Last Friday my friend Hemant Mishra approached me with a problem, which may sound mundane, but it caused lot of trauma to my friend, courtesy insurance company.

Acting on my advice, he bought a term insurance policy as I always thought it was important even though he had an impressive profile – age 42, decent income, good savings, low debt, high placed professional in an MNC bank and to top it all a fitness buff. Based on this I had recommended him an amount which ran into crores as sum assured.

So I was surprised on receiving a call when an anxious Hemant who told me that there was a problem with respect to his term insurance policy.

Let me share Hemant’s account with you.

His Insurance agent had started the process under which made Hemant filled up the form, paid the premium followed by a battery of medical tests. Given the size of the policy, he had to answer quite a few questions from the Insurance company, besides visit to his office by insurance company’s personnel. The process was smoothly completed and it was time for him to receive the policy. Here comes the real shocker, when the insurance company informed Hemant that they would be charging an extra premium. Reason? quipped Hemant. He was informed that there were some issues with his medical reports, hence he would be required to pay extra charge to get the policy and insurance company wanted his approval in the matter.

At this point Hemant was more anxious to know what were these exact health related issues. Now comes the real twist. When he asked for his medical reports from the insurance company, he was informed that his medical reports were their property and cannot be divulged. He was aghast at this response

Now he was far more anxious to know about the health related issue in his medical report rather than the insurance policy itself.

When he mentioned this to me, I made the research team at ApnaPaisa to do a quick check on the practices followed by the various Insurance companies in disclosing the medical reports to the insured person. They informed that most companies will provide a photocopy of the medical reports on request to the consumer, whereas one . insurance company was willing to provide the copies only to the family doctor named in the Insurance proposal form. But the company chosen by my friend was an exception which did not provide the reports to the insured at all.

A quick check on the Insurance Act showed that Section 51 of the Insurance Act, 1938 requires that Insurance company should supply the “Policy Holder” the medical reports.

So legally speaking Hemant was entitled to a copy of all his medical report after paying a princely sum of Re. One, Once he became a policy holder which means he paid the extra premium and took the policy. After he got his policy he would be in a position to get the medical reports.

In case the Company still refused to give him the medical report, he could file an official complaint on the Insurance company’s website. In case that did not elicit any response he would have no choice but to file a complaint with the Insurance ombudsman or the alternative grievance redressal mechanism of IRDA (details on www.irdaindia.org).

By this time Hemant ( and his wife) were frantic with worry and so decided to repeat all the tests at his cost as he did not want to wait for the Insurance company to react to his request. I asked them not to worry too much as it was very unlikely that there would be anything seriously wrong in his report. Otherwise the Insurance company (or its re-insurers) would have clearly declined to issue the policy rather than just charged an extra premium. I asked him to follow up with the Insurance company after he took the policy since those reports would also serve as a very useful checking point against any reports that he would obtain on his own.

It is indeed sad that Hemant had to go through this distressing experience due to the policies of that specific insurance company.

Let’s hope other consumers are spared such an experience in the future.

In 2002 i applied for a rather large term insurance policy and a critical illness rider. since the amount was large i was required to go through a battery of medical tests. It was a surprise for me when the insurance agent called and said that since the medical reports showed some problems the insurance company wanted  to charge extra premium for the critical illness rider (normal premium for the base term policy). I was more worried about my health than insurance at that stage and requested the agent to get the insurance company to send the medical reports to me. That was when i got the shock of my life - The insurance company turned around and said that they would not share those reports with me and that I was not entitled to my own medical reports. I felt that was completely outrageous. At that time i was not as clued on to insurance matters as i am today. So i requested a senior person in the insurance company and he found a via - media. They agreed to share the reports with my family doctor who had been named as such in the insurance proposal. I conveyed my thanks to my friend and felt obliged. (Incidentally the problem was not very serious - i am still around to write about it )

It was only recently that i was going thru the Insurance Act, 1938 (that still governs the Insurance business in India) that i came across Section 51 of act that says as under :

Quote

51. Every insurer shall, on application by a policy‑holder and on payment of a fee not exceeding one rupee, supply to the policy‑holder certified copies of the questions put to him and his answers thereto contained in his proposal for insurance and in the medical report supplied in connection therewith.

Unquote

So asked my colleagues at Apnapaisa to check around on the practices followed by the various life insurance companies. My colleagues reported back that most companies have no problems in sharing the consumer’s medical reports though a couple of them still followed the practice of non sharing of medical reports.

It seems that the contents of this section is not well known. IRDA regulations already require that a copy of the proposal form be attached along with the policy. Perhaps IRDA needs to re-iterate the provisions of section 51 above to ensure that the companies not following the act do so immediately.

Any views on the subject or on practices followed overseas ??

I have taken a loan of Rs 20 lakh from ICICI home finance. I want to insure my property and my life. Kindly suggest me which insurance company shall I look at for property and life insurance. Currently ICICI Prudential is offering me Life insurance which they claim is especially for the home loan applicant. Should I go for it?

http://economictimes.indiatimes.com/articleshow/3418711.cms

The Insurance Regulatory and Development Authority (IRDA) has given permission to insurance companies to invest in mortgage-backed securities (MBS). LIC however, is more comfortable lending directly to housing finance companies (HFCs).

LIC will earn about 11.50% from bank deposits and short-term papers.

If LIC is successful in doing this, it could help banks reduce their prime lending rate (PLR). In addition, the funds lent out will be securitized by the property of customers taking home loans.

LIC has many policies in which policy holders participates in the company’s profit. More importantly, the above mentioned initiative could mean that LIC passes these profits to their customers in the form of bonuses. This will lead to an increased benefit along with the sum insured to policy holders.

http://economictimes.indiatimes.com/Personal_Finance/Insurance/Insurance_news/Now_get_a_life_cover_for_40_less/articleshow/3418926.cms

The Insurance Regulatory and Development Authority (IRDA) has reduced the capital requirement for selling term plans. This has reduced the cost of premium by 40% on the term insurance.

Term insurance only has administrative and mortality charges, no investment component like ULIPs. Hence they are not exposed to market risk. It follows that the capital adequacy requirement for both these products cannot be same; the risk levels are totally different.

Fortunately the regulator realized this, came up with the regulation that should have come earlier. Better late than never…

Many private players have already started passing this benefit to their customers.

Most of the Indians do not have life insurance cover and those who have are mostly under-insured. The regulator’s step of decreasing the premium of term insurance will increase insurance penetration and enhance the growth opportunities of the insurance sector.

Another very important result: The reduction in the premiums will leave the investors with a surplus for investments.

http://economictimes.indiatimes.com/Personal_Finance/Insurance/Insurance_news/IRDA_message_reposes_faith_in_local_insurance_cos/articleshow/3538435.cms
AIG is on the brink of filing bankruptcy. It has shaken the Indian insurance markets to a very great extent. AIG is a major share holder in Tata AIG general and Tata AIG Life insurance. The question being asked by people is safety of the money invested by them in Tata AIG, and policies they bought from the same company.

Insurance in India is a highly regulated industry. Any company that wants to set up an insurance business has to follow very stringent norms given by the Insurance Regulatory & Development Authority (IRDA).

If anyone is tense about investments in any insurance companies like Tata AIG, rest assured, they need not worry about the same. IRDA has prescribed the norms of solvency margin of 150% for all insurance companies including private players. It also imposes that no insurance companies should be investing overseas and that their investment portfolio should be in sync with the norms laid down by the IRDA.

The regulator has taken into consideration policy holders’ interest and is committed to maintain financial stability in the insurance sector.

Human Life Value relates to a person’s worth. What is a person’s worth? What price for man? If your clone were up for sale what price would you be willing to pay for it? And why?

A person has several values: Emotional, Social, Religious, Spiritual, and Economic.

A person’s way of loving and caring for others as a friend, father, mother, brother, sister son, daughter, etc. can not be replaced. Neither can that person’s contributions to the growth and betterment of society by the way of special skills in the arts, profession, ability to generate employment… in short, all acts of making this world a better place to live in.

What can be replaced is a person’s income earning capacity, the amount he/she earns for family members that is used to provide for all their needs and to create wealth for them aas well as future generations.

So how do we measure a person’s economic value?

In simple layman’s terms, our insurance cover, to a great extent, determines our value. Let me explain. We insure our 2 wheeler say, for 70,000, our car, say, for Rs. 8 lakh, stocks for say, 20 lakh. Normally, we insure for a definite amount. Why? Because that’s what we feel it is worth. But we grossly under-estimate our life’s worth by insuring it for paltry sums. Though we create properties worth millions of rupees and know we could create a lot more in our earning life spans, the majority of us, (approximately 97%) insure ourselves for a paltry amount of say, between 2 and 10 lakh. Are we worth only that much?
If a goose laid golden eggs and we insured the eggs for say, Rs. one crore, how much should we insure the goose for? That’s the argument that should determine our HUMAN LIFE VALUE.

Here is another scenario:
Say, last night God came in your dream, and you had this conversation: God: My child, I need you. You are the best person to do my job. Will you work for my cause?
You: Anything for you, my Lord, whatever you say?
God: It’s not easy. Think again before you commit.
You: Anything my Lord. My life is yours. Whatever you say.
God: Very well, then from tomorrow morning, you have to stop working for money and put all the time that you spend on earning money for my cause. Can you do it? Think again.
You: I am ready, but what about the dreams that you showed me of a lavish house, my dream car & what about my responsibilities towards my children’s education and marriage expenses? What about my family’s day-to-day expenses and maintaining our standard till our death? How will that happen? Now, that you have chosen me, I am sure you must have thought about that too.
God: Good question, I am glad you brought it up right now before committing. I have thought about it. Tomorrow morning, go to my temple near your house and you will find a pot on your way back. This is a magical pot. Every month it will give you the amount that you would have normally earned based on your karma. That amount you can use for all your needs and dreams and for all your savings for your future needs. But there is one problem.
You: What is that?
God: Your only responsibility is to take care of that Magical Pot. Thieves could come to know about it and they would try to steal it.
You: So, how do I protect it, my Lord?
God: Do the best that you can to protect it from thieves. But then, on your Earth, I have also started something called Insurance. Insure it the moment you get it, so that just in case, it is stolen you get a lump-sum or a monthly amount that you were going to get as long as you would have been working. Are you ready now? Now, if you commit, you cannot go back. Think and answer.
You: Yes, my Lord, absolutely.

You wake up and tell the story to your family:
“Yeah, I am the chosen Instrument of God to work for Mankind. From today, no tension, I no longer have to work for money.”

But then you wonder,
“How much should I insure my Magical Pot when I get it today? Who knows, it may get stolen right away!

Well, whatever you decide to insure that magical pot for is your HUMAN LIFE VALUE.
You are the Magical Pot that God gave to your family and Father Time is the thief.

P.S. There IS a scientific way of calculating your human life value based on your present age and assumptions of your retirement age, your present income, rate of growth of your income, inflation rate, safe rate of return that your family can earn on investments, etc.

http://economictimes.indiatimes.com/Personal_Finance/Insurance/Insurance_news/UTI_may_stop_Ulip_sale_after_cos_agree_to_keep_MFs_out/articleshow/3495777.cms

Unit linked insurance plans (ULIPs) are today being sold both by life insurance companies as well as mutual funds. ULIPs offer insurance and investment in one product as compared to general products sold by mutual funds that offers only the investment avenue.

At mutual funds, these policies are being sold by agents who do not have the license to sell insurance. This leads to miss-selling as they lack in the product knowledge on insurance, as they haven’t passed the required IRDA exam. (Asset management company folk have to pass the AMFI exam, not the IRDA one). So, the Life Insurance Council has opposed mutual fund companies selling ULIPs. The group selling of ULIP and mutual funds is going against life insurance companies’ business.

The protest by the Life Insurance Council against this practice will protect customer interest and will help the life insurance companies in respect of product development.

Start organizing your money …… NOW!!!!

We are all familiar with the words “Money Attracts Money.” Let me relate a small incident in reference to the statement. There was a small boy working with a businessperson. He once overhead a conversation where his boss mentioned the above statement. The boy was very excited. The day he got his salary, he chose a five hundred rupee note, slipped it into the boss’s locker and pulled it out. The same note came out. Nothing more, nothing less. He tried for the second time, but the same result. The third time he tried, his note was stuck into the locker. The boss meanwhile was observing this entire scene unknown to the boy. As soon as the boy knew, he had been caught, he was very apologetic, and explained that he was only checking out the statement and now realized that it did not hold true. To this, his boss explained that it indeed was true, because, BIG MONEY, PULLS SMALL MONEY. His (the boss’s) big money had attracted the small money into the locker. Therefore, the question now arises- how does one create this BIG MONEY.

People can be broadly classified into three categories:

• Those that EARN and SAVE
• Those that EARN and CONSUME ALL
• Those that EARN and TAKE ON LIABILITIES TO CONSUME MORE THAN THEY EARN

While the going is good, no one wants to visualize or worry about the future, or rather, one can say, one does not want to think that the good times will ever end. The third category of the people is the ones in the most dangerous situation. One feels, that lifestyles have improved, economy has improved, but is it really so? It is most probably, we are spending today, what we would have earned over a period of 10-20 years. We are earning and clearing liabilities. Moreover, liabilities are taken but no insurance to cover the liabilities. THE QUESTION ONE NEEDS TO ASK HERE IS NOT ‘Who will clear the liability IF you die or are permanently disabled?’ This is a very important question but a glaring one that should be corrected. The ‘IF’ in the question should be ‘WHEN’. The ‘IF’ is majorly used as an excuse, for putting off the commitment towards buying a life cover, towards saving. Procrastination becomes a habit. How does one then save, for the future? For retirement? For the big money?

Retirement being the period when there will be no EARNINGS, but 365 days and many more of EXPENSES. Has one made a conscious effort to save for this golden period? Only money saved today and invested will grow and attract more money that can be used for this golden period of life. In fact, life insurance policies are sold, more for retirement provision than life insurance cover. Not that they provide one with inflation-adjusted returns, but they ensure that one is committed to saving a fixed amount every year to reach the target. No other instrument ensures compulsory saving. Surveys reveal that no one has ever consciously saved in a bank for 20 years at a continuous stretch!

Contradictory it may sound, but life insurance and retirement planning go hand in hand. The best thing to save for RETIREMENT is SELF RESPECT and the best way to SAVE is through LIFE INSURANCE. Investment planning is the tool that enables one to achieve one’s various financial goals including retirement. With each passing day, personal finances grow more complex, and with each passing day, an individual has less time to develop a personal financial plan. Therefore, the only way to do is to allow a Certified Financial Planner to handle it. It is only

In my last article I had mentioned that there are several methods, or styles, to investing profitably in the equity markets.

Let me start with suggesting that you, the potential investor, spend some time analysing your investments. If one were to assume that your money is indeed “hard earned”, would it not be unfortunate if is easily lost?

Most professional advisors compare their performance to benchmarks, which are indices. For example, if a fund generated returns of 20%, while its benchmark’s returns were 15%, this “outperformance” of the index by 5% is called an ‘Alpha’. This is a good measure to evaluate fund performance, provided the benchmark is reliable. If reliable, it would be a good measure to evaluate even personal portfolios returns.

The BSE Sensitivity Index of 30 shares is the most popular Indian stock market index. If one were to track this over 5 year periods, starting in 1992 (this is the year of the infamous Harshad Mehta boom, which is a relevant beginning simply because this is the first time there was retail participation in the capital markets), we would find that pre-2003 (the start of the latest boom), the index returned less than bank FDs. Even if we go from 1992 to the current date, the index returns are disappointing. This should indicate that equities are a poor long term investment, but are actually among the best options!

In fact, a well diversified portfolio, built over time and given a few years, at reasonable valuations (PE of close to 10, certainly lower than the Sensex’s long term average of 14 times) will outperform the benchmark or almost any other investment. The great Warren Buffet, however, considers that “wide diversification is only required when investors do not understand what they are doing”. If you know, and you need to know, why you make an investment, you should also have guts to invest plenty in it. Again, quoting Mr. Buffet, “Why not invest your assets in the companies you really like? As Mae West said, “Too much of a good thing can be wonderful.””

Diversification or concentration of portfolios can be achieved through investments in mutual funds. Concentration is through sectoral or thematic funds. Concentration is good only if you are an expert and can time your entry and, more importantly, your exits. Avoid being carried away by the noise. Most fund managers consider themselves to be God’s Greatest Gift to Investments (GGGI) in a bull market. However, when they crash with the markets they are quick to point to outperformance, if any, on the index, i.e. “The index has fallen 30%, but I have been brilliant and have lost only 25% of your money”. I have not met any investor who hands out money to be lost, whatever the market conditions. My advice is to ignore the froth from the fund managers, or brokers. If you are convinced the market is cheap, put in all your money. In an uncertain market do an SIP. But when the market seems overvalued sell. (By the way, have you ever heard a fund manager advice you to sell, or redeem your units in a bull market?) A crash always follows a euphoric bubble. Cash is supreme in bad times. It is a good feeling, and also very profitable to buy when the market is down 70%!!

Is this a good time to invest? Yes and no. An important lesson from Joseph Kennedy, almost a century old, is to sell when the shoe-shine boy gives stock tips. I believe this is true today. When the taxi driver is thrilled to take you to the share bazaar and asks for stock tips en route, the stranger at the party gives you sure shot stock bets and the daily newspaper has headlines of the local housewives club betting their grocery money on stocks – GET OUT. This is the best signal to sell your shares.

And buying? This would be when that party animal with best buys stops partying, the Big Bull has jumped off the 13th Floor and there is a funereal feeling at Dalal Street. Buy when the mention of a good company has people grit their teeth and give you dirty looks. And, of course, the index has a low, mouth watering PE!

One of my own gurus told me never to confuse the market with stocks. “The market is irrelevant”, he said, “buy the right stocks and you will always make money.” If you have his stock picking skills, which I do not, this article is not for you. If you are one of the simple folk, hoping to beat inflation and make a little money on your savings, the market at over 18 PE all this week (18.80 on Nifty on September 4, 2008) remains expensive. Look then for gems that might become multi-baggers.

Otherwise hang on to your precious cash. A better day to buy will dawn, when PEs are closer to 10 than 20. Get into SIP mode then. Market corrections can be both deep and long. Losing opportunity (interest cost of your money) is about as unfortunate as losing capital.

Naveen Fernandes is a Certified Financial Planner and Vice-president, Orbis Financial Corporation Ltd, Mumbai. Orbis Financial is a SEBI-approved custodian.