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.

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.

Basics of Term Insurance

Term insurance is the purest, simplest and perhaps the most useful form of life insurance. Under a term insurance policy, the policyholder pays a premium for a fixed term ( which is typically between 5 and 30 years) . If the policyholder survives the duration of the policy, the risk cover comes to an end. If something untoward happens during the term of the policy, the sum insured is paid out to the policyholder’s dependants.

Life insurance policies can be bought by people for various needs- savings, protection, investment and retirement. Strangely, In India, in all the excitement about ULIPs and insurance as a long term investment option, the very basic fact that insurance at its core needs to provide protection has been ignored to a large extent. And term insurance products have not been able to find their place in the sun. This is essentially due to a quirk in the distribution system where distributors are more interested in selling policies with higher annual premium as the commissions are higher. Term insurance is typically very cheap- a 35 year healthy male would be able to buy a 10 year term insurance of Rs 50 lakhs paying an annual premium less than Rs 10000.

Term insurance is also a product which is very easy to compare on the internet. Prices can vary widely between different insurance companies, and the price as well as other features can be compared in a matter of minutes. Also, this is a product that can be bought very easily online. Most life insurance companies in India offer online term insurance sale in India.

With the new IRDA guidelines on ULIPs, the protection component on all insurance policies have been enhanced to a minimum of 10 times ( or 7 times) the sum insured depending on the age of the insured. This is a welcome move and will make the insured more aware of the fact that there is a term insurance component in his policy, without it being just a pure savings or investment policy.

Another variation of term products is a product called Term with Premium Back. This is primarily done so that the insured, if he survives the term of the policy, is returned all the premiums that he has paid at the end of the policy term. This is popular in India because people feel that they will at least get their money back. But the fact is that there is no free lunch, and the premium for the same degree of cover is far higher for Term with Premium Back then it is for a pure term policy.

How does one judge the level of term insurance that one needs : various rules of thumb are used. At a basic level, 10 times the annual income if one is below 45, and 5 times the annual income if one is above 45, might be a good starting point. But then, it is difficult to generalize well.

As a term insurance product is a form of pure insurance, there is no surrender value, paid up value or loan available against term policies.

Term insurance premiums are a function of the person’s age, gender, policy term, general health and lifestyle habits. The older the person is, the higher will be the premium. The premium for a lady is lesser than it is for a gentleman the same age as female life expectancy rates are typically higher. The longer the duration the policy, the higher is the annual premium as the life insured will be insured at a stage when he is older, and thus has a higher probability of a negative event. Smokers typically have a far higher premium than non smokers. If one is obese or has preexisting diseases, then the premiums go up. For most high value term policies above 35 years of age, a medical test is required.

Term insurance can also be bought along with riders such as Accidental death and disability (ADD), Critical Illness (CI), Permanent Total Disability etc. Each of the riders has their own benefits and cost, and the user has to choose judiciously and buy what is useful.

Who should buy term insurance?

Term insurance policies are suitable for people who wish to obtain maximum insurance coverage at a minimal cost. Ideally a term insurance policy should be bought early and is best suited for the age group of 25-50. Term insurance should also be bought for credit protection- if one has taken a huge loan for an asset, it is wise to cover one’s life for the loan amount so that if something happens to the loan holder, the burden of the loan does not fall on the family members.

What to look for in term insurance policy before buying?

Choosing the best term insurance policy is very easy. As term plans just offer pure risk cover, a good comparison between the products of various insurance companies can be done on the basis of the premium charged for the same insurance cover. One should also consider the tenure or term of cover that you can buy. Finally, the term insurance that offers the maximum term at the lowest possible cost should be bought.

Cashless Health Insurance Claims | What is going on??

General Insurance companies have taken the battle to the hospitals. In a move that is aimed at reducing the exorbitant level of hospital claims and cost, the four public General Insurance companies (New India, National, Oriental and United India) have decided to stop/reduce the facility of cashless health insurance claims in the top hospitals of the country. About 100 of the preferred partner network hospitals (PPN) have been struck off the list from July 1, 2010. Most of the renowned, branded private hospitals have been removed from the list of hospitals where cashless health insurance claims are entertained.

What is a cashless claim: The cashless claim feature has been primarily designed for the benefit of the insured. Under this, whenever the insured person has a hospitalization claim, s/he does not have to pay the hospital bills but the bill is directly paid by the insurer to the hospital. Thus, there is no cash outflow from the patient. In theory, this is great as it eliminates the cash outflow from the patient.

But where is the problem: the problem has been that because the bill is directly settled by the health insurance company, the financial stakes of the patient has become nil under the cashless claim and s/he has stopped being bothered about how much the hospital is charging. This has been a boon to the hospital as they can charge as much as they want from a price indifferent patient. In this entire process, the fact that for a tripartite agreement to work , there has to be a stake for all the three parties has been violated. All the risk has been passed on to the insurer.

At the same time, reducing cashless will still prove to be a huge inconvenience for the genuine insured person who has cash flow issues in paying directly upfront for the exorbitant hospital costs. In this entire process of trying to do away with the cashless facility, are we throwing the baby out with the bathwater.

One good solution could be that for any cashless facility, there has to be a mandatory co-pay option. This would lead to the consumer (i.e the patient/insured) to have a financial stake as a part of the bill would need to be paid by him, and thus he would be conscious that the hospital is not overcharging.

There is another point to note here: why is it that the claims ratio (around 115%) of the public general insurance companies is far higher than that of the private general insurance companies. The basic fact is that the public companies have far lesser controls than the private players, which opens it up for potential misuse. An overall overhaul of their management practices might be more efficient in reducing the claims ratio rather than by stopping cashless claims. The danger in the path that the public health insurance companies is taking is that their customer base could move away to the private health insurance companies.

The latest noise that one is hearing is that the public health insurance companies will be extending the cashless facility on a case to case basis, whatever that means. There is also talk of a new grading system for hospitals. There has also been news that a 10.3% service tax on the cashless claim amount has to be paid by the TPA to the hospital. In effect this would mean that around 10% of the claim cost would get transferred to the insured. In the case of reimbursement (instead of cashless facility), this claim will not be there. The final word is yet to be written on this issue.