Insurance innovation: Health cover portability

Health insurance market has become competitive following the introduction of portability which allows customers to switch companies without losing their "no-claim" benefits. Although prices have not come down, companies are offering better features. 

The latest is a health policy by Apollo Munich where the sum insured is reinstated in full after a claim. Under the health plan "Optima Restore", if the policyholder uses up the sum insured for any ailment, the sum insured will continue to be available for any new ailment. 

Earlier in October, L&T General Insurance had launched a new plan that reinstated the sum insured if the policyholder had an accident. Apollo Munich has extended the reinstatement for all ailments and is also offering the feature on a family floater plan. Family floater plans are covers where the same sum insured is available for all members. Under "Optima Restore" even if a family member uses up the sum insured the cover is once again reinstated after the claim. Also for those who do not claim, the sum insured will double in two years under a multiplier scheme. Other insurers such as Bajaj Allianz General Insurance are using direct marketing to sell policies through the internet. 

Until now, it was largely property covers like fire insurance that had a reinstatement clause. This allowed for the sum insured to be restored and the cover to continue for the rest of the year for any subsequent claim. According to Antony Jacob, CEO, Apollo Munich Health, despite the additional benefits the price has been kept competitive compared to plans of companies that do not the reinstatement option. He said the company every month sees around 1,000 policyholders from other companies choosing to shift to Apollo Munich. 

Besides the introduction of portability, innovation in health insurance is being driven by monoline companies like Apollo Munich that specialize only in health insurance. Other specialist companies include Star Health andAllied Insurance and Max Bupa Health. More recently, Cigna has entered into a tie-up with TTK Group to provide health insurance in India. 

IRDA issues uniform norms to ensure solvency of insurance companies

Insurance regulator IRDA today introduced uniform asset-liability management norms for market players to ensure their solvency and asked firms to undertake stress tests to ascertain their ability to meet financial obligations in the event of a crisis.
The Asset-Liability Management (ALM) norms, IRDA said, are "critical for the sound management of the finances of the insurers that invest to meet their future cash flow needs and capital requirements."
The guidelines, which would come into effect from April 1, 2012, make it mandatory for insurance companies to prepare an ALM policy and have it approved by the Insurance Regulatory and Development Authority (IRDA) by March-end.
With regard to stress-testing, IRDA has asked the insurance companies to determine their ability to meet financial liabilities after taking into account factors like a 30 per cent fall in equity values and a one percentage point decline in yields on fixed investments, among others.
IRDA has issued these guidelines to bring about uniformity in the ALM norms being followed by both life and non-life insurance companies.
Upon examination of the extant norms being followed by insurance companies, IRDA found they were "incomplete and inconsistent. As the mandate by the authority was very broad, each insurer had adopted their own measures in reporting such details".
The insurers, it said, would have to put in place effective procedures for monitoring and managing their asset-liability positions to ensure that their investment activities and asset positions are appropriate to their liability, risk profiles and solvency positions.
The ALM policy should enable the insurers to understand the risks they are exposed to and develop ALM policies to manage them effectively, IRDA said.
In addition, the ALM can be used to measure the interest rate risk faced by insurers, it added.

Muthoot Finance NCD: Go with the 2-year option

The NCDs of Muthoot offers some margin of safety in terms of loan to value, investment grade rating.

The latest in the stream of companies offering non convertible debentures (NCDs) to retail investors is Muthoot Finance, India's largest gold financing company. It is making a public issue of secured NCDs with two year, three year and five year options. We suggest that investors with some risk appetite can take up the two year NCD which offers a 13 per cent annual rate of interest.

The issue

A 13 per cent rate of interest on a debt instrument offers an opportunity for investors to obtain higher yields resulting from a rising interest rate scenario. Secondary market yields on the slightly higher rated AA securities with a residual maturity of two years, are almost two percentage points lower than the rate offered by Muthoot which makes it an attractive instrument. Deposit taking NBFCs with slightly better credit profile are offering anywhere between 9.55-10 per cent on deposits with similar tenors.

Bank deposit rates for a two year tenor stand at 9.25 per cent; however they are not fully comparable as they offer a safe alternative (deposits upto Rs.1 lakh are insured).

Apart from attractive rates, the secured nature of Muthoot's lending (loans against gold) offers some margin of safety in terms of loan to value, investment grade rating (CRISIL AA-) and strong track record with 70 years of experience in gold financing business support the investment. An AA- rating is defined as carrying “very low credit risk”, however, a minus sign indicates lower standing of the company among all the AA rated companies.

Investors can avoid the three year and five year instruments as the 0.25 percentage point higher than the two year rate of interest doesn't really make up for the risks of holding on for a longer tenure.

About the company

Gold loans account for 99 per cent of Muthoot's assets under management with predominant exposure to South India. It has a low proportion of non-performing asset (gross NPA ratio of 0.31 as of June 2011) thanks to gold as collateral. Muthoot has made profits in at least last seven fiscal years. It has 120 tonnes of gold against which it lent at average loan-to-value of 72 per cent. The issue also gives comfort from the gold price movement perspective. Gold prices may continue to remain firm for some time given its safe haven status.

The assets under management are close to Rs 18,000 crore. The interest spreads (difference between interest earned and interest expended) of Muthoot was 10.9 per cent for the quarter ended June 2011. The company has been raising money from retail investors for quite some time through private placement of secured NCDs. As of June 2011, retail NCD borrowings accounted for 26 per cent of overall borrowing. The capital adequacy ratio of Muthoot is strong at 19.2 per cent as of June 2011 as against mandatory requirement of 15 per cent.

A word of caution

Muthoot Finance is the fifth non-banking finance company (NBFC) to come up with a public issue of NCDs in the last couple of months. It is also fourth company in as many weeks to hit the market with secured NCD issue. Given such high dose of NCD issuances, investors should avoid allocating too large a portion of their portfolio to such NCDs.

The issue carries a minimum investment amount of Rs 5,000. The offer opens on August 23 and closes on September 05; with the company having an option to pre-close the issue. The allotment is on a first-come-first-served basis. The issue size is Rs 500 crore with an option to retain another Rs 500 crore oversubscription. NCD holders can trade in these debentures in the secondary market (NSE and BSE) on listing. However, investors are subject to liquidity risk given that volumes traded of such bonds are low.

Get the highest interest rate of 9.16% for tax-saving Infrastructure Bonds!‏

IFCI Ltd, the country’s oldest development finance institution, has come out with the second tranche of long-term infrastructure bonds for the current fiscal. These bonds will offer an additional deduction of up to Rs. 20,000 under section 80CCF of the Income-tax Act.


Main features

The bonds come with two maturity periods—10 and 15 years—and offer both the annual and cumulative interest payout option. You can buy either in physical or dematerialized form. They come with a lock-in period of five years after which you can trade them on BSE Ltd.

Buy-back option: This option empowers an investor to tender the bonds back to the company and redeem their investment before the maturity. For 10-year bonds, the buy-back option would be available at the end of five and seven years. For 15-year bonds, the buy-back option can be exercised at the end of five and 10 years.


What do you get?
The 10-year bond is offering an interest rate of 9.09%; the rate is 9.16% for the 15-year bond. So if you invest Rs. 20,000, your corpus would stand at Rs.47,740 and Rs. 74,472 after 10 and 15 years, respectively. If you take into account the tax implication, the post-tax return in case of 10-year bonds works out to be 10.98% for those in the 30.9% tax bracket; 10.22% for those in the 20.6% tax bracket and 9.60% for the 10.30% tax bracket. In case of 15-year bonds, the post-tax returns would be 15.35%, 14.82% and 14.40% for those in the highest, middle and lowest tax brackets, respectively.


Is the investment safe?
IFCI bonds have been rated BWR AA– by Brickwork Ratings India Pvt. Ltd and CARE A+ by CARE Ratings (Credit Analysis and Research Ltd). Rating agency ICRA Ltd has provided LA. The higher the rating, more secure is the bond. IFCI’s capital adequacy ratio at the end of September stood at 19.3%, much above the regulatory requirement. But since the firm focuses on infrastructure financing, a downturn in infrastructure sector can have an adverse impact on its finances.


What should you do?


As returns on Public Provident Fund (PPF) are not taxable, PPF works out to be better option than infrastructure bonds over 15 years. At present, even five-year bank fixed deposits score over these bonds since most banks are offering a higher interest rate than what these bonds are offering. Go for infrastructure bonds only if you have exhausted your 80C limit of Rs. 1 lakh.
IFCI bonds are offering a higher return compared with the other two infrastructure bonds—from IDFC Ltd and L&T Infrastructure Finance Co. Ltd—currently open for subscription. However, IFCI bonds have a lower rating that the other two and hence carry higher risk.

SBI Life Smart Elite Review

SBI Life Smart Elite Review

---

Plan Name: Smart Elite
Insurer: SBI Life Insurance Company Limited
Category: Unit Linked Insurance Plan
Objective: Financial protection of family and good return on investment

SBI Life Smart Elite Plan has two variants:
Gold Option: It is Type I ULIP where under death clause, you will receive higher of Sum Assured or Fund Value
Platinum Option: It is Type II ULIP where under death clause, you will receive both Sum Assured and Fund Value.


There is inbuilt accidental death and accidental total and permanent disability which pays additional Sum Assured if the death occurs as a result of accident.


Benefits of SBI Life Smart Elite

---

Maturity: The fund value as on maturity date will be provided to you.


Flexible Sum Assured: You can increase or decrease the life cover as per your requirements.


Settlement Option: Instead of lump sum amount on maturity, you can choose to receive the amount in installments over the next few years.


Eligibility for SBI Life Smart Elite

---

Minimum Entry Age: 18 Years

Maximum Entry Age: 60 Years
Maximum Age at Maturity: 65 Years
Policy Term: 5 to 20 Years
Premium Paying Term: 5/8/10 Years, Single, Policy Term
Minimum Premium: Rs 150,000 Annual Mode


Returns in SBI Life Smart Elite

---

Any ULIP’s performance is directly dependent on the performance of the fund which in turn depends upon equity and debt market. If the market is rising, it will automatically reflect on your returns.


SBI Life has six funds available ranging from conservative to aggressive. If you have higher risk appetite and are for long term you can opt for aggressive fund. On the other hand, if you have limited investment period, you should go for conservative fund.
In a typical scenario, you will be able to get at least 10% return on investment. The investment risk is borne by the policyholder.

What charges does SBI Life Smart Elite deduct and how much?

---

The premium amount paid by you is not invested directly. Initially, some charges are deducted and then units of the fund are bought. The rest of charges are deducted by cancellation of the units.

Premium Allocation Charges: These charges are deducted as percentage of premium. Insurer deducts these charges on account of expenses incurred by the company – medical examination, policy issuance, underwriting bills. Premium allocation charges is 3% of annual premium and deducted till the end of 5^th year.


Fund Management Charge: Charge ranging from 0.25% to 1.35% is deducted from the units for fund management.


Policy Administration Charge: These are monthly deductions which start from first month and are for maintaining the policy- paperwork, work force etc. The monthly policy administration charge is INR 60.

Mortality Charge: These are charges deducted as a part of life cover provided and are recovered through cancellation of units.


Other Charges: There is charge for switches, partial withdrawal after the limited free number have been utilized. Accidental benefit charges are deducted through cancellation of units.

Are there any tax benefits?

---

Under Section 80C you can avail tax benefit, yearly premium (not more than 1lac) will be deducted from taxable income.

Under Section 10(10D) death claim is completely tax free.

What else should I know about?

---

Top-Up premium: Not available

Switch: Switch is made to transfer the fund value from one fund to another. You can make two free switches per year.

Partial Withdrawal: If policyholder is above 18 years partial withdrawal can be made and the minimum amount is Rs 5,000.One free partial withdrawals can be made per year.

Grace period: Smart Elite can be renewed within 30 days from the premium due date. Additional 30 days are given after notice has been sent to revive or discontinue the policy.

What to do?

---

To Cancel Policy: Smart Elite plan can be cancelled within 15 days of receiving the policy contract. A written application can be submitted to any branch for the same. The premium will be paid back minus some charges like stamp duty, medical reports.

If you want to cancel policy after the initial period of 15 days, you can do it but the amount will be paid only after lock in period years. If you cancel policy within 5 years from inception, the amount will grow at interest rate of 3.5% compounded annually. After five years, if you cancel the policy, there will be no cancellation charges and amount will be paid immediately.

How can I buy MetLife Easy Super?

---

I NIVESH Money representatives will assist you in buying Easy Super.
Just Visit www.inivesh.com or call +91 8976 001001

Just got to know how to get a LIfe Time Income..!!!

Was just having my evening tea..to shed of my laziness...phone rang..with utter relentless i picked up the call just to hear that the person on the other side was offering me a plan which can guarantee me LIFE LONG INCOME..immediately I was with him.. all my senses trying to get the best ...here is what i was told ...

I have to pay Rs. 100000/-for 15 years ..from 6th year i will get a cheque of Rs.36000/-...from 10th year it will increase to Rs.72000/- plus 5%gauranteed amount of the 12 Lakh insurance cover that i am getting with the plan which will come to Rs. 60000/- so a total of Rs 132000/- .there is more to it...tht after 20 yrs my yearly income will go up to 160000/-...tht means for next as many years i live i will receive an amount of 160000/-. On the face of it the offer looks quit lucrative..

but the catch is...

I deposited a total of 15 lakh rs..which if invested in a RD (recurring deposit) would atleast get double.. that means it would be 30 lakhs after 15 years..if you calculate a simple interest of 8% which any bank FD will give..the amount that i will receive yearly would be Rs. 240000/-..now the question is even if I have to pay a tax of MAX. 30% then also i will start receiving Rs. 160000/- after 15 years..and BEST PART IS my FD of 30 lakhs can be liquidated any time i wish to..whereas this Life Long Income Plan does not give you any option to get out of it..if any time I wish to surrender the plan I WILL ONLY RECEIVE 30% OF THE PREMIUMS THAT I HAVE PAID..that means after paying for 15years if I wish to withdraw from this plan for my child’s education I will get only 5 lakhs..so before opting for this plan please make sure that you have made adequate arrangement for that..!!!

have fun..and your valuable comments r awaited..

regards,

pranay