Life Insurance : ULIPs vs Traditional Products

Until end of August this year, the bulk of the life insurance products sold by insurance companies was ULIPs (Unit Linked Insurance Plans). Almost 70% of the new business premium earned by the life insurance companies was through ULIPs. The entire life insurance distribution machinery touted ULIPs as the ideal investment cum insurance product. While ULIPs were the flavour of the reason, there was a slightly unfortunate reason for them being pushed so much by the distributors- and that was because ULIPs had very high commissions for the person who was selling it, sometimes as high as 70% of the first year premium. Policy administration charges were high, surrender penalty was exorbitant and mis-selling was rampant. And finally, the cookie crumbled- first SEBI came down heavily saying it had a right to regulate ULIPs because they were essentially mutual funds masquerading as Insurance, and then IRDA cracked the whip laying down stringent criteria for the ULIPs. Commission were reduced,  charges were minimized, and overall transparency was improved. In an ideal world, ULIPs became a great product for the consumer. But we do not live in an ideal world.  While the ULIPs of today are far more aligned to customer interests, we find that there is no zeal and fervour to sell them on the part of the distributors. The very agents who were pushing ULIPs down the throat of unsuspecting customers do not consider ULIPS as the flavour of the season anymore. They have now fallen back upon the traditional products where IRDA has not laid down any guidelines for commission level.

Thus we find that traditional products sales have suddenly taken off. This is primarily because these products now allow the insurance agents and distributors to earn their fat commissions, and not because suddenly traditional products are better for customers than ULIPs. On the contrary, today, a ULIP is a great savings and insurance product.

If we look at the data coming out, we see that 50% of Reliance Life’s product sales are now traditional products, whereas a year ago, only 15% was through traditional products. Birla SunLife now generates 30% of their premium through ULIPS as compared to only 8% through ULIPs a year earlier. In the case of ING Vysya Life insurance, only 10% of their sale is through ULIPs now. All the insurers narrate the same story about how they are trying to reduce their reliance on ULIPs . But the real reason for the decreased importance of ULIPs is because the insurer can not pay enough commissions on ULIPs to keep the distributors happy due to the IRDA guidelines. And thus, they are resorting to selling traditional products. So next time, your friendly neighborhood agent espouses the virtues of a traditional life insurance product, do know that the real reason for the promotion is something completely different!

Claims payment record of the Private Insurance Companies

As we know, there are 20 odd private life insurance companies in India, and there is LIC which is a public sector company. LIC is the 800 pound gorilla, managing to hold on to about 75% market share even 10 years after private companies have been allowed into the life insurance space. The private life insurance companies position themselves on being more customer friendly, wider array of products etc while LIC holds on to its positioning of trust, experience and government backing. One of the key parameters on which to judge a life insurance company is their claims payment record. At the same time, we must note that given that life insurance has become more of  a savings and investment product, the returns that they provide are perhaps more important than claims payout ratios. Nevertheless, claims record is definitely not a variable to be ignored.

 
A table illustrating the claims rejection percentages of the top life insurance companies in 2009-10 is presented below:

Life Insurance Company	Claims rejection ratio (%)
LIC	1.21%
Aviva	9.75%
Bajaj Allianz	5.2%
Birla SunLife	10.62%
HDFC Life	4.67%
ICICI Prudential	3.27%
ING Vysya	4.26%
Kotak Mahindra	4.29%
Max New York Life	12.31%
MetLife	5.94%
Reliance Life	7.05%
SBI Life	14.75%
Tata AIG	12.3%

An important observation from the above table is that the claims rejection ratio of LIC is the lowest, thus implying that their record is the best as far as claims payment is concerned. At the same time, the very high percentage of claims rejection of SBI Life and Max  New York Life surely comes in as a surprise.

It must however be noted once again that in Unit Linked products that life insurance companies promote aggressively (or at least was promoting till Sep 2010) , the returns earned on the fund is perhaps a more important variable than the claims payment (or rejection) ratio. However, for non life insurance companies, which offer pure protection/insurance products with no savings or investment component, claims payment is the crucial variable along with the speed of processing of claims.

Let us now look at the incurred claims ratios of the non life insurance companies:

Non Life Insurance Company	Incurred claims ratio
New India Assurance	89%
Oriental Insurance	99.69%
United India Insurance	78.62%
National Insurance	99.16%
Royal Sundaram	68.95%
Reliance  General Insurance	77.3%
Iffco Tokio Insurance	83.44%
Tata AIG	60.54%
ICICI Lombard	85.35%
Bajaj Allianz	71.9%
HDFC Ergo	80.73%
Bharti Axa	104%%

One data point that stands out from above is that Tata AIG General Insurance seems to be sourcing the best quality business from the underwriting point of view, whereas the claims payment ratio of Bharti Axa seems to be quite high. Alo,the claims payment ratio of the public insurers, at an overall level, is higher than that of the private non life insurers.



Claim settlement record of Indian Insurance Companies

An insurance contract between the insurance company and the insured is one of trust. The moment of truth in this relationship appears when there is a claim by the insured (in the case of a non life policy) or by the dependents (in the case of a life insurance claim). Till that moment comes, everything is hunky dory- premiums are being paid regularly by the clients, and the insurance company is only too happy receiving them. However, the moment a claim appears, an insurance company proceeds to evaluate the claim closely, as every claim paid out is an expense for the company, hurting profitability. Thus, there is a basic conflict here: the insured wants the maximum claim to be paid, while the insurance company would like to reduce the claims outflow to the extent possible.

From a customer’s point of view, it is very important to study the claims settlement history of a life insurance or a general insurance company before deciding to purchase an insurance policy from that company. During the sales process, the sales representatives will be all sugar and honey so that the prospective customer signs up. But the fact of the matter is that if the insurance company you are considering has a bad history of claims settlement, there is a high probability that you will face a claim rejection or reduction when the time comes for you or your nominees to file a claim.

We had a close look at the claim settlement data of the various insurance companies. This is what that data tells us:

LIFE INSURANCE: Apr ‘09-Mar ‘10

Life Insurance Company	Total Claims (%)	Claims Paid (%)	Claims refused (%)	Claims pending at year end (%)
LIC	100	96.54	1.21	1.41
Private Insurers	100	84.88	7.6	7.48
Total	100	95.24	1.93	2.08

NON LIFE INSURANCE :Apr ’09- Mar ‘10

Category	Public Sector	Private Sector	Total
Fire	81	73	80
Marine	76	86	78
Motor	88	80	85
Health	120	92	111
Others	57	57	57
TOTAL	88	80	86

The table above clearly reveals that the Public sector insurance companies are more generous in terms of paying claims. The life insurance data shows that LIC pays almost 97% of the claims while the private life insurance companies pay about 85% of the claims. The same pattern is revealed in the non life insurance sector also where on an overall basis, the claims ratio of the public non life companies is higher than that of the private general insurance companies. However, one needs to be careful here before jumping to a conclusion. It could very well be that in the public companies are sourcing the wrong kind of business with lax underwriting norms, whereas the private companies would be more stringent at the entry time itself. However, the worrying part is the claims denied ratio of the private life insurance companies which is over 7%. In the case of a life company, the claim is a death. There can be no ambiguity here- someone is either dead or alive. The repudiation figure of 7% seems mysteriously high here.

In the next post, we will delve deeper and look into the claims breakup at the individual private company level.

Tax Savings through Insurance Plans

Come December and the mad scramble for investment proofs starts. Your employer's HR department will demand the details of the tax saving instruments that you claim to have done to save on your income tax every month. If you are not able to furnish those tax proofs, the rebates given to you will be reversed and it might happen that your take home salary in Feb and Mar is far lower than normal. So let us try and understand how you can avail the maximum tax advantages through savings instruments.

Life Insurance is a very popular way of saving on your tax liabilities. Section 80 C of the income tax states that investments upto Rs 100000 on life insurance and unit linked plans can reduce your tax liability by Rs 30,000, thereby making the effective premium Rs 70,000. On top of that, the maturity proceeds on your life insurance policy are tax exempt. This is the govt way of incentivising you to invest in life insurance as a long term savings instrument. Most probably, you already have availed of some tax benefits through your company PF etc. So if the PF contribution is Rs 40,000 for the year, the balance amount of Rs 60,000 can be easily invested in a life insurance policy. What makes the unit linked policies more attractive now is that the charges have been drastically reduced by IRDA a few months back. Lower charges essentially mean that the investment returns will be higher for you, as you are paying less for the insurance agent's commission as well as the management fees etc of the insurance company. Also, the fact that lapsation charges have been significantly reduced makes it a safer instrument in case you cannot continue the policy in the next few years. The only question you need to consider before putting in your money in a Unit Linked policy is whether the stock markets are already at a high level (Nifty at 6000). But then, it is impossible to time the markets (pl dont believe the CNBC guys) and any time is a good time to start. In the long term, your unit linked life insurance policy should do well. Be on your guard if the insurance agent tries to sell you a non unit linked/traditional product. Chances are that he is pushing this life insurance policy only because his commissions are higher.

Apart from this savings of Rs 1 lakh that you can make for a life insurance policy, you can save upto Rs 10,500 in tax through a health insurance policy. That is the maximum tax savings if you pay Rs 15,000 as premium for you and your immediate family, and Rs 15000 for your parents. Realistically speaking, the health insurance premiums that you pay would not be more than Rs 10000 to Rs 15000, on which you would save Rs 3000 to Rs 5000 of tax. Tax savings aside, if you do not have a health insurance policy, it is very important to consider having one. Health care costs, especially private health care in top tier hospitals, have spiked up exponentially and medical costs have the potential of financially crippling someone. In the United States, health care emergency costs are one of the leading causes of financial bankruptcy. A five day hospitalization can easily cost upwards of Rs 1 lakh. Before buying a health insurance, it is also useful to do a comparison of the premiums charged by different health insurance companies, as the rates can vary as much as 40% to 50% among companies. Sites such as www.policytiger.com can help you compare in a minute and make available the cheapest and best health insurance plan.

All said and one, one should have insurance for the sake of financial security. However, it does not hurt if there are attractive tax benefits to incentivise the purchase.

Growth of medical tourism in India

While we fret about the rising healthcare and health insurance costs in India, there is the growing trend of tourists from Western Europe, North America and the Gulf visiting India to get themselves treated. This is primarily because of the fact that healthcare costs in India still are significantly lower than in the West, and the quality of healthcare at these private hospitals is comparable to the best in their home countries. A heart valve replacement which costs USD 8000 in India could set the health insurance company back by as much as  USD 150,000 in the United States. A crude rule of thumb is that surgery in India typically costs 1/10 of what it would in the US. Another problem that many of these visitors face is that many of the procedures that they would like done are not considered critical (elective) by their local healthcare system, and thus they would not be able to avail of them under their health insurance policy in their countries. Even though aftercare can become an issue, the benefits far outweigh the negatives as far as these visitors are concerned.

 

Hospital groups such as Max, Apollo, Fortis etc have aggressive sales arms focusing purely on the medical tourism aspect. Cardiology, cardiothoracic surgery, knee replacement, and cosmetic surgeries are the most in favour as the cost differential is especially marked across these areas. Many of these hospitals have started entering into agreements with the international health insurance companies to reimburse the cost of healthcare of these visitors. In 2007, according to a study by Deloitte, India received almost  half a million medical tourists. The annual growth rate for medical tourism is estimated at 30%. McKinsey estimates that this will be a USD 2 Bn market in 2012. The global medical tourism market is worth USD 60 bn, and thus there is a big scope for India to get a larger share of this pie. The Indian government has been keen to tap this market, and has introduced one year special medical  visas for visitors.

One ill-desired offshoot of growing medical tourism is that the healthcare costs charged by these private hospitals might end going up even for domestic patients. The hospitals, which run as for profit corporate entities, do not need much time to get used to the concept of higher revenues, and will assume it as their natural right (greed, greed!). We have seen that in the IT Industry- as offshoring through India took off, IT costs that the key companies such as Infosys, Wipro, TCS charged to their Indian clients went up. At the end of the day, this is a labour arbitrage game, and with time, the differential will reduce. But that still seems quite some time away. There is something inherently seductive in getting your knee replaced, tummy tucked,  and walking around the monument of love, the Taj Mahal!

Another issue that some activists have is that most of these corporate hospitals have been set up using massive subsidies in the form of cheaper land, lower financing costs and tax breaks. Thus, in a sense, the subsidies are being transferred from the Indian tax payer to the affluent, well heeled tourist. Though there are regulations regarding the free healthcare quota that these private hospitals are subjected to, they find their way around it- like in most things in our country.

Ways to resolve your grievances against insurance companies

Insurance companies not staying on their commitments is not a new thing for policyholders. There are examples galore on the subject. A person underwent 3 surgeries simultaneously with the total cost amounting to Rs 33K. When the claim was lodged the TPA said that though the surgeries were pertaining to 3 different body parts but were conducted at the same time, hence the eligible claim was only Rs 10K. 

Despite the person explaining that the company would have to shell out larger amount of money had the insured decided to undergo all the 3 surgeries at different times, the company still didn’t agree. Ultimately the insured approached the Insurance Ombudsman who held that the eligible claim was Rs 30K.

It’s not that the policyholder is at the mercy of the insurance companies. The IRDA has recently come up with certain regulations that protect the interests of the policyholders and has promised that the Insurance Ombudsman would be empowered further.

While regulations coming into effect may take a while, one must get acquainted with existing grievance redressal infrastructure and the procedure to be followed to make oneself heard.

Level One: For complaints registration, most insurance companies provide various channels like branches, phone call, e-mail as well as snail mail to policyholders. If the customer services department is not helping one can approach the company’s grievance redressal officer. Insurance companies are also required to maintain a well-defined procedure for receiving and resolving grievances at their branches, too.

Companies have to specify a time frame within which different types of grievances must be resolved. While they can decide the time limit, they are required to send a written acknowledgement within 3 working days of the receipt of the complaint. Any failure to do the same would make the companies liable for penalties.

The insurance company will have to inform the individual with the acknowledgement if the complaint is resolved within 3 days or else they will have to resolve it within 2 weeks of the receipt of the complaint & send a final letter of resolution. If the company decides to reject the complaint, it has to give a valid reason with information on further redressal avenues that the insured can pursue. If one does not react within eight weeks from the date of receiving the insurer’s response despite being dissatisfied with it, the company will assume that the complaint has been resolved.

Level Two: If the redressal officer didn’t help one can approach the IRDA’s Grievance Redressal Cell or the Insurance Ombudsman, depending on the nature of the complaint. The Ombudsman’s offices are authorized to mediate and award compensation to policyholders. They can handle cases involving insurance contracts upto INR20 Lakhs.

The Ombudsman makes recommendations within 1 month of the receipt of the complaint. Once one receives a copy of the recommendation, he/she has to send a written communication indicating the acceptance of the settlement within 15 days. The insurance company also has to comply with the order given by the Ombudsman. If still unsatisfied with the verdict, one can approach the civil courts or consumer forums.

The kinds of complaints that can be heard by the Ombudsman are the ones that relate to ejection (whether partial or total) of claims, in addition to disputes about premiums; policy wordings in case the disputes relate to claims; delay in settlement of claims and non-issuance of any insurance document after collecting the premium.

Irda’s Grievance Redressal Cell

Unlike the ombudsman, this redressal cell does not have the authority to pass orders but complaints addressed to the cell are taken up with the insurers which could include delay or lack of response pertaining to policies or claims and complaints about agents’ conduct.

The awareness about Ombudsman is still very low, IRDA’s campaign has been creating awareness about the recourses available to the policyholders. The toll free number widely publicized is 155255. One can approach the cell directly and he/she will be redirected to the Ombudsman under whose jurisdiction the complaint falls. One can get in touch with cell via email or snail mail as well (info is available on IRDA’s website).

One must ensure that the complaint is sent by him/herself because the ones forwarded by third parties including lawyers or agents are not entertained by the cell. The complaints with incomplete information are also not heard. Therefore, it is very important to disclose all the details in the complaints registration form available on the insurance regulator’s website.

One must be alert while dealing with insurers and follow laid down for the proper solution to the problem.

Inclusion of Ayurveda, Unani & Siddha in Health Insurance : A Possibility

Domestic Healthcare systems such as Ayurveda, Unani & Siddha might very soon be treated on par with Allopathy when it comes to medical insurance. This might be recommended by a committee formed by the insurance council. The Department of Ayurveda has asked the General Insurance Council to look into the possibility of including the non-allopathic means treatment for accepting claims under health insurance. A presentation has been made to the council members, who in turn, have formed a 3 member committee to look into the matter.

The committee comprises of CEOs from Star Health, Max BUPA and Apollo. This committee would examine the merits & demerits of the proposal and would then recommend processes to implement if it is convinced about the inclusion of such medicines under health insurance. The IRDA will take a call on the matter. A majority of India’s population resort to alternative means of treatment which is recognized by the Indian Government but not by the insurance industry. Most of the insurers who operate under a joint venture with a global company say that there is no established way to verify such claims and no data to rely upon as well.

In allopathic treatments there are scientific studies and they know how long a treatment will take and how much would it cost. But under alternative means such as Ayurvedic they do not have enough data to cover them. Curing an ailment under alternative medicine means mostly takes a long time (in some cases years) and they do not have a structured way of looking at the data. But under allopathy, it’s more immediate and easily manageable.Practitioners under alternative means have no registrations and there’s no one body that recognizes hospitals/institutes that treats such patients.

The Health and Family Welfare ministry has been pushing such alternative means so hard because these are affordable and a majority of people make use of domestic expertise in these areas. Allopathic medicines are quite expensive even for people living in the urban areas.

The Department of Indian Systems of Medicine and Homeopathy was created in March 1995 and re-named as Department of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy, or Ayush, in November 2003 to develop education and research in those fields. In conclusion the inclusion of Ayurveda, Unani & Siddha in Health Insurance is a Possibility.

Mediclaim Portability: Soon a Reality

Here’s some really good news coming for all the medical policyholders with IRDA saying that portability will soon be introduced. The customer will now have the opportunity to find an insurance carrier that better suits their needs and lifestyle. Policyholders who are not satisfied with their current provider will be able to switch to another health insurer without any change in the premium outgo.

The facility will be available to policyholders who are insured for a sum of 1,00,000 and above. Currently, the health cover given to any policyholder has to be renewed every year and if there’s no claim the policyholder is entitled to a bonus in the form of an increased sum and for every claim-free year this bonus gets accumulated.

The industry and the regulator are working on the minimum benefit that would be carried forward in case of change in the insurer as two insurers do not generally have the same mediclaim policies. The regulator is also considering portability for car insurance.

There are several benefits on the basis of which policyholders can compare different policies provided by various insurance players such as hospitalization expenses, day-care procedures, effects of cumulative bonus and various types of illnesses covered under critical illness domain. Besides the service factor, policyholders can also compare insurers on the basis of denial of their policy renewal and the increasing costs of their renewal premiums. Medical insurance portability will be most useful for the higher aged people, as currently they have problems in changing insurers even though they might be dissatisfied. This is primarily because the new insurance company treats the policy as completely fresh, and the diseases which might have been covered by the previous company are now treated as pre-existing.

So the policyholder can now switch their insurer if they are getting rude replies from their executives and are not satisfied with any of their services without any change in the premium.

In a country like India where medical insurance penetration is merely 6-7%, the new ruling when put into practice by the insurance regulator, would bring a big fillip to the industry as more competitive and customer friendly services are most likely to be provided to the policyholders.

We do hope that medical insurance portability in its basic form will be introduced shortly as we have been hearing about it for quite some time now.

Health Insurance Claims to get time-bound

After showing a lot of leniency, public sector insurance companies have finally decided that they will deny claims to policy holders if they fail to submit the relevant documents post discharge within the stipulated time period. This will help check fraud in the reimbursements process.

Many private insurance companies have flatly refused processing of claims if the relevant documents have not been submitted beyond the specific number of days. By doing so they have been able to control their adverse claim ratios.

Public sector insurance companies are now saying that health insurance claims have to be submitted within seven days from the discharge date. In certain cases, the insurance company will entertain claims upto 15 days from discharge date. However if the claim is beyond 15 days from the discharge from the hospital, then this has be approved by someone at the regional manager level.

Toriental Insurance company also asks its TPAs to get the papers from the policyholder within 7 days as specified in the policy and in exceptional cases, these papers can be submitted within 30 days.

New India Assurance Company has also approached the Insurance Regulatory and Development Authority (IRDA) to allow them to curtail the stipulated period for submission of claim paper from the existing 30 days to seven days.

An official from New India Assurance Company said that an internal analysis has shown that allowing an inordinately long period post hospitalization for claims to be made only benefits the fraudsters from putting in fraudulent health insurance claims. The more the time available, the more time the scamsters have to prepare fraudulent papers in support of their claims. It is difficult to carry out investigation with the hospitals for claims that come in many months after discharge.

However , one also has to note the fact that just because the patient has been discharged does not mean that he (s) has been completely cured and there might need to be significant post hospitalization claims. A balance needs to be struck in terms of fixing the timelines for your health insurance claims.

Insurance Premiums: Stay fit and pay less

If you are not in the best of your health, then you certainly have to miss out on the discounts that insurance companies give out on insurance premiums. Insurance companies reward the healthy with lower insurance premiums and loyalty benefit programmes. This may not yet be true for health covers but life insurance companies are giving out term covers at cheaper rates. As the health insurance market evolves, we expect to see lower health insurance rates for people with better health indicators even though they may be of the same age.

It is very well known that non-smokers and women are charged lower premiums on most life insurance policies. A host of other factors besides smoking play a major role in determining the premium. The health of the person to be insured plays a critical role in underwriting the life. If a person has hypertension, diabetes or is obese, his/her premium will be higher as the risk to the company is higher as compared to a healthy person. A 40 year old person suffering from diabetes may have to shell out double the amount for premium as compared to a healthy person. Adverse medical conditions are rated according to the severity  and combination of conditions.

If you fall into the category of high net worth individuals (HNIs) things get much better. Besides offering discounts to non-smokers and women, some insurers like ICICI Prudential Life, Birla Sun Life, SBI Life and Kotak Life offer a special category of term policies, primarily aimed at affluent individuals. Given their lifestyles, insurance companies presume that they are less prone to diseases and have lower mortality rates as they take better care of their health & have easy access to good healthcare which further ensures that they are hale and hearty most of the time.

Even within this category there can be smokers, non-smokers and preferred non-smokers. A preferred non-smoker is the one who does not suffer from any ailments at the time of buying the policy in addition to abstaining from tobacco. Max New York Life has introduced three different underwriting categories based on lifestyle. Discounts could be as much as 36% . When it comes to conducting medical tests like ECG, some insurance companies also offer home visits to avoid any inconvenience caused to the HNI policy holders.

The policies which can be bought only after stringent tests are primarily targeted at well heeled individuals but the cover is certainly not available at throwaway prices. The underwriting process that the proposer has to go through is also very stringent. The tests could include blood profile, ECG, microscopic urinalysis (MSU) and urine cotinine test (for non-smokers) depending upon the insurance seekers’ age and life cover chosen.

As compared to unit-linked insurance plans (ULIPs), money-back policies, endowment schemes etc Term Plans definitely qualify as the best option. While they do not promise any returns after the completion of the term but they fulfill the basic purpose of obtaining a life insurance policy which is replacing the insured’s income to ensure that the dependents are financially secure even in the absence of the breadwinner.

There are also online insurance premiums comparison sites that can guide you with proper information.

How to save on Insurance premium

With inflation at an all time high of 9%, everyone is thinking of how to reduce their bills. If one can save on the insurance premiums, it will definitely not hurt. The total cost of your health, life and auto insurance policies puts you back by a few thousands every year. If you have bought a traditional plan, the sum would be well over 50K per annum, so even a 25% cut in that expense can help you save INR 12,500. You must be wondering if that’s possible without compromising on the total sum assured and we would say ‘Yes,that’s possible”.

Quit Smoking

Companies like Birla Sunlife, Kotak Life, Max New York Life and Met Life have special term plans to offer to non-smokers, which are cheaper by 20-40%. For example, a 30 year old man who is a non-smoker can buy a Rs 25 Lakh preferred term plan from Kotak for Rs 3943 a year, however a smoker of the same age will have to cough up Rs 1500 more for the same plan. Over a 25 year period, a non smoker can easily save Rs 37,500- and not to mention all that one would save on cigarretes! There’s a catch here that these schemes are not available for term plans with a lower cover. For example, Kotak and Met Life offer this discount only if the sum assured is more than Rs 25 lakh. So one must compare these special policies with other term plans and opt for the cheapest option.

Pay Annually

Higher the premium payment frequency, higher is the premium outgo due to loading. For a 40 year old male, a 25 year term plan with Rs 25 lakh sum assured from Aegon Religare would cost Rs 987 per month or a total of Rs 11,844 for a year. However, if annual payment mode is chosen, the premium would be Rs 11,350 which is Rs 500 less than the monthly payment mode.

Go for Family Pack

Individual health plans are always expensive and you are most unlikely to use up the entire cover. For instance, if you have a family of 4 and you have bought individual policies of Rs 5 lakh each, you’ll have to shell out anywhere around Rs 30,000 for the same and the total medical expenses of the entire family would rarely touch Rs 20 lakhs. So, it’s far better to go for a family floater health insurance plan under which all the family members can share a cover of Rs 5 lakh. One can thus save around Rs 10,000 a year. And if you have a chronically ill or old person at home then it’s always better to get an additional cover for them.

Use Group Advantage

One can also reduce the health premium covers by extending the employer-sponsored group insurance to his/her family. These plans are 20-25% cheaper than family floater plans. The actual cost of these plans depends on the scope of the cover, past experience of the insurer with the company and the number of employees in the organisation. But they are certainly cheaper that individual or floater plans.

Apart from all this, different insurers offer different rates for similar policies. It is very difficult to get a good sense of the rates and do a price comparison unless you do thorough comparison of insurance premiums online through sites

Family Floater Health Insurance : Is it the best choice always?

If you have no one who is financially dependent on you in your family, you can simply go without a life insurance policy but a health insurance cover is something that cannot be ignored. The reason for it is that the soaring costs of healthcare and the unforeseen event of hospitalization can hit your financial health very hard. So it is prudent to go for a good health cover without thinking of a good time to come. If you are thinking of a health plan for the entire family, the following things have to be kept in mind:

The primary advantage that a family floater provides is that all the members can be insured through a common, mini group health policy rather than individual policy. The premium paid is less than what it could cost if each of the members were to buy a policy, and also administratively it is simpler to maintain than managing 4 or 5 policies, as the case may be. However, a big disadvantage of this health policy is if one member needs to draw down the entire sum in one policy year- in that case, the other members are effectively going without a health insurance cover.

Here’s an example of a family of 4 members-father, mother, son and daughter. Let us see how the individual and family floater plans work for them.

1). If one takes a family floater policy of Rs 5Lakh or if one takes an individual policy of Rs 3Lakh each for each of the family members. Now if the father falls ill and gets hospitalized and the hospitalization expenditure is Rs 4lakh then in the family floater plan the entire sum would be payable while in the individual plan only Rs 3lakh would be payable.

2). If the individual policies were also of Rs 5Lakh each then there would not have been any impact on the claims but the overall cover would have been much higher. Let us say, apart from the father who fell ill and incurred expenses of Rs 4lakh, the mother was also hospitalized and incurred an expenditure of Rs 3 Lakh. In this case, the family floater plan would have paid them only Rs 5lakh while the individual plans of Rs 5Lakh each would have covered the entire expenses of Rs 7 lakh on both the father & the mother. Of course the total premium paid would be higher in the case of the individual health plans.

In a family floater plan, along with the issue of cover, another factor that comes in sometime is that when the primary insured member reached the maximum age of renewability or if he/she dies, the whole policy gets closed and cannot be renewed even by the family members who are younger and who survive. They have to buy a fresh policy which they may or may not get. Also, once the children reach the ages of 21-25, they cannot be the part of family floater. They have to buy a new policy which they may or may not get. In case of any of the conditions above the family may be left uninsured for any risk arising out of hospitalization and getting insurance at a higher age may not be possible due to various health conditions that may have come up in that duration.

In the final analysis, a family floater health insurance is a convenient mini group policy, but in certain extreme cases might prove to be inadequate.

How to File a Claim after Hospitalisation

The recent confusion & noise over withdrawal of cashless mediclaim in some hospitals has forced several policyholders to pay from their own pockets during hospitalization and subsequently file for a cliam.

While cashless is the most convenient feature, if one follows the necessary procedures as suggested by the insurance company, he/she can ensure that the reimbursement doesn’t turn out to be a tedious task.

While filing the claim for reimbursement, the following few points need to be kept in mind.

You need to collect all the bills, discharge summary, diagnostic reports, medical advice from the doctor pertaining to the post- period, and cash receipts upon discharge. The final & complete bill needs to be verified before signing the same. Any inflation in the bills would mean lower sum insured available for the rest of the year and it could also pose as a roadblock to claims processing.

All the original documents related to the treatment have to be submitted to the insurer, if claims processing is being done inhouse or to the designated TPA once you are out of the hospital.

Never wait for the TPA or the insurer’s claim processing cell to ask you for the documents once the claims process commences. It is advisable to submit all the documents in the beginning at one go. This will eventually help remove any delay in the claims processing.

Any costs that have been incurred 30 days pre or 60 days post hospitalization will also to be reimbursed by the insurer, so any documents pertaining to the same cause have also to be submitted.

You should also acquaint yourself with the exclusions and sub-limits in the policy while claiming a reimbursement to avoid surprises later.

Treatment of piles & cataract is not covered in the first year. Pregnancy is not covered in most of the individual mediclaim policies. Dental treatment and outpatient department expenses are also not covered in most of the policies. Any tonics, vitamins or equipment like a pacemaker or a wheel-chair, too, could be excluded by some insurers from the scope of coverage.

After submission of your documents, the TPA or the insurer’s claim processing cell reviews the same & arrives at a decision on settling the claim & the extent to which the claims can be reimbursed.

The insurer reimburses the amount within 21 days from the date of the submission of all the relevant documents. Intimation letter is sent to the policyholder in case of any queries or rejection of claims. Get info on handling claims and compare insurance policies.

IRDA bans Credit Default Insurance

Credit Insurance Plans have been put into a complete ban by IRDA as it was being practiced rampantly by some non-life insurers. Credit Insurance is a kind of cover or guarantee to the lender against payment default by borrowers. IRDA has ordered all general insurers to stop selling credit insurance plans until any further detailed notice is issued by them in this regard.

Since only a smallish number of loans carry credit risk protection, the decision is unlikely to increase the total credit risk of banks. The Authority has also asked for details of total exposure of the insurer under the credit insurance plans issued by them to the banks offering credit facility to the debtors. The credit insurance that is being marketed by the several insurers is better termed as credit default insurance. It’s basically a security cover which provides protection to the borrower of a loan against the inability to repay the loan.

A recent case of credit insurance cover which resulted in a claim is that of the state-owned insurer Oriental Insurance Company selling such a cover to Paramount Airlines. The insurer provided cover to the airline’s lenders from different branches to the tune of INR 200 crores. Several state-owned lenders have an exposure to the company, which along with other troubled airlines are trying to restructure it’s debt.

Recently, some scam also came into limelight wherein unscrupulous brokers were conniving with borrowers. The broker armed with a letter from a international reinsurer saying it is willing to provide reinsurance underwriting support, along with the borrower would approach an insurance company for credit insurance cover. Reinsurance support is similar to loan syndication where deep-pocketed underwriters share the credit risk. When there used to be a claim, the insurance company discovered there were problems with the technicalities in the contract which allowed the international reinsurer to escape liability and the local insurer was left with the claim.

When compared, credit insurance is quite similar to credit default swaps which earlier brought down the international insurer AIG. Get more info and also compare insurance quotes.

Insurance Joint Ventures in India : Who calls the shots

A majority of Insurance Companies who operate in India through JVs with Indian firms exercise significant control in terms of decision making despite having just 26% stake. The agreements signed during the JV incorporation has such terms that it reduces the decision making powers of the majority stake holding Indian promoter.

For instance, we have Bharti AXA which is a JV between Indian Telecom major Bharti & French Financial Services major AXA. The agreement between them has such terms that it allows the foreign minority stakeholder to call the shots despite having just 26% stake.

If any decision is to be approved at Bharti AXA, their articles of association (AOA) says that a majority opinion of the directors alone is not sufficient, if it does not include an “affirmative vote of the Axa director”. Domestic laws allow any shareholder with a 26 per cent stake to veto proposals, though decisions are based on the majority opinion.

Initially, the Insurance Regulatory & Development Authority stressed on foreign investors paring their stakes in local insurance arms if they also held a stake in a company that was part of the Indian promoter group. Over the years, however, weaknesses have crept into the system.

Bharti Axa is not the only example. The articles of association for Max New York Life Insurance also have specific clauses to provide the foreign partners veto power in key management decisions.

In the case of Max New York Life Insurance, if certain decision is to be taken by the JV or its subsidiaries, prior approval of a majority of the board of directors, including approval from at least one director appointed by Max India and one appointed by New York Life, is needed. These conditions nullify the majority enjoyed by Max and make New York Life an equal partner in decision-making.

Foreign partners in these JVs have always insisted on inserting protection clauses to ensure that they are not sidelined once the Indian arm gets the know-how of how to run an Insurance Business.

There are some 5 to 15 areas where protection is available depending upon the comfort level between partners. Majorly, the areas include capital, which ensures that the Indian partner cannot raise its stake without the explicit consent of the foreign players. Investment and underwriting policies and protection of the balance sheet areas are the other areas where both the partners are “equal shareholders”.

Finally, there seems to be a need for the Government to specify the objectives in placing caps in each sector & also to study how the present caps are working in practice.

Consumers should compare insurance quotes and policies for various Indian Insurance Companies online before deciding on their insurance company.

Is LIC India’s most valuable company?

When privatization of the Insurance sector started in 2000, many experts were predicting the gradual weakening and ultimate demise of Life Insurance Corporation of India (LIC0). The state owned life insurance monopoly was perceived to be slow, inefficient and behind the curve. But the situation has turned out drastically different.
In the face of intense competition, LIC has held on to its own and still commands an awesome 70% of the market share . Even more interesting is the fact that in recent months and years, this percentage has gradually creeped up. While the private life insurance companies have tended to pay higher commission margins to their distributors so that they can generate more sales, LIC has been conservative in their commission payouts and generated sustainable, profitable business.

So what then is LIC’s worth. With 2 crore policy holders, assts of Rs 11 lakh crores and 71 % market share in a growth market, LIC’s embedded value has been estimated to be at Rs 2.5 lakh crores, give or take a few thousand crores. Embedded value is essentially the present value of profits from the future, and adjusted net asset value. The recent capping on ULIP charges that IRDA has mandated will help LIC in sales as they have a huge bouquet of traditional products. On top of that, a buoyant stock market and an economy growing at 9% can only lead to an increase in valuations. Though it is difficult to establish a clear ratio between market capitalization and embedded value, India’s most valuable company by market capitalization is Reliance Industries at Rs 3 lakh crores. LIC, with an embedded value of Rs 2.5 lakh crores is not too far from that. Add in the fact that there will be a premium attached with being the leader in a growth industry, LIC can easily command a market capitalization higher than Rs 3 lakhs, were it ever to list in the stock market. And thus become India’s most valuable life insurance company!!

Compared with the valuations that Insurance companies have in China, this will not be surprising at all. China Life commands a market cap of 111 billion USD. LIC could very well have a market value of in excess of 65 billion USD, ie approximately Rs 3 lakh crores.