IDBI Federal Life's Term Plan for senior citizens

The fundamental objective of life insurance is to replace the policyholder's income and provide financially for dependents in the event of his/her death. Therefore, life insurance is recommended for individuals with income and dependents. Typically, policies have tenure of up to 35 years; if the insured buys the policy at the age of 25, it will offer a cover till he/she retires, post which there would be no income to be replaced.

Now, IDBI Federal Life Insurance has launched a term plan, the Seniors Insurance Plan, catering only to those aged over 50. The maximum age at entry set by the insurer is 85. The company promises to extend the cover without making the proposer go through any medical tests.

Policy term: The maximum tenure under the plan can extend up to the policyholder's death; the premium paying term is till the insured turns 90. The policy can be surrendered after three policy years.

Sum assured : The maximum cover offered under the policy is Rs 5 lakh. It kicks in after two years from the date of commencement. In case of the insured's demise within two years of buying the policy, 125% of the total premium paid will be disbursed to the dependents.

Premium: For a 50-year-old male seeking a cover of Rs 5 lakh, the annual premium would be just over Rs 20,000. If you buy the plan at 85, the premium amount will go up to Rs 2, 13,890 for the same sum assured.

Suitability: The insurer is promoting the product as one that will take care of the insured's spouse upon his death. Some financial planners point out that most individuals fulfill their financial responsibilities before retirement (by the time they turn 60) and, hence, there is no income to be replaced by the cover post this period. Even if the retirement age were to be stretched to 70, they can look at a term policy with a 10-to 15-year tenure. A 50-year-old insurance seeker can obtain a Rs 10-lakh cover with a 15-year tenure under a simple term plan at a cost (premium) of about Rs 6,000.

Why go for it: Earning individuals who have never purchased life insurance but have dependents can look at this policy.

Why you should not: Instead of policies with whole-of-life terms, one can look at regular term policies with a 10- to 15-year tenure as they would charge lower premiums.

Max New York Life Insurance hopes to wipe off accumulated losses

Max New York Life Insurance (MNYL) which registered a net profit of Rs 283 crore for 2010-11, hopes to wipe off its entire accumulated losses in the next couple of years.

"It is our second year of profit and we will need a couple of years to wipe off our entire accumulated losses and break even. The total accumulated losses is about Rs 860 crore," chief and executive officer and managing director, Rajesh Sud told ET. During 2009-10, the company registered its first ever net profit at Rs 24 crore on its ninth year of operation.

"Total premium income during 2010-11 was Rs 5,813 crore which was a 20% growth over the previous fiscal, first year premium recorded a growth of 11 % over previous year to Rs. 2,061 crore and its total sum assured stood at Rs 1.54 lakh crore – a 26% year-on-year growth," said Sud.

Renewal premium income grew by 25% over previous year to Rs. 3,751 crore in 2010 11. Assets under management rose to Rs. 13,836 crores, a growth of 37% over last year. The cost to premium ratio improved 400 basis points to 38%. IIT Kanpur

With the company starting to make profits, capital infusion requirement by the promoters are likely to come down in the next couple of years. "The current capital base of MNYL is Rs 1976 crore. Our solvency ratio is 365% and we will not require additional capital this year," said Sud.

Since September 2010, after the implementation of new ULIP guidelines, Max New York Life performed significantly better than the industry average reflecting the inherent strengths of the company's business model.

Not a standalone policy

Jeevan Arogya is the first defined health insurance product to be introduced by India’s largest life insurance company, LIC of India. It will pay the customer a fixed daily cash amount as well as cover specific surgeries.

The product is a Hospital Cash Benefit Plan (HCB) that offers daily hospital cash benefit for a fixed number of days that one is hospitalised. Besides that, it will cover 140 surgeries with the maximum amount one can avail for surgeries being 100 times the daily limit.

The product also offers a lump sum amount that is twice the daily cash limit per hospitalisation day, even for surgeries not listed. This feature is similar to the HCB plan offered by Aegon Religare Life Insurance. Life insurer Tata AIG’s Wellsurance Family Classic offers a standard daily cash plan without any surgery benefits.

LIC Jeevan Arogya has a number of features that should take care of rising health care costs.

For instance, it increases the limits on the initial daily benefits every year. So, one’s daily cash limits will rise to a maximum of five per cent or up to 1.5 times of the initial amount each year. This would be in addition to the five per cent added to one’s daily cash limit as part of one’s cumulative or no-claim bonus. Together, this could lead to a 10 per cent rise in one’s daily cash benefit.

No doubt, even other health insurers (both life and general) offer a nearly five per cent rise in the sum assured as part of one’s cumulative bonus. However, Jeevan Arogya customers are assured of getting a five per cent rise, even if they are not eligible for no-claim benefits.

Besides, since all other benefits are linked to the person’s daily limits, a rise in the daily limit translates into higher day care and major surgery benefits.

Another feature allows automatic waiver of the subsequent year’s annual premium for customers who make a claim for major surgical benefits.

However, Jeevan Arogya is a complicated product with both yearly and lifetime limits on how many times a claim can be made. So, one is allowed only three day care claims and only one major surgery claim in a year.

In terms of costs, it is much cheaper than the Aegon Religare product. If you opt for a daily cash limit of Rs 2,000, you would be paying an annual premium of Rs 4,000 for Jeevan Arogya. For the same limit, Aegon Religare’s premium would be Rs 13,800.

However, health products from life insurers are more restrictive in nature. While HCBs pay a lump sum, the hospital cash offered by general insurers covers the actual expenses falling within the amount sum insured.

Also, HCBs only cover illnesses mentioned in their policy document. They also permanently exclude pre-existing ailments. In comparison, four years of continuous cover with a general insurer will get you a cover for a pre-existing disease. Except hospitalisation due to accidents, life insurers’ policies usually have longer cooling periods of 90 days from the effective date of the policy.

Insurance experts caution consumers against opting for such HCBs as a standalone health insurance product. Instead, they advise customers to buy health products from a life insurer as an add-on to a basic health policy that will cover actual expenses.

At this time, buy term insurance even at 85

For the first time in India, senior citizens up to 85 years will be able to buy term insurance without any medical checks. Companies are realizing that while it makes sense to catch them young, it is the seniors who have the investible funds.

IDBI Federal Life Insurance-the three-way joint venture between public sector IDBI Bank, Federal Bank and European insurers Aegis- has floated a whole-life policy which allows individuals as old as 85 to buy insurance cover. While whole-life policies are not new to the Indian market, most providers, including Life Insurance Corporation, restrict maximum age at entry at 60 years. "To our knowledge, we are the first company to offer this cover to those as old as 85," said G Nageswara Rao, MD, IDBI Federal General Insurance.

Typically, life insurance is bought with the objective of providing income protection to dependents and since most people retire in their sixties the target market for life insurers is the working population. "We have found that there is a large section among senior citizens who want to buy insurance because they would like to bequeath an inheritance for their relatives," said Rao. He said that another of the impediments was the medical checks which are required from all senior citizens. IDBI Federal's policy requires no checks. However, the policy does restrict maximum sum insured to Rs 5 lakh and limits the benefit to 125% of the sum insured if there is death in the first two years.

IDBI Federal is the second company to target late entrants. Earlier, Max New York Life introduced a fast-track policy which allows those who missed out on buying insurance earlier an opportunity to build up a retirement corpus within a short time.

According to Rao, the limits on death benefits in the first two years of the policy would take care of any adverse selection by people suffering from serious ailments. The cost of cover also increases along with age. While the person who buys insurance at 50 will end up paying only Rs 3,300 an 85-year-old will pay 10 times that much. "While the premium may be high you have to bear in mind the average life expectancy for those entering at the maximum age," said Rao. According to the World Health Organization, life expectancy at birth for Indian males is 63 while for females is 66. Insurers, however, don't go by general life expectancy but at the longevity of the insured population, which tends to be better than the rate for the general population.

IDBI Federal plans to bring down the cost of the product by selling it directly to customers. "Initially, we will offer the product to customers of IDBI Bank and Federal Bank. But in the near future we will start marketing this product to everybody," said Rao. In the west whole-life plans are popular way of estate planning because it enables the inheritors escape estate tax. However, inIndia this is not a driver since inheritances are tax-free.

Bharti sells entire stake in insurance JVs with AXA to RIL

After nearly five years of its association, the Bharti group on Friday exited from its financial services joint ventures with French firm AXA and sold its entire 74 per cent stake in general and life insurance businesses to Mukesh Ambani-led RIL for an undisclosed amount.

“The decision is in line with the Bharti's strategy of focussing its energies and financial resources in businesses where it is making a deeper impact in India and overseas. At present, the financial services ventures do not fit into Bharti's long-term growth plans,” the company said in a statement.

The company had entered into these joint ventures with the AXA group in 2006 and held 74 per cent stake in these ventures — Bharti AXA Life Insurance and Bharti AXA General Insurance.

“It (Bharti) intends to use the proceeds from selling its interests in these joint ventures towards other group businesses in India and abroad,” it said.

Bharti, a leading telecom player, has operations in 19 countries including 16 nations in Africa where it acquired Zain Telecom's assets last year for over $10.7 billion. It has accumulated mobile subscriber base of over 190 million.

In a separate statement RIL also said the company had reached an understanding with Bharti on acquiring its entire stake in the joint venture with AXA.

“This sale is subject to necessary approvals from the Insurance Regulatory and Development Authority, the Competition Commission of India and any other relevant/applicable authorities,” Bharti said.

Bharti also said that it was in the process of offloading its stake in its joint venture with AXA for asset management.

According to the Reliance statement, RIL and its subsidiary Reliance Industrial Infrastructure (RIIL) would effectively own 57 per cent and 17 per cent, respectively, in both the insurance companies and would become AXA's joint venture partners in India.

AXA would retain its current 26 per cent shareholding and would continue to manage the day-to-day operations of both joint ventures.

According to the existing regulations, the foreign partner in the insurance sector is allowed to have a maximum stake up to 26 per cent in the joint venture.

Reliance said the proposed agreement contemplates an option by which AXA would acquire from RIL and RIIL up to 24 per cent shareholding in both the insurance companies in accordance with the applicable regulations as and when the FDI regulations permit such a holding by AXA. “Upon exercise of such an option, RIL will effectively own 45 per cent, RIIL will effectively own 5 per cent and AXA the balance 50 per cent in both the insurance companies,” the Reliance statement said. None of the three parties —Bharti, RIL and AXA — was to speak about the valuation of the 74 per cent stake held by Bharti. Sources in the industry have pegged the valuation between Rs.3,000 crore and Rs.5,000 crore. This, however, could not be confirmed. The AXA group is a worldwide leader in insurance and asset management, with 214,000 employees serving 95 million clients.

Banks may get to sell products of 4 insurance companies

Banks may soon be allowed to sell products of four insurance companies. According to a report of the Committee on Bancassurance, banks may be allowed to tie up with any two sets of insurers - two in the life insurance sector , two in non-life, two in health, ECGC and AIC.

Bancassurance, a distribution model where insurance products are sold through bank branch network, will be allowed to operate on principles of tied agency, which is the current status of the bank. With a network of over 80,000 branches, bancassurance is said to be the most efficient way to achieve financial inclusion in the insurance sector. There are 17 banks with shareholding in insurance companies.

Insurance companies may not be able to sell equity stake to banks for distribution tie-ups at a discount. The committee has recommended that the discount in valuation of equity share given by insurers to bank distribution partners should be valued as per accounting standards and treated as advance commission and amortised in a period not extending beyond three years. Recently, Axis Bank had picked up 4% stake in Max New York Life at face value for a strategic tie-up for 10 years. The committee has, however, suggested that the tenure of the agreement between the banker and the insurer shall not be less than five years.

The committee has recommended that banks should not be eligible for any compensation other than the commission payable for distribution of insurance products. At present, banks are given compensation over and above the commission. The report has pointed out that the referral model is costlier than the corporate agency model. "Inequitable relationship between the banker and the insurer has resulted in higher premium on the policyholder. The referral system shall not be available to bancassurers," it said.

The premium collected through bancassurance has gone up to Rs 21,947 crore in 2009-10, which is 7.31% of the total premium income of life and non-life insurance sectors.

LIC has worries over demat policies

Life Insurance Corporation of India (LIC) is having reservations over dematerialization of policies as it fears this could lead to unhealthy market of trading if checks are not placed on policies assignment.

The Insurance Regulatory and Development Authority have proposed that instead of issuing certificates of life insurance, companies could maintain electronic records in a central repository similar to the National Securities Depository Ltd. The insurance repository guidelines state that an insurer on receipt of intimation of assignment from the policyholder shall register the same in its record and intimate the insurance repository. Assignment is the process whereby a policyholder can transfer all benefits, including maturity and death benefits under a policy, to a third-person. Although life insurance contracts are not tradable securities like stocks or bonds, it is possible to get an upfront payment from a third-party who is willing to pay a price for getting higher benefits in future through assignment of the policy.

According to IRDA guidelines on the repository, the assignee shall have all the rights of the policyholder. The Life Insurance Council - an association of life insurers - has set up a panel of life company CEOs to look into the various concerns of insurance companies relating to the creation of an insurance repository.

Some years back Life Insurance Corporation was dragged to court by Insurance Policy Plus Services - a firm that specialized in taking over policies that had lapsed - after the corporation refused to assign policies. IPPS used to buy out policies which were in a lapsed state because of the sellers' inability to buy premium. These policies were acquired by making a payment to the policyholder and getting the revived policies assigned. LIC's objection was that any firm that bought policies for profit was acting against the principles of insurance. The corporation had no objection to policies being assigned as a security for a loan or out of love and affection for the assignee.

Trading in terminal policies is a controversial practice that is prevalent in the West. Practitioners of this trend say that they help the terminally ill policyholder by providing him with funds when he needs it the most. But critics point out that this practice amounts to taking bets on other people's lives.

IRDA may allow banks to sell products of two insurers

The Insurance regulatory and Development Authority (IRDA) on Friday said it was considering a proposal to allow banks to sell products of two insurance firms each in life and non-life categories, a move that will help increase penetration. According to the current practice, a bank is allowed to sell Products of one each in a life insurance company, a general and a health insurance firm.

“The committee (set up by the regulator) has recommended that banks should be allowed to tie up with two insurers. We are in the process of examining the recommendation,” said J Hari Narayan, chairman, IRDA.

The insurance regulator had set up a 10-member committee in 2007, headed by former LIC chairman NM Govardhan, to suggest ways to increase insurance penetration.

The IRDA is looking to open up the distribution channel to help increase penetration of insurance products amidst long pending demand of insurers for relaxing bank distribution channels.

Distribution channels include agency, banc assurance, referrals, direct sales etc.

The new business premium (first year premium) of life insurance industry grew by 14.5% to Rs1, 25,800 crore in 2010-11. The total premium of the 23 player life insurance industry also increased by 8% compared to Rs2, 86,500 crore in 2009-10.

LIC south region sees 50 pc premium growths in FY11

The Life Insurance Corporation (LIC) of India's south zone, which covers Andhra Pradesh and Karnataka, has registered a total new premium income of Rs 13,000 crore in 2010-11, which represents a 50 per cent growth over the previous year.

According to AK Sahoo, zonal manager (south zone), LIC, around Rs 7,700 crore of this came from group schemes. It had settled 2.2 million claims in the year amounting to Rs 7,000 crore.

He told reporters that conventional policies were on the rise compared to unit-linked insurance policies (Ulips), with the ratio for LIC at 60:40. The recent regulations requiring a five-year lock-in period and a minimum guarantee of return had made ULIPs less popular, Sahoo said, adding that conventional policies were the flagship products of LIC.

Earlier, he launched the LIC Jeevan Arogya health plan, the public sector insurer's third health cover scheme in the conventional category. It offers hospitalisation benefits for parents-in-law of the insured person, in addition to his/her spouse, children and parents.

As a defined benefit policy, it would offer the benefits as a lumpsum irrespective of the cost of surgery and whether the insured is reimbursed under any other scheme.

It covers 140 major surgeries, and is available with an initial daily benefit of Rs 1,000, Rs 2,000, Rs 3,000 and Rs 4,000. The maximum surgical benefit would be 100 times the daily benefit. Premiums would depend on age, gender and the health cover option, among others.

Rider benefits in life insurance

As an insurance-seeker, insurance agents or financial advisors may have often advised you to enhance your basic cover with rider benefits. It may not be wise to blindly follow their recommendations to buy a policy merely, but you can do your own research and identify riders that can add real value to your basic protection plan.

Essentially, riders are add-on covers insurers provide to enhance the scope of a life policy. Riders cover risks that are beyond the scope of the main life policy, resulting in a more comprehensive protection. The riders may cover critical illness (or dreaded diseases), personal accident (or accidental death and dismemberment), and waiver of premium benefit (applicable to child Ulips). These add-ons step in during situations where the main life insurance policy may not come into play.

For example, if the insured meets with an accident resulting in absence from work, he/she could be faced with the prospect of loss of income during the period of recovery. The life cover will not be able to offer any succour in this situation. This is where a personal accident rider, covering temporary disability, would come into play. The insurance company will compensate the insured monetarily during the period, depending on the policy terms and conditions.

Likewise, if the policyholder is diagnosed with a critical illness, the life cover will be of no help as it does not cover funding of the treatment cost.

On the other hand, if it is topped up with a critical illness benefit rider, the insurer will hand out a lump sum upon diagnosis of such an illness, unlike a health insurance policy. Thus, it can take care of the post-recovery costs as well. Cancer, kidney failure, and bypass surgery are some of critical illnesses covered under the rider.

To identify the rider best suited for you, take into account factors such as age, regular mode of commuting to work and history of illnesses in your family. Also, consider the costs involved. Insurers levy an additional premium as per their underwriting norms when you decide to add such rider benefits to your basic policy.

In terms of tax breaks, rider add-ons make you eligible for deductions in line with life and health covers. For instance, if you opt for an accidental death rider, you can claim deductions under section 80 C on premiums paid; for critical illness, the relevant section will be 80 D.