Month: March 2018

Bonus in insurance plans

Bonus in insurance plans

  • When a life insurance company makes a profit, it is supposed to distribute a part of that profit to its policyholders, in the form of bonus payments.
  • Not all life plans are eligible for bonus. Plans can either be participatory, thereby qualifying for bonus, or non-participatory, that do not qualify for bonus.
  • Bonus is different from guaranteed addition (GA). Bonus depends on the insurer’s profit while GA is an assured addition to the policy and is disclosed upfront.
  • Bonus depends on quantum of investment gains of the ‘with profit’ fund either as a certain amount per Rs 1,000 sum assured or as a percentage of the sum assured.
  • In most traditional life policies, bonus amount keeps getting added to the policy and keeps accumulating till the policy’s maturity. This is ‘reversionary’ bonus.
  • Terminal bonus is added on maturity of policy or on death. It is a onetime bonus that the insurer declares for policyholders who keep policy till maturity.

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Why health cover claims get rejected?

Why health cover claims get rejected?

Pre-existing disease: Medical conditions that exist before obtaining the health insurance policy are not covered from day one. A waiting period of up to 4 years can apply for such conditions.

Policy exclusions: Some illnesses covered only after a few years. Standard exclusions are cost of spectacles, dental and cosmetic surgeries, expenses for diagnosis and treatment relating to pregnancy etc.

Gap in renewal: The health insurance policy is renewable provided you pay the premium within 15 days of expiry date after which it lapses. During this gap period, coverage is not be available.

Policy coverage: The health insurance policy will mention sub-limits under heads such as room rent, consultancy fees, ambulance charges etc. and amounts over which costs will not be covered.

Incorrect information: Any wrong information given at the time of purchasing the policy if making a claim when discovered at a later stage could lead to claim rejection.

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Insurance Claim settlement ratio

Insurance Claim settlement ratio

1) An important yardstick for selecting an insurance policy is the insurance company’s claim settlement ratio.

2) It is calculated as the number of insurance claims settled by an insurance company as a percentage of the number of claims received over a period of time.

3) The higher the claim settlement ratio of a particular company, the greater are the chances of a claim being settled by it.

4) Choosing a policy with a lower claim settlement ratio, even if it has a low premium, may not be wise, as this defeats the purpose of having an insurance cover.

5) Insurers report data about the claims and settlement to Irdai, which publishes it on a regular basis, to be used by investors.

INDIVIDUAL DEATH CLAIMS 2016-17
Life Insurer Claims Paid
LIC 98.31%
Max Life 97.81%
HDFC Standard 97.62%
Aegon Religare 97.11%
SBI Life 96.69%
ICICI Prudential 96.68%
Exide Life 96.40%
Tata AIA 96.01%
Canara HSBC OBC 94.95%
Birla Sunlife 94.69%
Reliance Life 94.53%
Edelweiss Tokio 93.29%
Bharti Axa 92.37%
Bajaj Allianz 91.67%
Kotak Mahindra 91.24%
DHFL Pramerica 90.87%
Aviva 90.60%
IDBI Federal 90.33%
Sahara 90.21%
Future Generali 89.53%
PNB Met Life 87.14%
Star Union 84.05%
India First 82.65%
Shriram 63.53%

Source : IRDA ANNUAL REPORT 2016-17

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Build a emergency fund through a liquid fund

Build a emergency fund through a liquid fund

Where should you keep your emergency funds?

Most of us have heard the old proverb about saving for a rainy day. So, how much money should be saved as contingency fund? Depending on the current income and obligations, one might need to keep in anywhere from three months’ to two years’ worth of expenses. Have you ever thought of getting reasonable returns without compromising too much on how quickly we could get our hands on the cash? Financial planners recommend that investors must build a contingency fund (typically 3-6 months of their expenses) through a liquid fund. In recent times, the liquid fund space has been witnessing some action due to excess funds remaining idle in their savings accounts post demonetization drive. Liquid funds are an attractive alternative to retail investors for parking funds lying idle in their savings bank accounts.

What is a liquid fund?

Liquid funds are an open-ended debt mutual fund schemes which invest the corpus into short term money market instruments like short term corporate papers, treasury bills and certificates of deposit with short maturity period (residual maturity not exceeding 91 days).

Key features of liquid fund

  • High level liquidity and nominal risk
  • No entry and exit loads
  • Different investment options like growth and daily, weekly, or monthly dividend
  • Tax efficient

When can you invest in Liquid Funds?

Emergency situation such as loss of job, markets crashing, medical emergency or any unfortunate event that come with an economic loss for some time. Sudden business expenditure or to address unforeseen circumstances or losses in a business

Taxation

Liquid funds are treated like other debt funds for taxation purpose. If you hold the fund for less than 3 years, then it is considered as Short Term Capital Gain (STCG). However, if you are holding for more than 3 years, then it is considered as Long Term Capital Gain (LTCG).

  • Short Term Capital Gain Tax for Debt Funds – It will be taxed as per your tax slab.
  • Long Term Capital Gain Tax for Debt Funds – It will be taxed at 20% with indexation benefit.

The tax treatment also differs with the growth and dividend plans that you opt for. Dividends received under liquid plans are not taxed at the hands of investors but fund houses pay dividend distribution tax.

Risk factor

Liquid funds come with some degree of risk, but if one invests in funds with good paper, the risk is minimal. Most liquid funds have a relatively low level of risk because of the lower maturity period.

Conclusion

Liquid funds extend the advantage of risk adjusted returns along with basic principles of accessibility and safety while maintaining a healthy contingency fund. Hence, it may be considered wise to park your surplus funds into liquid mutual funds and start an SIP to build a contingency fund.

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PPF (Public Provident Fund)

PPF (Public Provident Fund)

  • PPF can be opened at Post Offices or Nationalized Banks.
  • Has mandatory locking of 15 Years and can be extended further 5 years at a time
  • Maximum Investment Allowed: Rs 1.5 Lakh per Year (Budget 2014 increased this limit )
  • Minimum Investment of Rs 500 required every year to keep the account active
  • Interest Rates paid on PPF are market linked onward hence would vary every quarter The interest rate is 7.6% w.e.f 1.1.2018

Advantages

  • The interest earned on PPF is Tax Free
  • After opening the PPF account, investment can be done online every Year
  • Can take loan against PPF and also do partial withdrawal
  • It cannot be attached by court orders
  • Highest Safety – backed by Govt.

Disadvantages

  • Longer Locking period
  • The PPF interest rates are market linked and hence would change every year
  • HUFs and NRIs cannot open PPF Account

Tips

  • Investment done till 5th of the month earns interest for the month. So deposit your money before 5th of month
  • PPF can be opened on minors name with either parents as guardian
  • The total investment in your PPF and the minor child PPF account (for whom you are guardian) should not exceed Rs 1.5 lakh in a financial year
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Personal accident insurance

Personal accident insurance

  • This policy offers compensation in case of disability to the insured person, as a result of an accident.
  • The primary purpose is to protect temporary or permanent reduction in income, arising out of accidents.
  • It covers permanent disability like paralysis and loss of limb and temporary disability like fractures.
  • The premium depends on an assessment of risk at the workplace, and the extent of coverage.
    For example, 
    For individual with Sum insured 10 Lakhs premium comes around Rs 1400/- 
    For a family of 4 members (2 Adults + 2 Childs) with sum insured 10 lakhs premium comes around Rs 2600/-
  • This can be added on to life insurance policies too.
  • Death or injury due to any illness or disease is not covered under this insurance, even if such disease might be linked to the nature of the job.
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Emergency fund

Emergency fund

Do you have an emergency fund?

An often neglected financial goals among people is building an emergency (contingency) fund. It’s a must have for every individual because one never knows when there could be a need for some extra money due to some unforeseen event. To build an emergency corpus, you should invest in those instruments which you can redeem or liquidate within a very short notice. Putting some money in a bank fixed deposit is one of the solutions. Investing in a liquid fund or an ultra-short term fund of a good fund house can also serve the same purpose.

WHEN TO USE A CONTINGENCY FUND

  1. An emergency fund is needed when one’s regular source of income dries up and yet there’s a need for some funds to meet the daily expenses
  2. It could also be used to meet some medical emergency
  3. On could use it to tide over some months in case of a job loss or some setback in business
  4. In such situations one should be able to tap into a corpus without curtailing regular investments
  5. Usually regular investments are for meeting long term financial goals like child’s education, own retirement etc.
  6. The optimum size of an emergency fund should equal the monthly expenses of three-six months
  7. Liquid funds have the advantage over other comparable investments in terms of lower taxes and any-time withdrawal without penalty
  8. Returns from these funds are hardly affected by short term interest rate volatility
  9. Instant withdrawal, up to certain limits, is also be possible from these funds

DO’s and Dont’s

  • Never keep money in an equity fund to build an emergency fund
  • For an aged person without a medical insurance, the contingency fund should be a large one
  • For a young person with regular salary income and a mediclaim, it should be used to meet daily expenses if cash flow stream is disturbed

Using Financial Calculator, To prepare a plan and illustration of your investment.
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Home loan balance transfer

Home loan balance transfer

The interest rate of an existing home loan and the flexibility the financing institution offers determines whether one continues with the same loan or thinks of a switch. For a lower interest rate and/or other advantages, customers can transfer the outstanding balance to another financial institution or bank. The new finance company pays the old lender the outstanding principal due on the loan.

Who is eligible?

A borrower who has a paid at least 12 EMIs and has a decent credit rating is most likely to get balance transfer offers from other housing finance lenders. The lending institution may also prescribe minimum loan amount eligible for balance transfer.

Application

A new housing loan application must be made to the new lending institution. Some housing finance companies offer online application facilities to complete this process.

Documents

Documents such as photograph, bank statements, photocopies of identity and address proof, income documents need to be provided. In addition, the following documents will be required:

  •  A letter on the letterhead of the existing lending institution stating the list of property documents held by them.
  • Latest outstanding balance letter from the lending institution.
  • Photocopy of property documents.

Foreclosure of existing loan

Foreclosure formalities need to be carried out for the existing loan. The new lending institution may make a payment of the outstanding principal amount in order to release the original documents from the previous lending institution.

New loan agreement

A new loan agreement is entered between the new housing finance institution and the borrower.

Points to note

  • Consider costs involved before taking the decision to do a balance transfer.
  • As per RBI norms, no foreclosure charges shall be levied on floating interest rate loan to individuals by the earlier housing finance institution.

Using Loan EMI Calculator, calculate total interest paid & total principal amount paid at the end of every financial year. Download Mobile app from

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Key features of ELSS

Key features of ELSS

With the tax-saving season having begun, many people are thinking of investing in equity-linked saving schemes (ELSS), where they can get equity-like returns along with the benefit of tax saving.

Here is a look at some of the key characteristics and benefits of ELSS:

Benefit of tax saving: Tax Benefit under section 80c of the Income Tax Act can be availed through ELSS upto Rs 1.5 lakh per year by either SIP or Lumsum

Shortest lock-in period: ELSS has the lowest lock-in period of 3 years as compared to other investment avenues.

Discipline savings & potential of high returns: Besides giving tax benefits, ELSS also leads to ‘forced savings’ because of the lock-in. This allows investors to earn market-based benefits over a longer period of time. Returns are more likely to beat the inflation unlike some of the other tax-saving schemes.

No minimum and maximum investments limit: ELSS funds have a lower threshold of Rs 500. Even a one-time investment of Rs 500 can be held till perpetuity. There is also no maximum limit specified for investing in ELSS. However, the tax savings are available on a maximum of Rs 1.5 lakh per year.

In a nutshell, for wealth enhancement and savings for tax exemptions, ELSS could be a preferred choice.

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Online contributions to NPS account

Online contributions to NPS account

The National Pension System (NPS) allows its subscribers to open NPS Tier I and Tier II accounts online through the e-NPS. Subscribers who have not opened accounts online can make contributions to NPS online, using the e-NPS portal, with the following steps.

Portal

To make an online contribution, the NPS subscriber is required to go to the e-NPS website https://enps.nsdl.com/ and click on the ‘Contribution’ tab.

Authentication

Once the link is accessed, a form will be displayed wherein your PRAN (Permanent Retirement Account Number) and date of birth are to be entered. After the information is submitted, the PRAN will be verified. Upon successful verification, an OTP will be sent to your registered mobile number.

Payment

The OTP must be entered to authenticate the PRAN. Once this is done, you will be able to access the page for making online contributions to your NPS account. The payment can be made for the Tier I or Tier II account through your debit or credit card or by using the Internet banking option.

Charges

A POP service charge of 0.05% of the contribution amount will be applicable (subject to a minimum of Rs 5 and maximum of Rs 5,000). If you have registered in e-NPS through your Aadhaar, no charges will be applicable for future contributions.

Points to note

– There are no limits or restrictions to making contributions to your NPS using the e-NPS platform.
– It is important to have an active Tier I or Tier II account in order to make an online contribution.
– NPS Lite or Atal Pension Yojana subscribers cannot avail of the facility of making contributions through e-NPS.

Tier I is the mandatory account for long-term savings. Invest in Tier I account to avail exclusive Tax benefit upto Rs.50,000 u/s 80CCD(1B).
Tier II is an add-on account which provides you the flexibility to invest and withdraw from various schemes available in NPS without any exit load.

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