Buying ULIPS will Cost Less Now

Insurance Regulatory and Development Authority (IRDA) has announced new set of guidelines for ULIPs. They will now cost lesser but have a longer lock-in period.

IRDA, on Monday, said that insurers will now be allowed to charge up to 4% on annual premium paid on Ulips for the first five years, and thereafter charges will be reduced during the tenure of the policy. For plans of 15 years and above, the charges will be restricted at 2.25% of the yearly premium.

IRDA has also increased the lock-in period for all Ulips from three years to five years now, including the top-up premiums. The decision is expected to make these products more like long-term financial instruments that can provide risk protection. Longer lock-in would also discourage those insurance buyers who often entered Ulips, which are market-linked products, for short term gains. The regulator also increased the insurance cover on such products to 10 times of the first-year premium compared to five times now.

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ICICI Prudential Pinnacle Guaranteed NAV- Review

Guaranteed return products are undoubtedly very popular among us Indians. We use at least one of these products, say, bank fixed deposits, NSC, KVP, PPF, REC Bonds, etc., to pick up a decent fixed return.  The latest offering is by ICICI Prudential which has introduced ICICI Pru Pinnacle, a guaranteed return unit-linked insurance plan (ULIP). But the question remains as whether this plan will succeed in attracting investors by offering something new or fall flat.Here I'm presenting a review of this product from RupeeTalk.com

Highlights

On maturity, the plan offers the highest NAV recorded on daily basis in its first 7 years There is an additional 3 per cent maturity bonus on the completion of term Low charges make it a cost-effective guaranteed return plan

Background
ICICI Prudential, a joint venture between ICICI Bank and the UK-based Prudential Plc., was established in Dec. 2000. Over past nine years, it has built a strong distribution network of 2,074 branches (inclusive of 1,116 offices), over 2,25,000 advisors and 7 bancassurance partners. ICICI Prudential is the first life insurer in India to receive a National Insurer Financial Strength rating of AAA (Ind) from the credit rating agency, Fitch ratings. As of now, the company has a paid-up capital of Rs. 4,780 cr and the total Assets under Management (AUM) over $10 bn (Rs. 47,000 cr).
Product highlights

• ‘ICICI Prudential Pinnacle’ is an open-ended, unit-linked insurance policy with an advantage of varying exposure to equity with downside risk protected.
• Limited premium-paying term (3 years) providing extended insurance protection (10 years)
• An option to increase or decrease the sum assured anytime during the policy term
• The minimum and maximum age for entry is 8 years and 65 years, respectively.
• The policy is available for 10 years.
• The minimum single premium is Rs. 50,000 per annum, with no cap on maximum limit.
• Minimum sum assured is five times the annual premium.
• The policy can be surrendered after the 3^rd year, and there are no surrender charges after the 5^th year.

Benefits of ICICI Pru Pinnacle

• ‘Guaranteed highest NAV’ as recorded on daily basis in the first seven years of the fund (from Oct. 24, 2009 to Oct. 24, 2016)

• An additional 3 per cent of fund value (prevailing NAV) received upon maturity
• Liquidity in terms of partial withdrawals allowed from the 6^th policy year
• In case of the unfortunate event of death of the insured, the nominee gets the higher of the fund value and sum assured (reduced by partial withdrawals, if any)
• 100 per cent surrender value after the 5^th policy year
• Tax benefits on the premium paid and benefits received under the policy as per the prevailing Income Tax laws.

Analysis
There are already a considerable number of guaranteed return products in the market such as SBI Life’s Smart ULIP, Tata AIG’s Invest Assure and Birla Sunlife’s Platinum Plus. All these plans have more or less the same features. However, they differ in charges like premium allocation charges, fund management charges, policy administration charges and others.
So where does ICICI Pru Pinnacle stand? This plan, too, is similar to the above-mentioned plans, but what sets it apart from them is its lower policy charges, recording of daily NAV and an additional maturity bonus of 3 per cent. The ICICI Pru Pinnacle fund guarantees the highest net asset value (NAV) recorded in its first seven years, subject to a minimum of Rs. 10. But there is a catch. This guaranteed highest NAV is applicable only at maturity. At maturity, the higher of Fund Value (units X NAV) and Guaranteed Value (units X guaranteed NAV) as on the maturity date shall be payable (refer Table 1).

As per the company’s benefit illustration, an annual premium of Rs. 3 lakh for three years for a 35-year-old healthy male with a sum assured of Rs. 15 lakh will grow to Rs. 11.63 lakh and Rs. 16.34 lakh at an interest rate of 6 per cent and 10 per cent, respectively.
Equating with other products
Here is the refrain, ‘Do not mix insurance with investment unless investment costs are very less and investment horizon is more than 20 years’. We are not comparing ICICI Pru Pinnacle with similar products like SBI Life’s Smart ULIP, Tata AIG’s Invest Assure and Birla Sunlife’s Platinum Plus, for they differ majorly in charges. Rather, we weigh it against a customised product – a combination of a mutual fund and a term insurance. Let us consider that the combo-product grows at the same 6 per cent and 10 per cent interest rate (refer Table 2).

In any circumstances, the combo-product of ELSS + term plan will outperform ICICI Pru Pinnacle by Rs. 1.11 lakh and Rs 1.45 lakh at a growth rate of 6 per cent and 10 per cent, respectively. Moreover, the death benefit in the MF investment will always be more than Rs. 15 lakh (Rs. 32.79 lakh at the 10th policy year). In terms of net returns also, the combo-product will yield 8.86 per cent and 4.43 per cent in comparison to 7.72 per cent and 3.25 per cent by ICICI Pru Pinnacle at a growth rate of 10 per cent and 6 per cent, respectively. Nevertheless, in ICICI Pru Pinnacle Fund maturity amount is guaranteed by its highest NAV recorded in the first seven years, but in ELSS maturity amount is applicable at the recorded NAV at the maturity date. So, in case the market tanks at the time of maturity, ELSS proceeds will go down, failing to provide the guaranteed return while ICICI Pru Pinnacle maturity proceeds are guaranteed at their highest NAV recorded.
Tax benefits
ICICI Prudential Pinnacle Fund provides tax benefits under Sec 80C of the Income Tax Act, where the premium paid is eligible for tax deductions up to Rs. 1 lakh. The maturity proceed is also exempt from tax under Section 10(10D).
Things to look into
• Top-up premiums are not allowed.
• Surrender benefit is limited to 30 per cent of the fund value within 3 years of policy term.
Recommendations
In India, products like ULIPs have become a push product rather than a pull product. By presenting delusive return charts to buyers and hiding the hefty charges applicable on ULIPs, insurance agents try to create a positive image for the product. ICICI Pru Pinnacle fund is no comparison to the combo-product of ELSS and term plan when it comes to tax saving and wealth creation, for the latter offers higher return. However, when compared with its peers like SBI Life’s Smart ULIP, Tata AIG’s Invest Assure and Birla Sunlife’s Platinum Plus, ICICI Pru Pinnacle Fund has an edge over the rest because of its lower policy charges and the unique feature of daily NAV, not applicable in Smart ULIP.
How to invest in the plan?
Investors can buy the plan directly from 2,074 branches (inclusive of 1,116 offices), over 225,000 advisors and 7 bancassurance partners of ICICI Prudential.
Summing it up
Innovation is the key to financial products. It is a known fact that most ULIPs face difficulty in offering guaranteed return as promised. Though fund managers try to invest as per the mood of investors based upon the economic scenario, they may not always succeed in generating desired return. ULIPs carry high risks as returns are linked directly to market performance, and thus insurers may not be able to honour their commitment of guaranteed NAV. However, the guaranteed maturity amount in ICICI Pru Pinnacle by its highest recorded NAV helps it score over a mutual fund whose returns are not guaranteed. So, it can be safely said that ICICI Pru Pinnacle is a good bet for the investors who have a low risk appetite.

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Insure yourself against Terror Attacks

Loss, more than anything else, opens our eyes to the need of insurance. It was the Mumbai attacks that shows the need of a terror attack insurance as well.

All though almost all of us have insurance policies, but it is important that we check our policies once again for an insurance against terror attacks. Here is a look at some major insurance covers and what we should look at while taking the cover:

Life Insurance

While most basic life insurances do not exclude death due to terror attacks, you should specifically check with the insurer and READ THE POLICY DOCUMENTS to be sure about the same. Additional riders such as hospitilization, critical illness etc. do not include loss of life due to war or terrorism.

Health Cover

Again READ THE POLICY DOCUMENT. Most policies cover you only after 24 hours of Hospitilization. It remains to the description of the insurer in case you are released with in 24 hours after getting treatment for the injuries during an act of terrorism.

Householder Insurance

Basic householder's insurance doesn't cover your house structure against an terror attack. However, such a cover might be available at an extra cost.

Auto Insurance

Auto insurance policies do not cover your vehicle against a damage in case of riots, war situation, terrorist attacks etc.

Stand-alone Terrorism Policy

Such Policies protect you against terror attacks specifically. Optima Insurance is offering such insurance cover of New India Assurance through its web site http://www.click2insure.in/.

[source: Money life]

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What is Sum Assured?

Almost everyone who has a Life Insurance, must have heard the term "Sum Assured". But, do we know the real meaning of the term? How does this affect ourselves? We will try to put some light on this in this post...

The Sum Assured is actually the reason for which we buy Life Insurance. This amount affect the insured while living as well as after life. It is the amount that would be paid to the nominee in case of the death of the insured person (The after life effect) and plays a crucial role in determining the premium one has to pay to get the policy (The effect on an alive person).

What does Sum Assured (SA) mean?

At the time of signing a life insurance contract, the insurer (insurance company) and the insured (buyer of the policy), agree on an amount that would be payable if the insured dies. This would be handed to the nominee, which is decided by the insured. This is actually the amount for which the insured is paying the premium (a regular payment made to the insurer).

How do we reach the amount?

But how would I know what is sufficient amount in my case? As such there are no formal rules for arriving at this value. It can vary depending on your life style. Ideally it should be enough to last till the dependents are not able to earn themselves. It is suggested to have this amount at 6 to 10 times the current annual income of the person insured. A high SA would push the premium to a higher level and may also make a medical check-up necessary.

Relation with Premium

This actually depends on the type of the policy. In traditional policies (Term insurance, Endowment, money back etc.), SA determines the premium where as in case of market linked plans (ULIP), premium determines the SA. In ULIPS, insurer typically lets you choose 5-50 times the premium as SA amount. However, the cost increases as the SA goes high in such a scenario.

Sum Assured v/s Sum Insured

SA is the pre-agreed sum that the insurer pays in case of a death of the insured. The sum insured (SI), is the compensation paid to the insured for his losses. SI is generally a term used in insurances other than Life. For example, if you have a car insurance of Rs 2 Lac, you will get upto 2 Lac in case of any damages to the car.

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Don't Let your Insurance Policy Lapse

The markets are falling on their head. There is bad news all around. People are losing their jobs. Companies are shutting shops. So, what would one do to cover their finances? First thing that comes to mind is dip into your investments to get money. After all this was the day that you have been saving for...

But then there are certain investments that one makes with a goal in mind. It would be better if one doesn't touch those. Your insurance policy can be one such investment. If you have a ULIP (the type that gives better returns only if invested for long periods), you should keep it as is and better keep your premium going as well. 

For a ULIP less than 3 years old, your insurance will lapse as soon as you skip a premium. There is a grace period of 30 days, during which the premium continues though. If the grace period is over, the policy lapses and the insured no longer enjoys the insurance benefit.

For a policy older than 3 years though, it assumes a paid-up value. This means, the policy would remain in force even if the premium is not paid. The cost of insurance is deducted from the fund value and thus the policy continues as long as the fund value is sufficient enough to cover the expenses.

What should one do?

If your policy is less than 3 years old, continue your premium. You could change the mode from annual to monthly or reduce the sum assured in the plans which allow this such as Birla Sun life Platinum plus.

If the policy is already lapsed, insurer gives you up to 4 years to revive the same. However, later you revive, the more expensive it can get. You may also have to undergo medical tests. With in 6 months from the lapsation, all you have to do is to pay all the premiums and the policy is revived. But after 6 months, you will have to pay an interest amount (12-18% of the premium) as well as you may have to appear for a medical test.

So it is in your best interest to pay the premiums reguraly so that the policy as well as the cover continues.

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Deposit Insurance and Credit Gaurantee Corporation

Off late there has been a lot of talk about some commercial banks going bust/bankrupt. And thus there was a rumor of depositors losing money that was kept in the bank.

I was searching on the topic and came to know about this corporation (DICGC). DICGC works on the safety of all the depositor's money kept in savings a/c, FDs etc with the banks. Almost all the banks in India are a part of this corporation and thus the money should be safe enough.

List of partner banks

Brief History of DICGC:

The concept of insuring deposits kept with banks received attention for the first time in the year 1948 after the banking crises in Bengal. The question came up for reconsideration in the year 1949, but it was decided to hold it in abeyance till the Reserve Bank of India ensured adequate arrangements for inspection of banks. Subsequently, in the year 1950, the Rural Banking Enquiry Committee also supported the concept. Serious thought to the concept was, however, given by the Reserve Bank of India and the Central Government after the crash of the Palai Central Bank Ltd., and the Laxmi Bank Ltd. in 1960. The Deposit Insurance Corporation (DIC) Bill was introduced in the Parliament on August 21, 1961. After it was passed by the Parliament, the Bill got the assent of the President on December 7, 1961 and the Deposit Insurance Act, 1961 came into force on January 1, 1962.

The Deposit Insurance Scheme was initially extended to functioning commercial banks only. This included the State Bank of India and its subsidiaries, other commercial banks and the branches of the foreign banks operating in India.

Since 1968, with the enactment of the Deposit Insurance Corporation (Amendment) Act, 1968, the Corporation was required to register the 'eligible co-operative banks' as insured banks under the provisions of Section 13 A of the Act. An eligible co-operative bank means a co-operative bank (whether it is a State co-operative bank, a Central co-operative bank or a Primary co-operative bank) in a State which has passed the enabling legislation amending its Co-operative Societies Act, requiring the State Government to vest power in the Reserve Bank to order the Registrar of Co-operative Societies of a State to wind up a co-operative bank or to supersede its Committee of Management and to require the Registrar not to take any action for winding up, amalgamation or reconstruction of a co-operative bank without prior sanction in writing from the Reserve Bank of India.

Further, the Government of India, in consultation with the Reserve Bank of India, introduced a Credit Guarantee Scheme in July 1960. The Reserve Bank of India was entrusted with the administration of the Scheme, as an agent of the Central Government, under Section 17 (11 A)(a) of the Reserve Bank of India Act, 1934 and was designated as the Credit Guarantee Organization (CGO) for guaranteeing the advances granted by banks and other Credit Institutions to small scale industries. The Reserve Bank of India operated the scheme up to March 31, 1981.

The Reserve Bank of India also promoted a public limited company on January 14, 1971, named the Credit Guarantee Corporation of India Ltd. (CGCI). The main thrust of the Credit Guarantee Schemes, introduced by the Credit Guarantee Corporation of India Ltd., was aimed at encouraging the commercial banks to cater to the credit needs of the hitherto neglected sectors, particularly the weaker sections of the society engaged in non-industrial activities, by providing guarantee cover to the loans and advances granted by the credit institutions to small and needy borrowers covered under the priority sector.
With a view to integrating the functions of deposit insurance and credit guarantee, the above two organizations (DIC & CGCI) were merged and the present Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence on July 15, 1978. Consequently, the title of Deposit Insurance Act, 1961 was changed to 'The Deposit Insurance and Credit Guarantee Corporation Act, 1961 '.

Effective from April 1, 1981, the Corporation extended its guarantee support to credit granted to small scale industries also, after the cancellation of the Government of India's credit guarantee scheme. With effect from April 1, 1989, guarantee cover was extended to the entire priority sector advances, as per the definition of the Reserve Bank of India. However, effective from April 1, 1995, all housing loans have been excluded from the purview of guarantee cover by the Corporation.

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What is an Insurance?

Insurance works on the concept of pooling of risk. In the ancient times, merchants started this concept by poling the risk of their cargoes being sunk in the sea. They started pooling money which would be used to compensate the damages occurred to the merchant whose cargo sunk.

The same concept has been carried forward to the modern day insurance, where one can insure not only his cargo/vehicle but also his health and life!

In India, insurance can be broadly classified into 2 categories:

1. Life Insurance: Financially covers the family against the death of the insured.
   
2. General Insurance: Protects several areas including health, property, professional liability and many more.

Striking a balance between the cover needed and the premium paid for the cover is very critical to get the optimum value.

Here are certain factors that should be considered before deciding ona particular insurance policy:

The probability and impact of the event to be covered:

Before taking a particular insurance, one should assess the probability of the event and its possible impact on the individual and family.

Suppose, you own a shop in Mumbai, and want to cover the shop against earthquake! This is a rare event and might not happen very frequently. But the damage would be significant in case it occurs. So, you may go for an insurance. As the event is infrequent in nature and the probability is low, the premium may be very low.

But the same event will have a high premium in JAPAN, as the earthquakes there are frequent and the probability is high.

For life insurance, the impact varies based on the age of the person and the number of dependents.

Adequate Insurance:

That you have a cover is not enough. You should make sure the cover is adequate enough to cover the damage. You should evaluate your future worth in case of a life casualty and then go for the cover depending on that.

Affordability:

This is a major factor while taking an insurance cover. Too much premium would be a burden on your purse an too low premium will not serve the purpose. You should do some calculations to get the adequate cover with the most affordable premium.

Income Tax:

While the premium paid can be used to reduce the tax liability under 80-C, one should not be guided by this. By doing so, you would not consider what is best for you and go for the one with maximum premium.

Do not treat Insurance as an Investment:

This is a fallacy that is present in almost everyone's mind. Treat insurance as a safety net in case of you not being there for the family and invest separately to make your money grow!

Several studies have proved that un-bundling of insurance and investment aspects lead to a better overall result. This will however call for the investing discipline on the part of the policyholder.

Watch this space for more on insurance basics.

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