in the most optimal
based tool which focuses on
manner, keeping in mind the
holistically looking at customer’s
customer's risk appetite.
savings and protection needs
Broadly the needs could be
with a view to offering
classified under two main
integrated solutions across
categories, income replacement
savings, investments and
and financial liability. Income
replacement need should be met
by products that could create a
corpus for the customer’s family
in order to continue with their
current lifestyle if they find
themselves in some unforeseen
circumstance. These solutions
could include traditional and
unit linked endowment or whole
life products and SIPs. The
financial liability need attempts
to determine the protection
required by the customer for
meeting all his loans and
obligations and is ideally met
through a combination of pure
term, creditor protection and
health insurance variants such
as critical illness products.
The writer is senior
vice-president & head,
wealth management &
liabilities, HSBC India
either pure insurance or investment-cum-insurance
plans. These plans can be classified mainly into four categories. Whole life policies that
offer financial protection
against death throughout the
life of the insured person. Here
the sum assured plus all bonus
to date is payable to the next of
kin in a lumpsum upon death.
Then there are endowment
policies that provide dual benefit of insurance and accumulating investment. In case
of unexpected demise of the
insured person, the beneficiary gets the sum assured and
on survival of policyholder, the
(as per the investor's choice
and the fund objective).
Pension plans: Majority of
India’s population does not have
regular retirement benefits,
that is pension. Pension plans
offered by insurance companies
are a good investment solution
to meet fund requirement during old age.
Insurance is an important
product, but it should be considered as a risk mitigation tool
rather than an investment or
tax planning tool. It is important that you have insurance
before you start investing.
The writer is director, capital markets, Crisil Research
RITWICK GHOSHAL
T
accumulated amount along
with bonus is paid at a desired
age. There are money back
policies which make periodic
payments to policy holders to
meet future goals. And lastly,
the pure term policies under
which investors are paid only
in case of an eventuality during the policy term, else no
money is returned.
Unit Linked Insurance
Plans (Ulips): These are insurance products coupled with
market-linked investments.
Under this, a part of the investment amount is used to
provide life cover and the rest
is invested in equity and debt
Centralised KYC to make life easier
TIMES NEWS NETWORK
now Your Customer, popularly KYC, is a government mandated requisite that every individual has to
meet for carrying out any kind
of financial transaction in India. The process requires the individual to prove his identity,
provide a valid contact address
and also have an income tax per-
K
manent account number (PAN).
Ever since KYC was introduced
in India, an individual has to
undertake almost a similar
CUTTING PAPERWORK
process at each point for different financial transactions.
There is good news for investors in the stock market and
in mutual funds. Market regu-
lator Sebi has mandated that if
you have complied with the
KYC process once for either
opening a trading account with
a broker, a demat account with
a depository participant or investing in a mutual fund
scheme, that KYC will be valid
for other services you opt for.
To meet this Sebi requirement, on January 4, CDSL
Ventures (CVL), a wholly
owned subsidiary of Central
Depository Services (CDSL),
launched the country's first
KYC Registration Agency
(KRA), a centralised database
of all KYC compliant persons
with brokers, DPs and MFs.
Under the new scheme introduced by Sebi, an intermediary will do the initial KYC
for you and upload your details
in the KRA system.
Send in your suggestions, queries to [email protected];
for a free financial planning booklet, please SMS ‘EDU’ to 5676756
Mutual Fund investments are subject to market risks. Please read the Scheme Information Document carefully before investing
generating a
corpus of almost Rs 30 lakh
after 25 years. In case the rate rises to
9%, the corpus can go up to Rs 46 lakh.
So while bank fixed deposits and mutual funds can address short-term and
medium-term goals, life policies go a long
way in serving retirement needs.
Ulip or traditional?
Thanks to the internet you can find out
Up to 2008, Ulips were the drivers of the
If you bought a Ulip when markets were
at their peak before 2008, chances are
that the net asset value would be much
less than your total contributions. While
the earlier Ulips did allow policyholders
to exit in three years it is unadvisable to
do so. The charges are the highest in the
first year and most policies have a loyalty bonus tucked in at the last year of
the scheme. So the best way forward is
to continue paying instalments and hold
on to your policy until maturity.
Presenti ng a Bouquet
of Benefits with UTI ULI P
Protection, savings key elements of wealth mgmt
ife is uncertain. Exigencies like accident, illness,
disability and death don’t
really announce their arrival.
But once there, they wreak havoc, mentally and financially, in
an individual’s life. Loss of key
earning member’s income due
to such exigencies puts the living members' future at risk. In
such circumstances, insurance
comes to the rescue. It can take
care of financial liabilities in
case of exigencies, provided the
insurance cover is adequate.
A child plan is not an insurance cover
on the child. It is a plan aimed at periodic payments as the child reaches milestone years. The second part of the cover is that if the breadwinner dies, the
contribution towards the savings will
continue to be made by the policy. So if
your toddler is a topper in class and you
want to plan for a professional course
when he turns 18, a child plan would help
achieve your saving target.
This is a misleading product. It does not
guarantee you the highest return that a
fund investing in equities would earn.
What it assures you is that every time the
market rises the fund manager will book
some profits from equity and shift part
of the funds into debt. Since the transfer of funds is only one way (equity
to debt and not vice versa) there
is a loss to the upside which the
investors are not aware of.
Mitigation tool, not investment
Tarun Bhatia
I am being offered a child plan
I am being offered a plan which guarantees highest NAV
Do I know what is on offer?
You wouldn’t buy a smart phone or a
tablet without knowing what it is capable of doing. The same applies for insurance. Before exposing yourself to a
sales pitch, learn the basics. In its purest
form life insurance is a contract where
a policyholder's dependents get compensated if he dies during the tenure of
the contract. This is a ‘term cover’. But
most insurance policies today have a savings component. In other words only part
life insurance industry. But the subsequent fall in net asset value of schemes
showed that there are two sides to investing in equities. The good news is that
charges which ate away a large chunk of
the first year premium in the past are now
history. But what complicates matter is
that the new regulation forces insurers
to sell a significant life insurance cover
as part of the Ulip. The second part is that
companies are mandated to offer a minimum level of life cover with every Ulip.
While the insurance adds to the cost, the
additional sum insured can be adjusted
from your future cover requirements. Traditional policies are safer than Ulips. But
the maximum return you can expect from
saving in traditional plans is around 6%.
The logic is simple: Traditional plans have
to invest over 90% in government bonds
and the returns on these bonds are unlikely to touch double digits.
Seleotod
Business
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life Insurance s
Tax Benefits
Accident Cover
Liquidity”
$ Insurance cover
is
Maturi ty Bonus
being provided by way of a tie up with Life Insurance Corporation of India through
Group Insurance Scheme .
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Source & Selection Methodology : www.superbrdndsindi
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UTIULIP
Call : Tol l-Free: 1800 22 1230
Access made easy
Non Toll Free: 022 26546200
UTI Mutual Fund
SMS INVEST to 5676756
‘look fur a Oil code scanner In your Mobi le app or games section and
poInt your camera over the OR Code to watch the video. AIternative
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siting http://get.neoreader.com ”
Email: inves t@uti .co.in
Web: www.uti mf.com
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Source & Selection Methodology: Level 1: In the firstinstance.relevantaudiences areinvited to score listed brands. Bannerspace taken on high density portals,diverts
traffic to the Superbrands website. Respondents keen to participate are invited to fill in important fields so that contact with them can be established,Should a cross<heck
to determine their authenticity be necessary. After acceptance of the information provided by the respondent the list of categories,alphabetically programmed, opens.
Visitors can choose those they wish to score On clicking the category the list of brands under each are exposed. A section titled ‘Others” is available on this page so that
brands which may have been inadvertently omittedare incorporated by the respondents. Once threshold numbers of scorers has been reached a primary league table is
created. Brands with an average score of 6.50 points Out of a possible ten and categories which draw less than SO respondents are eliminated from further participation.
The restate sent to the next round of evaluation. Level 2 :Here marketing professionals,called the Supetbrands Council, subject each brand to individual scrutiny. To the
scores provided by them,the average score given by the on-line respondents is added. In this way consumers are grven a further 9.09% welght’age.FinalAnalysis:Only
brands which have scored exceptionallyin each category are invited to pardcipate. In other words Superbrands arealways selected,neverapplied for. Note It is important
to underst
and that the nature of the scoring process makes it almost necessaryfor brands to be nationally available — —atany rate to be nationally recognised. This fact also
explains why regional brands even if theyare verypowerful locally rarely getthe Superbrands status. www.superbrandsindia com
UTI-Unit linked Insurance Plan (UTI-IJUPJ - UTI-Unit Linked Insurance Plan is an open end tax saving cum insurance scheme. INVESTMENTOBJECTIVE of The scheme is
primarily to provide return through growth in the NAy or through dividend distribution and reinvestment thereof. Amounts collected under the scheme shall generals’ be invested as
follows. (a) Not less than 6096 of the funds in debt instruments Wit h low to medium risk profile. (0) Not more than 40% of tfre funds in equities arid equity related instruments. ASSET
ALLOCATION: Debt Minimum 60%Madmum 1 00% Risk profile Low to Medium.Equiry Minimum U%Maximum 40% Risk profile- Mediumto H il. LOAD STRUCTURE: Entry
Load- Nlil,Exit Load-Exit Load 2% If withdrawn prematurely on or after maturity — —Nil. REGISTERED OFFICE: UTI Towet Gn Block Bandra Kurla Complex. Bandra (E), Mumbai 400051 , Phone 022 66786666 STATUTORYDETAILS: UTI Mutual Fund has been set up as a Trust under the Indian TrustAct , 882. SPONSORS: State Bank of India. Punjab
Nalional BanK Bank of Baroda and Life Insurance Corporation of India (liability of sponsors limited to Rs 10,000/ ). TRUSTEE: til lTrustee Co. (F) Ltd. (incorporated under tile
Companies Act 1956). INVESTMENT MANAGER: tillAsset Management Co. Ltd. (Incorporated under the Companies Act 1956) . GENERAL SERVICE: Dai ’NAV Sale Price //
Redemption Price available for Sale / Redemption
/
on all business days. Risk Factors: All Investments in Mutual Funds and securities are subject to market tisk and
the NAV of the schemes may go up or down depending on the factors & forces affecting the securities market All Mutual Funds and Securities
investments are subiect to market risks and there can be no ass urance that the fund s obiectives will ——
be achieved Past nerformance of the Soonsor/Mutual
Funrl/Scheme(s)/ AMC is not necessari y indicative of the future results and may not necessari r provide basis for comparison with other investments Ui] Unit Linked Insurance
Plan is onJythe name of the sc hemeandd oes not in any manner indicate either th e qua lity of the scheme.its future prospects or returns. The scheme is
subject to risks relating to Credit, Interest Rates,Liquidit3c Securities Leading, reinvestment, default, investrilerit in overseas markets, trading in derivatives (the specific risk could be
credit,market, illiquidilyjudgrnenta] erroc interest rate swaps and forward rate agreement), investment insecuritised paper and scheme speaspeafific
risk. Please
c contact the nearest Un
Financial Centre, Business DevelopmentAssociate)BDA) arAMFI/MSM certified UTI Mutual Fund Independent FirrancialAdvisor (WA) fora copy of the key Information Memorandum
cumAoohcation Form and Scheme Information Document Please read theScheme Informat ion Document carefull y before investina .