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 _ _ Wealth Creation 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 . * Source & Selection Methodology : www.superbrdndsindi a.com 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 you can download an app by vi siting http://get.neoreader.com ” Email: inves t@uti .co.in Web: www.uti mf.com (] www .tacebook .com\ulimutua llund www.tw itter .co,n\utimutualf und 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 .