Implications of the Proposed DTC on ELSS & ULIPS

Posted on June 19, 2010 by Ranjan

The revised discussion paper on DTC, has an effect of loss of tax immunity on the popular Equity Linked Savings Scheme (ELSS) and ULIPs.

Presently, the revised discussion paper, has mentioned only the following six schemes will be tax-free, thus enjoying the EEE status:
• Government Provident Fund (GPF)
• Public Provident Fund (PPF)
• Recognised Provident Funds (RPFs)
• New Pension Scheme (NPS) (administered by PFRDA)
• Approved pure life insurance products
• Annuity schemes

And the objective of doing so is to encourage taxpayers to invest in long-term savings schemes. The revised discussion paper has also said that the rules for contribution and withdrawal will be harmonised and made uniform so that savings are made by the taxpayer for the long term.

“ULIPs will be out of the Exempt, Exempt, Exempt (EEE) tax regime,” said a senior finance ministry official, referring to the different stages at which financial instruments may be taxed.

At present, like all insurance products, the returns earned by ULIPs are free of income tax. However, the returns from the investment part of these products is also tax-free simply because these products come in the garb of insurance.

I have read opinions in the media that the tax incentives of the ULIPs/ELSS should continue because they are popular and contribute to the infrastructure projects.

I don’t think it’s a valid argument in favour of giving tax incentives to these products. Because we have excellent products that give you enough tax incentives like the NPS and the PF. They need to be popularized in the interest of the ordinary investor.

What do you think? Should the tax incentive for the ULIPs and ELSS continue?

Coming Soon! RupeeCamp "Financial Planning Workshop". "Join us"

Welcome back! Join me on this journey to improving our financial IQ and sharing what we know. Updates at RSS feed or Email. And spread the word please Thank You!

Share/Save

Benefits of Buying Insurance Online

Posted on May 31, 2010 by Ranjan

The Hindu Business Line has a report on “Why you should buy insurance online“.

Excerpts:
An array of insurance products in the life and general insurance spaces are issued online. Agent commission, which is a significant proportion of the cost associated with an insurance product, is not charged while buying policies online but is passed on as a discount to the buyers.

Buying life insurance and ULIPs online is typically much cheaper than the offline versions.

For instance, HDFC Standard’s Endowment Super Suvidha (Spl), a unit-linked insurance product, promises 40 per cent lower cost on online purchase.

For a Rs 50 lakh policy for a 30-year male over a 25-year term, Aegon Religare’s online iTerm policy charges a yearly premium of Rs 5,600. The same product when bought offline with Aegon Religare would have a yearly premium of Rs 11,360.

In ICICI Pru’s ULIP (ICICI Pru ACE), the premium allocation charges are nil; in HDFC Standard Life’s ULIP, premium allocation charges are 10 per cent and 5 per cent of the premium paid in the first and second year as against the 15 per cent and 10 per cent for the offline versions.

Buying online has it’s benefits, of course. Like the cost advantage. But how many of us have taken advantage of this online buying option?

Do you have an online buying experience? And do you think buying it cheap is more important than having a professional advisor helping you with the decision? And do you think, buying the cheapest policy makes sense?

Share/Save

Insurance Is The Only Long Term Product Available?

Posted on May 26, 2010 by Ranjan

Kamesh Goyal, CEO, Bajaj Allianz Life Insurance has an article on ET (By Invitation) titled; “Nature of Life Insurance Products is such that they deal with both Investment & Protection”

Mr Goyal has put forth his arguments as to why the whole idea about life insurance is about both investment and protection.

Honestly, I could not make any head/tail of his arguments. I am still waiting for his response to my “Open Letter“.

Mr Goyal goes on to declare that “No other financial product is available in the market which is long term in nature”.

Did I read correctly? Does that mean that holding onto my Mutual Fund scheme or my stocks for a long term is not done?

I wonder how a CEO can write that on a leading business daily?

Share/Save

Why An Endowment Insurance Plan Does Not Make Sense

Posted on May 21, 2010 by Ranjan

DNA has an interesting post on endowment plans

A typical agent is likely to tell you, “Sir, the insurance company always declares a bonus of more than 4% (Rs 40,000) every year. So the bonus you get every year will be more than the annual premium you pay to the company.

So what is the problem?
The biggest problem with the bonus is that it does not compound, and is merely an accounting entry that accumulates. What this means is that in the above example, the bonus of Rs 50,000 would stay at Rs 50,000 till the 25th year, when the policy matures. This would be true of all bonuses declared during the term of the policy (if they are declared).

The returns from endowment plans can be around 6-7% and not anymore. Would you like to compare options? Read the full DNA article

Share/Save

Do You Feel Cheated By Your Insurance Agent?

Posted on May 17, 2010 by Ranjan

My school friend Sailesh is very furious with his Insurance agent. The Agent has filled all wrong details from the data from his bank who is also marketing the policy. Following are the discrepancies :-
1) Wrong address
2) Wrong nominee with DOB
3) Wrong details of business
4) Wrong details of his parents (Who are no more)

Sailesh says that a person can not give such wrong data even in sleep. The agent requested him to sign the form & the data, he assured him that he will collect from the Bank. The policy form is also not filled by Sailesh.

Sailesh, my friend has also written to the Insurer that he does not understand how they appoint agents who can not collect & fill the correct data. He feels that, the company having collaboration with his bankers have forcefully grab the policies irrespective of their ability to do insurance business.

Sailesh demands to know what will be his position in case of a claim for faults made from your side as he feels that the agent also forms the part of the Insurer.

Sailesh is justifiably furious. He just might get the Insurer to correct the mistakes if he makes sufficient noise. I have also asked him to threaten them with escalating the issue to the Insurance Ombudsman and the IRDA.

But Sailesh has signed all those documents himself. Technically, he can be charged of providing wrong information!!!

The Agent too is as much Sailesh’s Agent as much he’s representing the Insurer.

I am sure Sailesh will get the rectifications done. But as I mention in my post about Banking grievances, it’s important to heed the following:

Mr. Sudhakar also outlined that customers need to be more careful and diligent while entering into any transactions. “I have come across several cases where customers put their signatures blindly on loan documents in a tearing hurry and then face severe difficulties. It is always advisable to look closely at the documents before jumping into any loan transaction.”

I am not giving out the details of the private insurer as well as the Bank concerned. The point I want to make is this is a common problem. And if you are aware of the problem, you might just pay more attention when you buy a policy next.

Will you?

Share/Save

Does it make Sense To Buy The Cheapest Insurance?

Posted on May 12, 2010 by Ranjan

The internet has given us the choice of comparing quotes from the Insurance companies. Now let’s imagine you are smart enough to cut through all the jargons like critical riders, add-ons, etc, and are able to arrive at the best and cheapest quote. Does it make sense to go for the cheapest quote?

Before, we answer that question in a Yes or No, let’s take a look at the Death Claims figures. The source is the IRDA Annual Report 2008-2009.

LIC paid 564389 claims as against 40739 by all the Private Insurers. Comparing the volumes is not the right thing to do, you might say. Though this points out to the fact that the PSU Insurer has a well oiled machinery to process the claims that it gets.

Let’s see how many claims in percentage that have been refused/repudiated and what percentage is lying outstanding.

Repudiation: Death Claims that have been refused:

LIC: 1.33 %
Private Insurers: 9.97 %

Outstanding Claims: Claims pending at the year end:

LIC: 3.34 %
Private Insurers : 11.30 %

Some private insurers like Max Newyork (2.33), Bharti Axa(2.80) and Birla Sunlife (1.03) have a lesser outstanding percentage while IDBI Fortis (72.15) Canara HSBC (65.14), Sahara (50.41), Aegon Religare (20.80) Kotak Mahindra (20.45), Metlife (22.81)HDFC Standard (16.57), ICICI Pru (13.21) figures are dismal.

Aegon Religare claims to have the cheapest insurance policy available. But if you take time to look at their repudiation figures (claims that they have refused), it is 48.48% as per IRDA’s report! This essentially means that they repudiate every second claim that they receive!!

Based on the data above, do you still think that buying the cheapest insurance policy is the best option? Or should you give a thought to the Insurer’s payout details too?

Share/Save

Adding Insurance to ULIP Now?

Posted on May 5, 2010 by Ranjan

I have two questions. But first read the background:

The IRDA has tightened the norms on all unit linked insurance plans (ULIPs) to offer life cover on these products and that they should offer a minimum sum assured payable on death.

Moreover, all unit-linked insurance policies must now come with a minimum policy period of five years.

Question 1: Was it possible to buy ULIP without insurance cover? Yes, obviously is the answer, after reading IRDA’s announcement.

Question 2: Does it make sense to buy insurance for less than 5 years? Nonsense, I would say. But it was indeed possible!

The point I am trying to make is that the ULIPs available in the market were being sold as an investment product and not an insurance cover.

The bigger question is that whether we can charge IRDA of mis-selling instead of charging the Agents who carry out the “hit and run” orders of their masters!

Related posts: Insurance v/s Investments

Mixing Investment with Insurance

Open Letter to a CEO, Private Life Insurer

Share/Save