Insurance for HIV Positive People in India

Insurance for HIV positive people in India may soon become a reality. In one of its most humanitarian moves, Insurance Regulatory and Development Authority (IRDA) of India has asked insurance companies to put in place a board approved underwriting policies with respect with life insurance for people living with HIV/ AIDS. The underwriting policy is to cover clear guidelines on life insurance with people living with HIV/AIDS (PLHA). IRDA has also asked the insurance companies to put in place underwriting policies for health insurance offered by life insurance companies to people acquiring HIV/AIDS after the commencement of insurance policy. Guidelines also facilitates conversion of the lump sum amount into an annuity for life, if the insured became HIV positive while holding the policy

Unlike India, insurance is available for the HIV people in the West. The Indian insurance market is quite aggressive on their financials and costing. The guidelines provided by IRDA are more humane and less lucrative. Experts feel that this initiative might not be welcome by the Indian Insurance Companies. That is, of course, unless IRDA decides to take a leap ahead and impose mandatory bindings on the insurance companies.

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Experts speak on FDI reforms in Insurance

Sometime back in July 2012 we had written about the first positive ripples of investment in the Insurance Sector. We had discussed about the possibility of increasing the FDI investment cap from the erstwhile 26% to 49%. With the recent ongoing parliamentary discussions this possibility might soon be a market changing reality for the Insurance Business. Though we have to wait till November and hope for a smooth approval of this proposed reform, let’s have a look at how the industry is impacted and what the industry experts have to say on this:

Puneet Nanda , executive director ICICI Prudential : “Raising FDI cap will send positive signals to foreign investors and will encourage new players to enter the Indian insurance market. Increased competition will lead to the introduction of newer and lower-priced products and better service from insurance firms.”

Vibha Padalkar, executive director and chief financial officer, HDFC Life: “More companies will enter the sector because India is an underpenetrated country when it comes to life insurance products. Along with lower prices, customers will also see new products hitting the market”

Nathan Parnaby, CEO of Standard Life’s Asia and emerging markets division: “The Indian government and their finance minister are doing the right thing…We would like to look at the opportunity of increasing our stake”

[Standard Life holds 26% stake in HDFC Standard Life Insurance]

Louise Shield, an RSA spokeswoman: “We welcome the move, it’s a step in the right direction”

[RSA holds 26% stake in Royal Sundaram Alliance]

Although RSA has not expressed any interest to increase their stake in Royal Sundaram Alliance, others like Standard Life and Prudential (currently having stake in ICICI Prudential) have expressed interest to take advantage of this reform. As per market experts, Standard Life and Prudential would need around 300 million pounds and 700 million pounds respectively to increase their stakes to 49% in HDFC Life and ICICI respectively. Although a 49% doesn't give any controlling stake to either of them, it induces greater involvement and interest in business strategy, management and implementation.

From every corner of the globe we are getting positive vibes about this proposed reform. Perhaps opening up FDI in Insurance is a great way to explore the full potential of a strong market as India. We certainly hope that this move is not thwarted by unreasonable political aspirations.

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Government plan to increase FDI cap to 49% in the Insurance Sector

The decision which has been pending since May 10^th this year and which had once been rejected by the Standing Committee in December 2011 finally goes in favor of the insurance companies.  In its latest report Government seems optimistic in raising the Foreign Direct Investment (FDI) limit in the insurance sector to 49% from its existing 26%. As per the current regulation a foreign player can have a maximum of 26% stake in the insurance companies. This change of almost doubling the FDI limit is seen as a need to give a push to the reforms laid out by the Government this year.

Over the years post liberalization of the insurance segment, both the domestic companies and their foreign partners had been requesting the need for an increased participation of the latter. However the Standing Committee contended by justifying that an increased presence of the foreign companies would unnecessarily expose the Indian segment to the risk and vulnerabilities of the foreign market.  However, the panel, headed by senior BJP leader Yashwant  Sinha, had agreed on the need to bring in comprehensive changes in the archaic laws governing the insurance sector.

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SBI Life Faces Regulator's Ire

IRDA, the insurance regulator, has levied a fine of Rs 70 lakhs on SBI Life Insurance company for paying commissions to a master policy holder. As per the rules in India, Insurance companies can pay commissions only to life insurance agents, corporate agents or brokers, and not to a policyholder. There were 14 instances of commissions being paid, and IRDA has levied a fee of Rs 5 lakhs per instance, totalling to Rs 70 lakhs. SBI Life is a joint venture between SBI, India's largest bank and BNP Paribas Cardif.
In all insurance companies where one of the prominent share holders is a bank, the regulator needs to watch out for this particular practice: the bank which owns the insurance company bundles an expensive insurance policy with their loans disbursed. A retail or corporate customer, seeking a loan from the bank and at a moment in time when the bank is in a position of strength, cannot refuse the insurance policy. This is especially true if there are veiled indications that the loan disbursement itself might not go through if the preferred insurance policy is not bought.

HDFC Life Insurance

HDFC Life has stated that they are looking at listing in the Indian equity markets within the next two years. The insurance regulator, IRDA, is in the process of preparing the guidelines for listing for Indian life insurance companies. Chairman of HDFC, Mr Deepak Parekh, mentioned that they would also be looking to raise funds through the FDI route when the FDI ceiling on life insurance is increased from 26% to 49%.

In a separate development, HDFC Life has been ranked as the 40th best place to work for employees in a Great Places to Work Survey. At a time when there is a significant difficulty for attracting human talent to the Life Insurance industry because of the the challenges it is facing, this is indeed a positive development. However, a words of caution here for job aspirants: the team here at PolicyTiger, having been part of organisations which have ranked very well in the Great Places to Work Survey, does not feel that it counts for much!

Delay in Life Insurance Partner Selection for PNB

PNB, which is in the final stages of selecting its Life Insurance Partner, has announced that it will do so by September 2011. The earlier expectation was that they would decide by July.After an elaborate selection process, the list of prospective life insurance suitors has been reduced to two companies- Aviva Life and MetLife. Bharti Axa, which was also in the final round, is now out of the race post the acquisition by Reliance. One wonders why the selection process has been delayed. Some sources feel that the recent developments in the field of Bancassurance where a bank might be allowed to tie up with two life insurance partners might have brought in a new dimension to the decision. Also, PNB is looking at acquiring a substantial stake in the life insurance company that it ties up with. This practice has caught the attention of IRDA which is looking into the matter.
We will watch the developments closely and keep you informed.

IRDA guidelines for Life Insurance Companies: Continued

It is learnt that IRDA might be scrapping the requirement which stated that a life insurance company which desires to go public needed to be profitable over the past 3 years. This will come as a relief for companies like ICICI Prudential, HDFC Standard Life and Max New York Life which were otherwise eligible togo for an IPO but struggling on the profitability norm. Life Insurance Companies , operating in a business which is capital intensive, has been struggling to raise capital as the IPO norms have been strict. At the same time, they have also been handicapped by the fact that the FDI norm on Insurance has been capped at 26% and not increased to 49%. On the other hand, IRDA has come down heavily on the charges levied by life insurance companies on their customers (effective Sep 1 2010) which has reduced profitability margins of these organisations

Riders in Insurance

Riders and their use:

Riders are add-ons to insurance policies which help the policyholder cover himself financially for an additional set of risk events (and are not to be confused with Kolkata Knight Riders!!). They are the insurance industry’s innovation for customizing the insurance policy to the extent possible, while keeping a standardized base policy available. Riders provide additional risk protection, and thus the policyholder has to pay a risk premium. In most cases, riders can only be bought in conjunction with the base policy at the time of initial purchase, and cannot be added later. Riders are optional, provide pure risk, and do not have any investment or savings element to them.

Most riders are added on to Life Insurance policies, and have a significant tilt towards health related risk. Of late, we have seen that Motor insurance policies also have begun to offer riders along with the base policy.

Since the riders are typically bundled in with the base policy, they do not have any additional administrative charges or customer acquisition charges,  leading to a low cost.  IRDA has capped that the maximum premium that is paid for riders cannot be more than 30% of the base policy cost. Any benefit arising out of an individual rider cannot exceed the basic sum insured.

The issue in India is that the insurance sales agent is competing on price, and wants to convince the prospect to buy an insurance policy by showing him low price. When a rider is added on, the price of the insurance policy obviously goes up. Thus there is not much thrust on riders at the point of sale, leading to a take up rate for riders which is far lower than its potential.

Some of the most popular Life Insurance Riders are :

a. Double Sum Insured rider (mostly in Child Policies): In the event of a death to the parent, the sum insured is paid to the child (or guardian) at the time of the death, and an additional sum insured is paid at the maturity of the policy.

b. Critical Illness Rider (or Dread Disease rider): In this rider, the sum insured is paid to the life insurance policy holder in the unfortunate event of the policyholder contracting a critical ailment such as heart attack, renal failure, cancer etc. In most cases, the sum insured is paid to the policyholder and the policy terminates. Critical illness riders become more expensive with age, as the probability of contracting a critical disease increases. In certain cases, the insurance company would refuse the rider coverage to the insured due to their health condition at the time of entry. Thus it is better to buy the Critical Illness rider at a younger age.

c. Accidental Death and Permanent Total Disability rider Through this rider, an additional sum insured is paid to the nominee (in case of death) or to the policyholder in case of a permanent total disability.

d. Waiver of premium rider: This rider triggers in when the insured becomes completely financial unproductive (say through an accident or a disease) and is at the risk of not being able to earn. Under this rider, the insurance company takes on the responsibility of paying the premiums till the policy maturity at which stage, the sum insured (or the fund value) is paid to the insured

e. Spouse Insurance rider or Joint Life Rider: Through this rider, the insured and the spouse can be covered through a single policy. Sum insured is paid to the surviving member in case of death to one of the insured.

f. Guaranteed Insurability rider: Through this rider, you purchase the option of increasing your life cover at any significant life stage (marriage, birth of children etc ) which might increase your financial liability without needing to go through a medical examination.

g. Surgical assistance benefit rider: This rider provides much needed financial assistance to the insured during the time of a medical procedure needing surgery for 43 surgical procedures.

h. Investment Guarantee Riders: In case of negative market returns, this rider guarantees claim value to the extent of premiums paid.

Some of the Motor Insurance riders are :

Zero depreciation rider: Through this rider, the car owner can ensure that in the case of any claim, he is paid the full cost of claims on parts such as tyres, bumpers, windscreen etc. In the situation where the rider is not opted for, the insurance company would only pay the depreciated value of the parts whereas you, as the owner, would have a substitution cost which is much higher for the new parts

Return to Invoice rider: This rider ensures that in case of an accident or theft where the car is a total loss, the full invoice value of the car is paid to the car owner

Payments made towards riders (except Critical Illness and Health riders ) enjoy the benefits of Income Tax exemption under section 80C of the Income Tax Act. Critical Illness rider enjoys tax benefits under section 80 D. Proceeds received in the case of a claim are tax exempt under section 10 (10 D )

Max New York Life reports PAT of 283 crores

Max New York Life Insurance has reported an impressive set of numbers for FY10-11. Profit after tax has increased to Rs 283 crores from a low Rs 24 crores in the last fiscal. This growth is especially impressive given the new ULIP regulations that came into force from 1st Sep, 2010. However it would be interesting to see if they can carry forward with the same momentum in profits in the current year, given the new tighter regulations.

Max New York Life recorded a total premium collection of Rs 5800 crores. New business premium was Rs 2050 crores while renewal premium was Rs 3750 crores. The total assets under management of the company is Rs 13800 crores.

Max has mostly traditional ( non ULIP products) under their portfolio which is why they have been affected less by the new regulations. Also the fact that they have the Bancassurance relationship with Axis Bank well established will provide them additional fuel for their growth.

IndiaFirst Life to infuse Rs 120 crores of Capital

Indiafirst Life, a relatively new entrant into the life insurance space in India, has announced its plans of infusing another Rs 120 crore of capital into its business, taking the total paid up equity capital to Rs 550 crores. A JV between Legal and General, Andhra Bank and Bank of Baroda, IndiaFirst Life generated Rs 900 crores of premium in the first 500 days of its operation. Led by the redoubtable Dr NandaGopal and blessed with a strong distribution in the south and west due to its parents, IndiaFirst is poised for impressive growth. It has announced aggressive plans for expansion in Chennai and is in the process of setting up an extensive agency force.

It is headed by P Nandagopal, an industry veteran who was earlier the distribution head of Birla Sun Life and the CEO of Reliance Life. The team draws heavily from the Reliance Life team, and it would be interesting to follow the progress made by this company in the coming months and years.

Edelweiss Tokio Life received final IRDA approval

Edelweiss Tokia Life has received the final approval required to write life insurance policies in India. The company received the final R3 licence and is hopeful of writing policies from July 2011 onwards, subject to the products being approved by IRDA. Led by Deepak Mittal, Edelweiss Tokia Life is the 24th Life Insurance Company in India. It would be interesting to follow the product and distribution strategies adopted by Edelweiss Tokia Life, given the capping `of charges on Unit linked Policies effective Sep 2010.The Edelweiss stock has also been under significant pressure over the last few months, and this might be a positive trigger for the stock. Given that Insurance penetration is only at 4.5% in India, Edelweiss Life sees a significant potential for growth in the Indian insurance market

Life Insurance Industry Performance: Apr 2010-Mar 2011

The annual sales figure of the Indian life insurance industry for 2010-11 are now available.

This has indeed been a tumultuous year for the industry, with the new regulations on Unit Linked Insurance Plans (ULIPs) coming into force from Sep 1, 2010. In certain cases, the private life insurance players have had a sales dip of as much as 35% post the new regulations taking effect. However, the overall dip has got masked due to the robust performance in the first half of the financial year. Gradually, the life insurance industry is finding its feet post the regulations and reported traction in sales during the month of March, 2011. The biggest beneficiary of the new regulations has been LIC, the big daddy of insurance in India.

At an overall level, the life insurance industry has reported a growth of 15% over the previous year. The industry grossed new business premium of Rs 1.26 lakh crores in FY10-11 over Rs 1.09 lakh crores in FY 09-10. However, most of this growth was accounted for by LIC which recorded a 22% increase in premium to Rs 86,444 crores from an earlier 70,891 crores. In the process, LIC increased its market share of the overall life insurance market by 4% from 64.86 % to 68.7%.

The private life insurance players, with a combined premium of Rs 39,381 crores and a market share of 31.3%, reported only a 3% growth in new business premium in this financial year. However, that tells only part of the story. In the last 6 months since when the ULIP regulations came into force, the private life insurance industry would have had a significant de-growth which has been hidden by the stronger performance prior to the regulations taking effect.

The New business premium and the market share of the private players is as follows:

Company New Business Premium in (Crs) Market Share
ICICI Prudential........7861............................6.3%
SBI Life................7571............................6.0%
HDFC Life...............4065............................3.2%
Bajaj Allianz...........3462............................2.8%
Reliance Life...........3035............................2.4%
Birla Sunlife...........2077............................1.7%
Max New York............2060............................1.6%
Tata AIG................1331............................1.1%
Kotak Mahindra..........1253............................1.0%
Canara HSBC OBC Life....823.............................0.7%
Star Union Dai-ichi.....759.............................0.6%
Aviva...................745.............................0.6%
IndiaFirst..............705.............................0.6%
Met Life................704.............................0.6%
ING Vysya...............660.............................0.5%
Shriram Life............575.............................0.5%
Future Generali Life....449.............................0.4%
IDBI Federal............445.............................0.4%
Bharti Axa Life.........362.............................0.3%
Aegon Religare..........275.............................0.2%
Sahara Life.............91..............................0.1%
DLF Pramerica...........74..............................0.1%
Total...................39381...........................31.3%

Clearly, the top 5 private players are ICICI Prudential, SBI Life, HDFC, Bajaj Allianz and Reliance Life while there are 14 life insurance companies at a market share of less than 1%. A detailed look at the business premiums of the private companies throws up a list of companies which have had a significant increase in premium, while at the same time, a few have lost ground. IndiaFirst Life has recorded a significant increase of 250% premium growth, though on a significantly low base. DLF Pramerica and Aegon Religare have also shown an increase on a low base, but the most impressive increases are for Canara HSBC Oriental, HDFC Life and ICICI Prudential Life , all of whom have recorded increase of +25%.

IndiaFirst..............250%
DLF Pramerica...........98%
Aegon Religare..........83%
Star Union Dai-ichi.....46%
Shriram Life............37%
Canara HSBC OBC Life....29%
HDFC Standard...........25%
ICICI Prudential........24%

However, a few private life insurance companies have registered significant degrowth. MetLife, which lost the Axis Bank relationship, registered a decrease in premium income of as much as 34% (it is in the final shortlist for the PNB Bancassurance relationship, and could possibly make up the lost ground). Birla SunLife’s new business premium was 30% less than last year, while Bajaj Allianz Life Insurance had a 22% decrease.

It would be interesting to see how the life insurance industry performs in the current financial year, which would be the first full year since the watershed regulations on ULIPs took effect. In the long term, the changes brought about would be healthy for the life insurance market in India. The pensions product, which used to account for 30% of the market and for all practical purposes was killed by the new regulations, would also come back to life in this financial year as IRDA is planning to bring about changes from its earlier guidelines. All in all, it promises to be an interesting year ahead.

Edelweiss Tokio Life receives R2 approval from IRDA

Edelweiss Tokio Life, the 24th life insurance company in India which is a JV between Edelweiss and Tokio Life , has received the R2 licence from India. Before an insurance company can commence operations, it needs to go through a 3 stage licensing process- R1, R2 and R3. At the R1 stage, IRDA evaluates the promoters and at the R2 stage, evaluates the business model of the company. In a few months, Edelweiss Tokio Life should be in a position to write life insurance business.

As mentioned in an earlier blog, EdelWeiss Tokio Life is led by Deepak Mittal who was earlier the CFO of Edelweiss. It will be interesting to see the strategies of Edelweiss evolve in this reasonably competitive market where the annual premiums are expected to reach Rs 10 lakh crores from the current level of Rs 2 lakh crores in the next decade. The acquisition of Anagram Stock Broking by Edelweiss should give some degree of distribution presence to the life insurance venture.

Child Insurance Plans

Child Insurance Policies are very popular in India, and life insurance companies aggressively sell these policies in India. In this article, we will try and understand the concepts involved in a child insurance policy.

At its heart, a child insurance plan is essentially a endowment plan with a fixed term . It is more of a marketing story rather than an innovation in a life insurance policy. Insurance being essentially a rather dry, emotionless subject, a child insurance policy helps deliver an emotional connect for the life insurance company with the end consumer.

In a child insurance policy, the parent (s) is the sum insured and the beneficiary is the child. Typically, the child's age would need to be less than 18. The basic objective of the child insurance plan is that in case something happens to the parent, this policy ensures that the child's education, marriage etc does not suffer. In the happy situation that there is no untoward incident happening to the parent, this policy ensures that the parent has saved regularly for the child's better future.

One additional feature that has been built into many child insurance plans is waiver of premium and double sum insured. Double sum insured means that in the case of the parent's death, the sum insured is made payable to the child and another sum insured (or maturity value) is paid at the time of maturity of the policy. Waiver of premium means that after the parents death, no additional premiums need to be paid even though the policy continues and regular additions are made to the fund value by the life insurance company. These benefits (riders) of course come at a price but are extremely helpful to the child in case of the unfortunate death of the parent.

There are traditional child insurance plans (which link everything to sum insured and bonuses) and unit linked child insurance plans (ULIPs, which link everything to fund value). Under the present scenario where charges have been drastically reduced in ULIPs, and also because this is a long term savings instrument, one would recommend a Unit Linked child insurance plan over a traditional product. There are many child insurance plans in the market- Aviva's Young Scholar, Bharti Axa's Future Champs, HDFC Life's Young Star, Max New York Life's Shiksha Plus II etc.

ULIP sales take a beating

Sales of Unit Linked Insurance Plans (ULIPs) have substantially declined in 2010-11 over the previous year. This was mentioned by the IRDA Chairman during a FICCI organised event in Delhi where he mentioned that ULIP sales have gone down by as much as 15% over the previous year. A public row between SEBI and IRDA brought in new regulations for ULIPs from September 1 wherein charges and commissions were dramatically reduced. We feel that this had made a very attractive product category for the end consumer, but the tragedy has been that the life insurance distribution force has been reluctant to sell it due to lower payouts. 

It would be interesting to see whether this 15% decline is for the full year, or whether it is from September 1 when the new regulations came into effect. In case the decline is at an annual level, the real decline would be much more as the new regulations were in force for only 6 months.

In the long term, however, we feel that the market will tide over this and the new regulations will be healthy for the market. The level of misselling leading to record lapse rates would come down through these new regulations. In the short term, we expect to see higher level of sales of traditional life insurance policies.

Indian Insurance market to be USD 400 BN by 2020!

A recent report by FICCI and BCG has suggested that the Indian Insurance market will grow to USD 350-400 BN by 2020, and will be the among the top three insurance markets in the heart. This sensational headline has warmed the hearts of many, and made everyone excited about the potential of the industry. It is worthwhile to bear in mind that the current market size is around Rs 3 lakh crores, which is USD 70 bn. So we are talking about a 5 times increase in the next 10 years. We feel this is too aggressive and is more a headline grabbing, stand out from the clutter, screaming for attention news item.

We would actually pay far more attention to some of the other items that the report mentions: 

1. Profitability is a huge issue for the Insurance industry in India, with the non life insurance industry having accumulated underwriting losses of Rs 30,000 crores and the life insurance industry have cumulative losses of Rs 16,000 crores

2. The agency model, the main distribution channel, is still proving to be unprofitable for the life and non life insurance sector

3.Insurance companies' obsession for topline growth has contributed to a inefficient, non sustainable operating model

4.Auto claims fraud, third party liability for motor and high level of claims for health insurance is crippling the general insurance industry in India

5. The recent tightening of charges for ULIPs has taken the wind out of the sails of the life insurance companies in India

IndiaFirst Life achieves sale of Rs 900 crores

IndiaFirst Life, which is a late entrant into the area of Life Insurance in India, has generated a creditable Rs 900 crores of premium in the first 500 days of its operation. IndiaFirst is a  joint venture between Legal and General, Andhra Bank and Bank of Baroda. It is headed by P Nandagopal, an industry veteran who was earlier the distribution head of Birla Sun Life and the CEO of Reliance Life. The team draws heavily from the  Reliance Life team, and it would be interesting to follow the progress made by this company in the coming months and years.

PNB in final stages of selecting Bancassurance Partner for Life

Punjab National Bank, the second largest bank in the country, is in the final stages of selecting its life insurance partner. In a rigorous selection procedure, more than 40 companies  expressed their interest .Subsequently, PNB has arrived at the final list of 3 life insurance companies- Aviva Life, MetLife and Bharti Axa Life- and has dropped companies such as Birla Sun Life and Reliance Life from the list 

This deal is not a pure distribution arrangement but also an equity participation arrangement wherein PNB will acquire a substantial stake in the final insurance company that it selects. Axis Bank had entered into a similar sort of arrangement with Max New York Life where they had acquired about 5% stake in Max. In this case, the stake that the insurance company would need to offer would be significantly higher as all the three companies shortlisted would be having lower valuations than Max New York, and PNB is a larger bank with more branches, and thus brings more to the party. The other variable that has changed since the Max New York and Axis Bank is that life insurance valuations have got depressed since the new IRDA regulations effective since 1st Sep 2010.

This deal could be a potential game changer for the winning life insurance company as PNB has a huge branch network (5000 + branches). MetLife lost their largest partner Axis when Axis decided to tie up with Max after Shikha Sharma joined Axis. Aviva Life has also lost a few bank partners of late and Bharti Axa Life does not have any significant Bancassurance partner. We expect very aggressive bidding by all the three players left in the fray.

PNB is being advised by BCG, the consulting firm, through this selection process. Once PNB is done with this selection process, they would in all probabilities initiate the process for selecting the non-life partner.

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.