Articles

We believe in Vasudhaiva Kutumbakam, the old Sanskrit phrase meaning the world is one family. The technological advancements of the 21st century have truly made this true. We are living in a very interconnected world. Every place and every person is today well connected to each other, digitally and even physically with linkages to the remotest places on the earth. All this time we enjoyed this connectivity, accessibility, the interdependency of business and all the comforts of the modern world. However, we are now shocked and quick to realise the perishability of this new world.

The past decade has seen nature responding back to the unadulterated infiltration on it. We have seen the impacts of climate change manifest itself in many forms. Millions are being already impacted and signs are there that things will only worsen in the coming decades. Just in the past few months, we have seen earthquakes, cyclones, deadly fires and of course the world-changing pandemic. Needless to say, Covid-19 is a game-changer for everyone. It will change how we work, socialise and perhaps also respect nature. One industry has been at the forefront at helping people manage the risk emanating from uncertainty and it is insurance. While there are many forms of insurance which help different stakeholders to manage risks, we limit our focus to only personal insurance in our discussion.

At a personal level, we are concerned only with the direct risks faced by us. Covid-19 has surely made people realise the importance of having adequate health insurance. However, health is just one part of our vulnerability as humans. Let us first fully understand these vulnerabilities or risks of our lives in the form of 3 deadly Ds.

• Death

• Disease

• Disability

The above 3 D’s are pretty obvious and any common person can imagine the impact of any one of them happening on our lives. Death, especially of any earning member in a family is disastrous in all manners, financially the most. 'Disease' is something which has perhaps become very common today given the lifestyle and food habits we are following today. And without adequate support from the government to the middle and the aspirational class of the population, getting quality treatment is getting damn expensive. But what if you survive any unfortunate incident but … Disability has huge ramifications on our lives which many of us haven’t visualised. It may severely hamper our earning ability for life and add to ongoing medical costs. Have we accounted for them?

To this shortlist, we can do well to further add another two Ds – Damages and Dependency. Damages would mean damages/losses to movable or immovable properties or assets. This can be your home, shop, factory, godowns, vehicle, crops, cattle and so on. Again very self-explanatory. They are prone to human acts, accidents and also acts of the ‘god’ or natural calamities, which are getting a bit common now.

Dependency is a new word for many but perhaps the only one on the list which is almost certain and very worrying. Dependency comes from the risk of being alone and/or from longevity or living longer. It is something which we cannot really buy an ‘insurance’ against. The idea of being dependent on others for care and treatment and even for living our daily lives may be frightening for many of us today. The dynamics of the modern world and how a modern nuclear family chooses to live, in contrast to our previous generation, is something we will have to think about. Now imagine doing so without adequate resources or wealth at your disposal. That puts us in a precarious position. Perhaps the Covid-19 may have a positive impact on the same. If earning opportunities are available closer to home, many immigrants would prefer to work from home or closer to home. We will have to wait and see. But the safest way out of it to create a sizable, retirement corpus. That would be also enough for the rest of your life at a retirement home of your choice if needed.

So where are we today? We have only made ourselves more vulnerable in this modern world. We haven’t evolved as humans. All our technological advancements in all fields lay worthless as an unknown enemy made the most evolved and most powerful species, us, realise our weakness and vulnerability. It is not the end of the world though, and we will survive and we will again prosper. However, things will not be the same again. What we need to do is to do a recheck and value the most important thing in our lives - our health, both physical and mental. We need to take care of it. Financial protection in the form of insurance is no longer in a debate. Having adequate life, health, personal accident and critical illness insurance should be your next ‘To Do’ task. There are enough digital ways of buying the same at the comfort of your home. Just call your insurance advisor for a comprehensive review of your insurance portfolio. It's high time you do it.

To most of us, food, clothing, and shelter were the norms for survival. Then came technology and connectivity in the form of mobile phones. These are now indicators of our survival and safety. However, in addition to the real, touch, and feel type of safety indicators, we need the security of health, both physical and financial type. While physical health can be a subjective discussion as to the right food, adequate exercise, and healthy lifestyles, financial health is rather easy to discuss.

We save to invest for our future goals in various instruments according to the asset allocation as advised, which gives us financial security. However, mere investing will not suffice. Protecting the investment is equally important. We need to also protect our finances and future goals from unexpected expenses.

While certain expenses can be avoided, reduced, or delayed, expenses like sudden hospitalization due to injury or sickness can’t be. On top of that, these expenses are sudden, painful, and unavoidable. Accidental injuries can happen anywhere, anytime to anyone, and now the health dangers have also started to behave similarly. The current situation prevailing in the entire world for the last few months has intensified this second probability stronger than the first. Almost anyone can get infected and if not diagnosed soon, will have to get treated in a hospital. These expenses rapidly start our eroding bank balance, investments, and sometimes even credit scores. Luckily, we have the option to opt for health insurance to take care of such situations.

What do most people understand health insurance as? A common misnomer is to pay INR 15,000 to 25,000 to some insurance companies for the insurance to avail the tax benefit. Usually, in this amount, a family of 4 may get a health cover for approximately INR 300,000 to 500,000. Unfortunately, such cover is not sufficient in today's time. A hospitalization for major surgery will cost much more than this amount. In fact, the treatment of COVID for a week will cost you more than a few lakh rupees.

Therefore, taking health insurance for the nominal amount or merely for tax benefit will not help much. Since the hospital bills are steep, non-negotiable, and can not be delayed, borrowing and withdrawing from investments are the immediate consequences. A rather serious long term impact has forced a compromise on financial goals, particularly child's education and marriage or even our retirement goals. Such goals need long term planning with total discipline, as they are also non-delayable and not negotiable.

Moreover, the financial pain doesn’t stop on the day of discharge. In case of an accident injury, even after discharge from the hospital, a few weeks or months of inactivity will stop the income during that period, while the expenses would keep on mounting. Only accident insurance with loss of income feature can come to the rescue. Add accident insurance with loss of income feature, at least for the earning member of the family.

Regular evaluating and upgrading of insurance every few years is highly advisable. We keep on upgrading our lifestyle right? We upgrade our phones, laptops, curtains, bikes, and cars every few years in the name of a better life. Time has come to upgrade our health insurance for a better financial life. The importance of health & Accident insurance can be at best explained as ‘Food, clothing, shelter, mobile phone, and insurance are the basic requirements of life’.

It has been universally believed that life is, now, going to be completely changed and taking new forms of living it in a different way. Perceptions and mindset of people have changed drastically to develop more practical approaches towards life. Health insurance has now become a primary requirement with the phenomenal increase in deadly disease and advanced medical procedure.

Till now, we have been depending either on the Government or on friends and relatives for our medical emergencies. But we have witnessed a number of cases wherein friends and relatives avoid visiting the hospital to see the patient under the threat of being asked for financial help. “ Sukh ke sab sathi, dukh mein na koi”

The time has come to retrospect and reallocate our resources as per the basic theory of need hierarchy. We have been wasting lots of resources on unnecessary elements but ignoring the basic requirements like health insurance. If we feel that health insurance premium is very hefty and disturbing our budget, then we must try the illness.

Health Insurance today comes with various add on features and depending upon the budget of the customer or his lifestyle, various options are available. There are 24 Non-Life Insurance Companies and 7 stand-alone health insurance companies in India who offer health plans. Choices are many, features are many but important is to buy before any eventuality comes your way.

Motor Insurance is generally a combination of Third Party Liability policy & Owner’s damage Cover (OD). The Motor Vehicles Act was passed in the year 1988 and regulates almost all aspects of road transport vehicles, including having a mandatory Vehicle Insurance cover under section 130 (177) Motor Vehicle act. It means that the vehicle owner should have the mandatory Third Party Liability policy. It is very much recommended to take a comprehensive policy so that you can claim for any expenses incurred on repairs due to any external accident or loss of your vehicle.

At the time of renewal, Car owners might do the mistakes like considering only Cheaper Premium and overlooking the other important features like value of the vehicle (IDV) and the additional covers available (Zero depreciation, Return to Invoice, Road side assistance, Engine Protect Cover etc.) And this is reflected in the casual attitude of the customers while buying a motor vehicle policy. Hence it is critical to create awareness & education in understanding the benefits & their importance while purchasing a Motor vehicle Insurance policy .

Critical points to be remembered while renewing Your Motor Insurance policy.

1) Insured Declared Value (IDV)

IDV is Insurance Value of Your Vehicle after the depreciation (10 to 15%) from the previous year. Higher the IDV, higher will be the coverage and beneficial to the Owner of the vehicle.

2) No Claim Bonus (NCB)

As the name suggests, NCB is the reward offered by the Insurer for driving the vehicle safely and not incurring any claims. Typically the NCB ranges from 20% to 50% depending upon the age and the past claim experience of the vehicle.

NCB is owned by the Policy holder of the vehicle and can be carried forward / transfer to the new vehicle under his/her ownership..

3) Hypothecation

 Hypothecation means offering an asset as collateral security to the lender. Herein, the ownership lies with a lender and the borrower enjoys the possession. In the case of default by the borrower, the lender can exercise his ownership rights to seize the asset. If You have repaid the vehicle loan, It is important for You to remove the hypothecation clause from Your policy document.

4) Zero Depreciation Policy : Zero Dep policies are also called as Bumper to Bumper or Nil Depreciation policies. It is one of the crucial and important Add-on cover offered under Motor Insurance Policy.

In Zero Dep policies, 100% of the claimed amount is payable. Where as under the comprehensive policy, the claim is payable as follows:

Zero depreciation is offered only till 5 years of the vehicle age. Though some Insurers offer it till 7th year.

5) Other Add ons: Usually following Add-on benefits are offered by the insurers:

i) Consumables Cover

Usually consumables like oil, nuts and bolts etc. are not covered under insurance. With this add on, you can claim the consumables however small they might be. It covers expenses towards consumables which are unfit for further use, arising out of damage due to an accident.

ii) Return to Invoice

When the Vehicle is damaged beyond repairs in an accident, Insurance companies will refund the complete value/amount mentioned on the invoice.

iii) Roadside Assistance

This benefit assists you in situations where you need help on the road with your car. The service offers many benefits from getting your set of wheels fixed on the spot to towing or taxi service to help you reach your destination. Roadside Assistance is usually provided to anyone who is stranded anywhere within the radius of 500km from the middle of the city.

iv) Engine Protection Cover

Any damage caused, from leakage of the lubricating oil to water entering the engine due to natural calamities such as floods, that can cause permanent engine damage is covered under this add on benefit.

v) Tyre Protection Cover: This Add On may ideally cover following, though conditions may differ from company to company:

• Cost of replacing the damaged tyre with a new one.

• Labour charges toward removing, refitting and rebalancing of the tyre.

• Accidental loss or damage to tyre and tubes which would in turn make the tyre unfit for use. This includes scenarios such as bulge in tyre, bursting of tyre and damage/cut to the tyre.

vi) Passenger Cover

This cover ensures the protection of your family and loved ones. For, god forbid, you meet with an accident where you and your near and dear are injured, this cover will ensure that, apart from you, your beloved are covered too and will receive all the necessary financial support till they recuperate.

And finally don’t wait till last date of the due date. Because if You miss the due date, then inspection of the vehicle is mandatory. But if due to any unforeseen situation, you were unable to renew your policy on time then make sure to renew it within 90 days of its expiry to take advantage of your accumulated NCB. Beyond 90 days of expiry,NCB will lapse.

Always Pay attention in case of ownership transfer cases: If you have bought a used car/vehicle from someone than make sure to get the insurance policy transferred on the new policy owners name as soon as the RTO formalities are over and new ownership has been created in Registration Certificate. Failing to change the ownership in insurance policy will result in rejection of claims.

Know about compulsory & Voluntary Deductibles: Compulsory Deductible is also known as Compulsory Excess in motor insurance. It is the part of the claim amount which you will have to bear out of your pocket. For cars not exceeding 1500 cc, the amount is fixed as Rs. 1,000. If the engine potential is more than 1500 cc, the compulsory deduction is Rs. 2000

You can also reduce the premium if you opt for an additional voluntary deductible.

In recent years the India has emerged as one of the fastest growing financial services market in the world. This has been largely due to rising incomes driven by economic growth and increasingly informed customers with differing needs for financial services.

The Life Insurance market in India has also grown very impressively over the past six years, with new business premiums growing at over 30-35%. Today, the $ 41-billion Indian life insurance industry is considered the fifth largest life insurance market. The total number of life insurers registered with the IRDA has gone up to 23 and since the opening up of the insurance sector in India, the industry has received FDI to the tune of $ 525.6 million.

The impressive run has been powered by the liberalisation of the industry that enabled new players in the industry with greater enthusiasm and aspirations backed by capital commitments. The new players have also helped the industry develop by significantly contributing to increased insurance awareness & information flow, promoting consumer education, new product innovations & by creating organized marketing & distribution channels.

The Indian Life Insurance industry though is still at a very nascent stage and there is a very long way to go. Currently, the ratio of life insurance premium to the GDP is around 4%. This is much lower than the market levels of 6% to 10% generally observed in developed markets. With only 30% of the Indian population exposed to some form of life insurance, there is also large disparity in the exposure of urban and rural markets. In urban markets, the life insurance penetration is about 65% and in rural markets, this is significantly lower.

There are a host of reasons why life insurance exposure is low in India. The primary reason being ignorance about life insurance and the lack of information and awareness about life insurance facility & options available. There is still lack of easy access to insurance products in India especially in un-banked, rural markets. Often, even if life insurance is taken, the same is largely inadequate to the required amount. This is something common across urban & rural markets, even educated & uneducated masses.

Life Insurance Need:
Life insurance' is a contract between the policy holder and the insurer, where the insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy holder agrees to pay a premium - stipulated amounts at regular intervals or in lump sum.

There are only two serious uncertainties of our lives.

• Dieing early without adequate wealth for others
• Living too long without adequate wealth for self

With many types of life insurance products available, one can easily cover both these risks comprehensively. Products can be chosen that would provide the necessary amount to your family in case of your uncertain death and also provide a secured source of income during the golden years of your life.

Advantages of Life Insurance:
The following benefits explain why life insurance should be an integral part of your overall financial plan.

• Risk Cover and financial security in your absence – This is the most important advantage as one can ensure financial well-being for near & dear ones in your absence.
• Protection plus savings over a long term – Since traditional policies are viewed both by the distributors as well as the customers as a long term commitment; these policies help the policyholders meet the dual need of protection and long term wealth creation efficiently.
• Planning for life stage needs – Life Insurance policies can also help build long term investment and help you meet your life goals, like child education, their marriage or retirement.
• Protection against rising health expenses – Life Insurers through riders or stand alone health insurance plans offer the benefits of protection against critical diseases and hospitalization expenses
• Tax Benefits – Insurance plans provide attractive tax-benefits for both at the time of entry and exit under most of the plans
• Inculcate savings habit – Being a long-term contract, regular savings is promoted by way of premium payments
• Safe and regulated – Insurance is a highly regulated sector and IRDA, the regulatory body, through various rules and regulations ensures that the safety of the policyholder's money is the primary responsibility of all stakeholders

Who needs life insurance?

1. Children: Children do not need life insurance. This is because, in majority of the cases, no one is dependent on their income. In most insurance policies too, the entry age is restricted to adults.
2. Single Adults: Single adults with dependents may need insurance policy to care for the financial needs of the parents / dependent persons they support in their absence. However, for single adults with no family / dependents, life insurance coverage is not a necessity.
3. Beginning Family: Life insurance becomes a necessity if you are considering or have started a family. The need is high as one needs to secure the financial well-being of the family that one is supporting, which often would include spouse and parents. The amount of coverage needs to be sufficient to support their needs for adequate number of years in future. Getting life insurance early at this stage would also be cheaper for you. For well-earning, working couples with no children, they can decide upon their life insurance needs which would be largely to insure better financial well-being of the other person.
4. Established Families: If you have a family that depends on you, then adequate life insurance coverage is a high priority necessity for you. Even for non-working spouse, life insurance coverage needs to be considered since in her absence can cause significant financial problems for the surviving family. For earning family members, needless to say, adequate life insurance coverage that would cover financial needs for a significant number of years is a must. The cover should be adequate to meet the financial goals of the family life child education, marriage, spouse retirement, etc. in additional to the regular household expenses. Any delay in taking policy would rise the insurance costs or lower the insurance coverage. Hence it is advisable to get life insurance coverage as early as possible.
5. Elderly: For the elderly who do not have people depending on their income, life insurance is not a necessity. Purchasing a life insurance policy at this stage would also be very expensive. In case, the elderly are looking for investment options, they can do well to search for other low risk financial products with guaranteed income.

How much is needed?
The most important question that comes to mind while planning for insurance is 'How much of insurance is adequate?' Factors such as the family size, dependents, outstanding liabilities, disposable assets, mortgages/loans, lifestyle, income sources, investment needs and many other factors impact your insurance requirement. The idea is that the insurance cover should be to such an extent that in case of one's demise, his / her dependents are able to maintain the same lifestyle as they used to have before the unfortunate event occurred while meeting all financial goals. One may use the following simplistic formula for deciding the life insurance need:

• Disposable Assets
• Total Liabilities
• Present value / cost of all future goals
• Present value of the Monthly required cash flow for future period which you wish to support

The insurance need would be (a) – (b) + (c) + (d)

Other than this, one may also decided upon the thumb rule for life insurance coverage depending upon the annual income one is earning. The rule can be to have between 5-15 times of annual income as the insurance coverage amount. The multiple would be on the higher side for persons with established families and would be on the lower side for elderly persons / single adults, as the dependency on income reduces.

Types of Life Insurance Policies available in the market

• Pure Protection Policies : Pure protection policies are like pure life insurance policies. They provide you with life insurance coverage for a specified term of years in exchange for a premium whereby the policy does not accumulate any cash value. In other words, such plans are pure risk cover plans without (or with limited) maturity benefits. The purpose is to provide a high level of coverage at reasonable cost to the person. Hence the term 'pure' where the premium buys protection in the event of death and nothing else. Another popular term used for pure protection policies is "Term Insurance"
• Endowment Policies : Endowment life insurance plans cover risk for a specified period, at the end of which certain defined and/or accumulated benefits are paid back to the policyholder. Such plans are popular and are in nature of long-term savings plans with build-in life cover. Generally at the end of the term, the policyholder receives sum assured plus the accrued / guaranteed bonuses declared during the term, as a lump sum, provided all the premiums are paid. Further, in case of the unfortunate death during the term of the plan, the sum assured is paid out along with the accumulated benefits that the policy offers.
• Whole Life Policies : Whole life insurance plans, as name suggests, offer life protection during your entire life. Such plans generally offer the option to pay the insurance premium either during the whole life or for a limited period. Such plans generally do not carry any maturity benefits and pay the sum assured to the family in case of an unfortunate death of the policyholder. The primary purpose is to offer financial protection to family.
• Investment oriented Policies / ULIPs Investment oriented plans or ULIPs (Unit Linked Insurance Plans) : provide you with life coverage and also invest a part of your premium into assets like equity, debt or cash market instruments for creating wealth. Thus, a par of the premium goes towards life coverage and a part in investments whereby units are allocated to the policyholder which have a NAV, similar to mutual funds. The primary purpose of such policies is long-term wealth creation with benefit of life coverage during the term. The policyholder has the generally choice of choosing the preferred asset class for investments.
• Pension Policies : Pension plans have the purpose of providing for a pre-specified amount at regular intervals of time, starting at a defined time. Thus, such products are more suitable for your post retirement planning. Generally the pension plans have two options - (a) Immediate Annuity Plans and (b) Deferred Annuity Plans.
• Child Care Policies : Child care plans have the purpose of providing for monetary support to your child and family in case of any unfortunate death or disability of the parent. Such plans help ensure that your child's financial future and that their goals and dreams are met. Such plans usually offer defined corpus to the child at a certain age in future with premium waiver facility in case of any unfortunate event happening with the parent.

Summary:
Life insurance coverage has typically been low in India. As educated and informed citizens, it is very critical on our part to ensure that we are adequately insured such that we can guarantee a secured financial future for our dependents. There are a number of policies available in the market. However, one needs to carefully consider and understand all the options available and one's own need before committing to any product. Taking life insurance is an important decision in your life and one that would be taken very often. Investors need to ensure that they get it right the first time.

{s}
[[script type="text/javascript"]]
$(document).ready(function(){
new DiscussionBoard("divDiscussionBoard", "587", "http://www.njwebnest.in/esaathi/index.php/discussion").load();
});
[[/script]]
{/s}