Things you should Know before Surrendering your Life Insurance Policy?

April 15, 2013 by Leave a Comment

Not All Traditional Life Insurance Policies offer Low Returns
It is assumed that all the the traditional life insurance policies offer low return but it’s not true in all cases. If you check return for long-term (over 16 years plus) endowment policies from LIC have given 7%-8% tax-free returns on the investment.

Not All Traditional Life Insurance Policies will give you Surrender Value
While this is true for many traditional products, it is not universally correct. It depends on the policy. So read you policy document. In some policies you have to pay minumum three years policy premium before you get surrender value.

Converting your traditional policy to ‘Paid-up’
Thinking of converting your traditional policy to ‘paid-up’ in the middle of policy term; check out following points -
1- Did you know that Paid-up Value will be given at Policy Maturity or Death?
2- Have you found out that what will be the paid-up value?
3- Considering the amount of premium paid till now, how much is your rate of return?

You need to see the numbers before converting the policy to paid-up.

Taking a Loan against your Insurance Policy
Most of these products, especially endowment plans, have a loan feature wherein 90% of the surrender value can be taken as loan instead of surrendering the policy. (The current LIC rate @9%pa). Private insurers may charge a higher rate of interest on the loan. Kotak Life is charging between 12%-12.5%pa.

Taking a loan against an insurance policy is sometimes a deliberate strategy of businessmen. LIC’s Bima Bachat is a single premium endowment plan with 80C tax savings as an incentive. After taking the tax benefit, businessmen take loan on 63% of the investment @9%, which is a great feature.

Guaranteed Surrender value (GSV)
The GSV is available only after completion of at least one policy year. After completion of one year, you can take loan on 81% of the investment.

Cover Continuance feature of Old ULIPs
The ‘cover continuance’ feature was available in old ULIPs wherein you could stop paying after three premiums and continue with the policy. The funds would remain invested in your choice of fund option. The mortality charges will be deducted to maintain the insurance component. It was a great feature, but was done away with in the new ULIPs.

This was due to mis-selling by intermediaries. Using cover continuance also means you are not a long-term, disciplined investor interested in rupee-cost averaging of your investment.

Please note that the new ULIPs don’t offer this feature. In new ULIPs, if you stop paying premiums after the lock-in period, the policy will be discontinued and funds returned to you.

Use decrease in Policy Term Feature
Many LIC plans allow decrease in policy term. A policy term of 25 years may be reduced to 17 years by paying premium difference along with interest. If the policyholder does not want to pay differential premium, the SA will be appropriately reduced.” Some private insurance companies do not allow reduction of policy term. The argument is that there is not much demand for such a feature. Why can’t the policy term be extended? This is because the underwriting was done based on the circumstances prevailing at the time of policy issuance.

Source : moneycontrol, moneylife and businesstoday

Filed Under: Life Insurance Tagged With: ,

Expenses Not Covered Under Travel Insurance Policy

March 28, 2013 by Leave a Comment

The following expenses are generally not covered by the travel insurance companies. However, few companies may prove to be an exception or may cover few of these with additional premium charges.

1- Expenses by those who are serving in Military or Armed forces in any part of the country – be it in war or in peace.
2- If you have obtained an injury and are traveling without the recommendation of your Physician or are on verge of receiving specified medical treatment.
3- If you have attempted Suicide or have intentionally injured yourself or poses AIDS, HIV virus, mental or nervous disorder, depression or sexually transmitted conditions.
4- If you have gone against the apt prescription of the Physician and are under the influence of alcohol, drugs etc.
5- Any loss occurred due to any act of terrorism.
6- You are not covered if you have suffered any kind of loss due to civil war, revolution, act of foreign enemy etc.

Filed Under: Travel Insurance Tagged With:

Things to Take Care in Travel Insurance Claims

March 20, 2013 by Leave a Comment


1- The original bills and vouchers must be submitted along with all claims.

2- Bills/ Prescriptions/ vouchers/ reports/ discharge summary must contain the name of the person treated, the type of illness, details of the individual items of medical treatment provided and the dates of treatment.

3- Prescriptions must clearly show the medicines prescribed, the price and the receipt stamp of the pharmacy.

4- In the case of dental treatment, the bills/ vouchers/ reports must give the details of the tooth treated and the treatment performed.

5- For reimbursement of the extra costs of transporting the mortal remains to the Republic of India or of the costs of burial abroad, an official death certificate and a physician’s statement giving the cause of death.

6- For reimbursement of extra expenses of transportation of Insured Person to the Republic of India, a medical statement indicating the cause of illness and the necessity of the transportation. Medical statements from relations or spouses will not be accepted.

7- In case of loss of baggage, a Property Irregularity Report or other report usually issued by the carriers in the event of loss of baggage.

8- For personal liability, proof of judicial decision rendered by a court of law.

9- For Personal Accident, bills/ vouchers/ reports/ discharge summary, Death Certificate, First Information Report, Post Mortem Report, Legal Heir Certificate and such other documents as applicable.

10- Any other document(s) that the insurance company requires from the Insured Person to process the claim.

Filed Under: Travel Insurance Tagged With: ,

Surrendering Life Insurance Policy, check all available Options

March 14, 2013 by Leave a Comment

Please check you policy document first, whether surrender option is present or not. If you are not sure please check with your agent or insurance company.

What is a Surrender Value?
Surrender value is the value, that the policyholder gets, if he chooses to terminate or stops paying the premium before the policy premium paying term ends.

Different companies use different approaches to arrive at the surrender value. Usually, the calculation takes into consideration factors such as completed policy years, policy type and time to maturity, with-profit fund performance in case of participating policies, besides the company’s customer philosophy, internal underwriting policies and industry practice.

The amount available in cash upon cancellation of an insurance policy, usually a whole life policy, before it becomes payable upon death or maturity. also called cash surrender value or cash value.

There are two types of surrender options available -
1- Cash Surrender Value (CSV) or Special Surrender Value (SSV)
Before CSV or SSV, we must understand paid-up value. If you stop paying premium after a specified period, your policy will continue but with lower sum assured. This reduced sum assured is called paid-up value or paid-up sum assured. Paid-up value is calculated by multiplying the original sum assured and the ratio of the number of premiums paid to the number of premiums payable.

CSV and SSV are one in the same but the surrender value is the cash value minus surrender charges. Over time the surrender charges go away.

To calculate CSV or SSV, there are two methods -
A- Special Surrender Value Formula
If you discontinue the policy, the amount you will get is called the special surrender value. This is arrived at by multiplying the total paid-up value (paid-up value + bonus) with a multiplier called the surrender value factor.

In this case following formula is used to calculate the Special Surrender Value -

Special Surrender Value =
{Basic Sum Assured X (Number of Premiums Paid/Total Number of Premiums Payable) plus Total Bonus Received} X Surrender Value Factor

*Here the surrender value factor is a percentage of paid-up value plus bonus. It is zero for the first three years and keeps rising from third year onwards.

From where do we get Surrender Value Factor?
It’s not a standard factor and differs from company to company and depends on various other factors. Not all life insurance companies declare the ‘surrender value factor’ in the product brochure or on their website. But you could get this information from the agent or the insurance company directly.

B- Discounted Value or Accumulated Value
Some products give policyholder discounted or the accumulated value as Surrender Value. For example -
a) 80% Of maturity sum assured if less than 4 years premiums have been paid,
b) 90% of the maturity sum assured, if 4 or more years but less than 5 years premiums have been paid and
c) 100% of the maturity sum assured, if 5 or more years premiums have been paid.
*If the premiums have been paid for a fraction of a year, the maturity sum assured shall be worked out by way of mathematical interpolation.

Note – There could be other methods to calculate CSV or SSV, so please read the policy document or contact your life insurer for more info.

2- Guaranteed Surrender Value (GSV)
The GSV may depend on how many years your policy has been active, the policy term, the product, the company’s performance and so on. You are eligible to receive GSV if you have paid premium for at least three years. It is 30 per cent of the basic premiums paid, excluding the first year premium and all the extra premiums and premium for accident benefit / term riders.

Things you should know
1- Surrendering term plans, which are pure protection covers with no savings element, will result in lapsation of the policy.
2- Policyholder would loses out all the benefits of the insurance policy but also receives a much lower amount than the total premium he must have paid.
3- The longer the policyholder stays invested in the policy, the greater is the surrender value factor which results in better SSV.
4- The surrender value acquired by your policy is also used to calculate the loan amount you are eligible for. Some insurers grant loans against life insurance policies to the extent of 85-90 per cent of the surrender value. LIC offers loans against insurance policies at the rate of 9% pa. Kotak Life charge between 12%-12.5% pa.

Reference – moneylife and businesstoday

Filed Under: Life Insurance Tagged With: , ,

Budget 2013 : Changes to Insurance Industry

February 28, 2013 by Leave a Comment

Bank KYC will be Eligible for Buying Insurance
KYC of banks will be eligible for insurance companies to issue policies. This will make the process for purchase of insurance policies simpler.

Premium Threshold increased to 15% for Disabled
The budget has relaxed the premium threshold (for availing tax deduction) to 15% in case of a person suffering from a disability or certain ailments. Currently, to get a tax deduction under section 80C on premiums, the sum assured or the death cover needs to be at least 10 times the annual premium. However, for a person suffering from a disability this limit has been increased from 10% to 15%.

New Homogenous Groups Recognised for Group Insurance
Group insurance products will now be offered to homogenous groups such as SHGs, domestic workers associations, anganwadi workers, teachers in schools, nurses in hospitals etc.

Govt. Health Scheme or Rashtriya Swastha Bima Yojana will be extended
The government health scheme or Rashtriya Swastha Bima Yojana will be extended to cover auto rickshaw pullers, taxi drivers, sanitation workers and rag pickers.

Govt will Set up New Branches of State-Owned Insurers in All Towns with Population of 10,000 or more
The government will set up at least one branch office of state-owned Life Insurance Corp. of India (LIC) and one state-owned non-life companies (United India Insurance Co. Ltd, National Insurance Co Ltd, The Oriental Insurance Co Ltd or The New India Assurance Co Ltd) in all towns of India with a population of 10,000 or more by the end of financial year 2014.

Insurer can Open New Branches in Tier-II and below Cities without the Prior Approval
Insurance companies would be allowed to open branches in Tier-II and below cities without the prior approval of the IRDA.

Insurer allowed to Trade in Debt Market
Insurance companies will be directly allowed to trade in debt market, subject to regulatory approval. The main objective of this is of developing the debt market, stock exchanges will be allowed to introduce a dedicated debt segment on the exchange. Banks and primary dealers will be the proprietary trading members. In order to create a complete market, insurance companies, provident funds and pension funds will be permitted to trade directly in the debt segment with the approval of the sectoral regulator.

Banks allowed to Act as Insurance Brokers
Banks will be allowed to act as insurance brokers. This means banks will be able to sell products of multiple insurers. At present, banks can sell products of only one life insurer and one general insurer. But as brokers, they will be allowed to sell products of multiple insurers (or can sell products of all 44 insurance companies). Banks will have to apply for a broking licence and will have to comply with broking regulations.

Filed Under: Miscellaneous Tagged With: , ,
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