The ABC of India First Group Credit Life

Intro: In this month's issue, we turn our focus to group insurance cover, a concept that is rapidly gaining popularity with consumers.  Read on to know about it.

Group insurance is an insurance policy that covers a group of people, usually the members of societies, employees of a common employer or professionals in a common group. These individuals are covered under a single policy called the ‘master policy’.

The insurance contract is with the body that represents this group of individuals such as the employer, who becomes the policyholder with the employees as the beneficiaries. The amount and terms of insurance are negotiated by the policyholder and not by the individual beneficiaries.

Broad plan details

Minimum age at entry    18 years
Maximum age at entry    65 years
Maximum age at maturity    70 years
Minimum group size    50 members
Maximum group size    No limit
Minimum cover    INR 5,000
Maximum cover    INR 5 crore

Group cover not only provides the members of the group with a life insurance plan but also covers any outstanding loan liabilities so that the group's interests are protected at an affordable cost in the event of death. All loans such as home loans, car loans, education loans, personal loans, etc. may be covered under the plan.

The member's family will not be burdened with the outstanding loan repayment, in the unfortunate event of the member's demise. The insurer will pay a lump sum amount to the family and any excess amount over the outstanding loan amount to the nominee appointed by the group member.

The premium is paid to the insurer by the policyholder who may or may not collect the same from the individual members of the group. The premium, if paid by the individual can be deducted straight from the salary.

Members have the flexibility to choose between a level term cover and a reducing term cover. In case of the former, the cover remains equal to the initial loan amount throughout the policy term. In case of the latter, the cover reduces to match the falling outstanding loan amount throughout the policy term. 

Depending on the cover option chosen (level cover or reducing cover), the members have the choice of regular, limited and single premium options.

Which Policy Type Should You Choose?

Intro: With multiple categories of insurance plans available, choosing a category that matches your needs will allow you to realise the policy benefits to the maximum.  Read on to know how you can match your need with an ideal category.

Consider this scenario: You wish to buy an insurance policy that will give you a large cover at minimal costs. Or, you wish to secure your child’s future. Or, you wish to build long term savings through market linked returns with an insurance cover. Bearing in mind such different needs, life insurance companies offer multiple products, each designed to meet a specific need.

Benefit Of Choosing A Tailored Product

By choosing a product category that matches your need, you can be rest assured that your need will enjoy the safety net offered by life insurance, and, therefore, will be met in case of all eventualities.

Broad Insurance Categories

Though each product category has multiple policies, all policies can be broadly categorised as follows:

Term plans

• Enjoy a large insurance cover at minimal costs.
• In case of death during the term policy, your dependents will receive the policy sum assured.
• If you outlive the policy term, you are not entitled to receive anything.

Endowment plans

• Enjoy protection and savings.
• On maturity or death, the policy pays out the sum assured plus accumulated bonuses.

Whole life plans

• Enjoy life cover throughout your lifetime.
• On death, your dependents will receive the policy sum assured plus accumulated bonuses.

Money-back plans

• Receive periodic payouts for meeting financial commitments at key stages in life.
• On death during the policy term, your dependents will receive the policy sum assured plus bonuses. Remember, earlier payouts received are not deducted.

 Unit Linked Insurance Plans (ULIPs)

• Enjoy market linked returns and speed up the wealth creation process.
• A portion of the premium paid is towards the insurance cover while the remaining is invested in an investment fund of your choice.
• On death or maturity, depending on the plan features, the payout includes higher of the policy sum assured and fund value or both.

Pension plans

• Build a corpus for your retirement that will allow you to enjoy financial independence.
• Based on the frequency of your choice, receive a regular stream of income from the same.

Child plans

• Secure your child’s future even in your absence.
• Receive periodic payments that will give you financial support when your child reaches his/her milestones.
• On death of the parent, in most cases the basic sum assured is paid, future premiums waived and the periodic payments continued to be made as per the plan.

Loan protection plans

• Secure your loan liabilities under all circumstances.
• On completion of the loan repayment, the insurance cover ceases or can be easily surrendered, depending on the plan terms.
• In case of death/total and permanent disability during the policy term, the policy proceeds can be utilised to settle the outstanding loan amount.

 End note

Before you buy any plan…

1) Ask yourself do you need insurance?

2) If “Yes”, how much cover? The cover will depend on your needs and your premium paying capacity. Choose a premium amount that you can comfortably pay over the policy term.

3) Finally, ask why you need insurance? Once the specific need is clear, pick a category that best serves your need.

4) The policies available within the chosen category will be the right policy for you.

Your Life Insurance Policy May Come To Your Rescue

Intro: One of the salient benefits of life insurance is that the underlying policy can be used as collateral to tide over a temporary financial crunch. Read on to know more…

Consider this – you are considering a career shift for which you need some funds. While you do have a few investments, exiting at this time would be foolish as you would incur losses on them. So, what do you do? To overcome the temporary cash-crunch, why not take a loan against the life insurance policy that you hold?

Yes, you heard right. The life insurance policy that you have purchased to secure your family’s future in case of all eventualities can also be placed as collateral with your insurer for a loan…

Eligible Policies

Only those policies that have a savings component (i.e. it offers maturity benefits) are eligible for loans. In case of traditional policies, loans are extended against all policy types (generally with the exception of money-back plans), provided the premium has been paid for at least three policy years. In case of unit linked insurance plans, loans are extended in the first 5 policy years.

Procedure

You need to undertake the following steps to avail of a loan against your policy:

1. Confirm with the lender that your policy is acceptable as collateral against the   desired loan amount

2.  On confirmation, apply for the loan and assign the policy to the insurance provider. By doing so, you are transferring all rights on the policy (such as policy benefits, etc.) to the insurer. The loan will be sanctioned in a few working days

Loan Amount

The loan amount is linked to the surrender value (i.e. the sum that you will receive from the insurer if you exit the policy before maturity) and depends on the type of insurance plan.

In some cases, the insurance companies may stipulate a minimum loan amount.

Interest Rates

The interest rate applicable varies from insurer to insurer and is generally linked to the market rates. In most cases, the interest rate would be relatively lower than those extended in case of personal loans from banks.

Loan Repayment

The term of the loan and repayment options differ from insurer to insurer. In most cases, the loan term can be for the remaining policy term. You have the flexibility to prepay and foreclose the loan any time during the loan term. In most cases, prepayment does not attract any penalty. However, it’s important to read the fine print early on.

Remember

If you miss a loan repayment installment, it may have an adverse impact on your financial health. The loan amount would keep increasing and may exceed the surrender value, in which case the policy would be terminated. On the other hand, if the insured were to die with an outstanding loan against the policy, the beneficiaries of the policy will receive the maturity benefits less the outstanding loan amount along with the interest due.

Now, secure the earnings on your investments automatically.

With the automatic trigger based investment strategy, IndiaFirst Money Balance Plan allows you to not only safeguard the returns on your equity investments, but, also automate the entire process of portfolio balancing.

You are relieved of the time-consuming exercise of regularly monitoring and maintaining your investment plans. As usual, the underlying risk cover and tax benefits make the plan too good to resist...

Jatin Khanna (name changed) is a young architect in his early 30s living with his family in Hyderabad. Today, Jatin is a little upset as a sudden fall in the markets has eroded the value of his investment portfolio. Rajesh Bajaj (name changed), Jatin’s old client, visits him to discuss the interiors of his new farm house. After a long discussion on the same, they start an informal talk, where Rajesh learns about the sudden fall in Jatin’s investment portfolio due to the market correction. Here is how the conversation moves on.....

Rajesh: So, despite being a long-term equity investor choosing only blue-chips, the recent market gyrations have had an adverse impact on your portfolio?

Jatin: Yes. I am having sleepless nights thinking of ways and means of ensuring that I can earn a return higher than the prevailing rate of inflation!

Rajesh: Jatin, according to me, you have chosen the right asset class.

The mistake that was made is that you failed to track your investments regularly.

Jatin: I know… Since equity was performing well some time ago, I became complacent. At the same time, due to the better returns, my exposure to equity increased vis-à-vis debt. However, thinking that the good times would continue, I did not rebalance my asset allocation between equity and debt. In the current market scenario, not only has my equity portfolio turned into an under-performing, but, I also lost the returns that I had made earlier… If I would have maintained my earlier asset allocation, I would have been able to minimise my loss. Hence, I feel that maybe I should park my money only in debt!

Rajesh: I do not advocate your argument that you should invest all your money in fixed income. You are still young and can afford to take the risks associated with the equity markets. Over the long term, equity has been the best performer…

Jatin: So, what should I do? With equity markets being so volatile, I need to regularly monitor and balance my exposure to equity and debt 

Rajesh: You need not change the asset class for that. All you need is a good product with a good risk management feature, such as IndiaFirst Money Balance Plan.

Jatin: Why?

Rajesh: Well, the key USP of this insurance plan is the automatic trigger based investment strategy. As per this strategy, returns in excess of 10 per cent are transferred every day from equity to debt.

Through this feature, you are able to not only safeguard your equity earnings, but, also maintain an asset allocation that is not too skewed in favour of either of the asset classes.

Jatin: But, what if I want to switch additional funds?

Rajesh: The plan allows you to do so by offering you 52 free switches between equity and debt.

Jatin: Sounds great. I hope I had invested in this plan earlier.

Rajesh: Better late than never Jatin.......

Life Insurance for your home maker

Your spouse is a home-maker. Do you think that she justifies a life insurance cover? Read on to know the answer…

Many consider the premium payable on a life insurance policy as a necessary expense with no real short-term benefits. Apart from saving taxes, you may reason that a life insurance policy is needed only for the family’s breadwinner. Hence, taking a policy in the name of your spouse who is a home-maker is an avoidable expenditure.

However, we beg to differ. Indicated below are key points that may make you more than willing to gift a policy to your home-maker spouse…

Þ               Uncertainties of life, be it accidents, health problems or natural calamities can strike anyone (a breadwinner or a home-maker) at unexpected times. There is no other better antidote against uncertainties than an insurance policy.

Þ                   If you are the sole bread-earner of the family, your limited income may not be sufficient to take care of the health or accidental emergencies of your spouse.  An insurance policy in the name of your spouse would come handy in saving your hard-earned money from the onslaught of rising health and medical bills.

Þ                   Many insurance companies give a discount on the premium amount if you and your spouse or your entire family is covered in a single policy. Thus, the sum assured will increase substantially for a nominal additional premium.

Þ                   Buying a policy in the name of your spouse demonstrates your responsibility and care. Regular premium payment not only inculcates financial discipline but also serves the financial purpose of your spouse (and also children) for his/her entire life term.

Þ                   Many insurance policies come with the option of riders (or additional benefits) that can be added to the main policy by paying only a nominal additional premium. Thus you can save costs by not having to buy separate policies for health, etc.

Þ                   A home-maker spouse may not have regular income but definitely has an economic value in terms of the domestic services provided by him/her. The receipts of insurance proceeds of your spouse in case of accidents or untimely death would ward off the expenses that may arise when someone else takes up up his/her duties.

Insurance policy is a long term commitment. Hence, before buying one, consider all aspects such as the purpose, the term of the policy, age of your spouse and yourself and the disposable income before zeroing on one.

Online Investments and its flaws

Erratic investment pattern

Rather than undertaking ad-hoc investments, make the act of investing a part of your routine. By doing so, you follow the ‘savings first’ approach towards your finances. Regular investments over a long period of time, makes your money grow exponentially.

Concentration of investments

Do not concentrate your investments plans in a particular asset class, industry, company, etc. In case the underlying asset class/industry/company does not perform as expected, the capital erosion would be severe.

Mismatch in investments and goals 

The investment you choose must match your financial goal(s).  For instance, in case of a short-term goal, a debt oriented investment would be preferable vis-à-vis an equity oriented investment.

Inadequate insurance cover

While it is essential to have insurance, you also need to reassess your insurance needs regularly. An insufficient insurance cover Enhance or prune the insurance cover to ensure that you are optimally insured at all times.

Not making nominations and a will

You should assign nominees to all your investments. It is also desirable to make a legal will. This would safeguard the rights and interest of your heirs and prevent them from getting embroiled in complex legal proceedings for establishing their rights on your financial assets.

Not maintaining proper records

To ensure smooth transactions for your investments, maintain all records. Have copies of accounts statements, pass book copies, etc. Not only will you have a bird’s eye view of your portfolio, these would also serve as a reference for portfolio rebalancing. The records need to be maintained and updated. You should also make such records available to your nominees and legal heirs.