It is often said that the true character of a society is judged by how it treats its elders. The senior citizens of a country need to be taken care of by the society in general and by their children in particular.

Now a days lot of benefits have been granted to senior citizens in India so that they can live a fulfilled life. These are available in the form of special saving schemes, pension schemes, postal schemes, mediclaim policies and the likes which I have already written about in my earlier columns.

In this piece I would like to dwell on the income tax benefits available to senior citizens.

As described under Income tax Act, a senior citizen is a person who was of 65 or above of age during the year. It is worth mentioning that Income tax act contains many beneficial provisions for senior citizens. So what are these? Let’s understand.

Firstly senior citizens do not have to pay any income tax upto the income limit of Rs. 2,40,000 as against limit of Rs. 1,60,000 applicable for ordinary individual.

As a senior citizen you can claim deduction of upto Rs. 100,000 each year under Section 80C, in respect of money deposits made under Senior Citizens saving scheme rules, 2004. This provision is significant when other avenues for claiming tax deductions under Section 80 C like life insurance premium, payment towards pension plan, contribution to PPF account, ULIP etc. are no longer remain attractive to senior citizens. Though for income tax purpose you are a senior citizen if you have completed 65 years of age, however for the purpose of depositing money under the senior citizen scheme, the age limit is only 60 years and not 65. This age limit is relaxed to 55 years in case you have taken VRS and the retirement money is invested within a period of three months in the scheme. The rate of interest under this scheme is 9% currently which is higher than on any other risk-free investment avenue available today and that too with tax deduction.

The general deduction in respect of insurance premium for health insurance popularly known as Mediclaim is Rs. 15,000 for a family. However if premium is paid for senior citizen, the amount of deduction available goes up to Rs. 20,000. In case the premium is paid for the parent who is a senior citizen, the person paying the premium can claim a separate deduction of Rs. 20,000 in addition to claim of Rs. 15,000 in respect of premium paid for self, spouse and children. In case of the person paying the premium, as well as his parents who are senior citizens, the deduction available for each category will be up to Rs. 20,000 each.

The income tax also allows deduction for expenditures actually incurred for treatment of family members in respect of some specified diseases. Section 80DDB allows a deduction of Rs. 40,000 for treatment of self, spouse, siblings, parents, and children upto Rs. 40,000 for expenditure incurred for treatment of specified disease. However this deduction goes up to Rs. 60,000 in case the person to be treated is a senior citizen.

Senior citizens can submit Form no. 15H for no deduction of tax at source to the payer of money like interest, withdrawals from NSS account, and income from units of mutual funds and total tax liability is nil for the year in question.

As a senior citizen if you are not engaged in any business or profession, you will not be required to file a return of Income even if you fall into the criteria on ownership/occupation of immovable property or subscription of a telephone under the popularly known as one by six scheme. However, you will have to file a return of income under the scheme if you fulfill any of the other four criteria.  This exemption is available only if the senior citizen does not have any taxable income.

This way we find that Income tax act has provided quite a few benefits to senior citizens to help them wade through their old age, by way of higher benefit for Mediclaim when the medical cost constitute a significant portion of their budget.

The Income tax Act also treats the senior citizens fairly when it allows them to provide benefit of investing in senior citizen saving scheme at a higher rate of interest and at the same time let them claim the same as deduction under Section 80C.

With the inter-regulatory spat over ULIPs being firmly settled in its favor, IRDA has taken very little time in announcing sweeping new regulations that will change the very essence of how ULIPs are structured and sold today.

So what are the significant changes and how will it change how ULIPs are sold. The changes are both from the regulator side as well as the proposed changes in the DTC that will become effective from the year beginning on April 1, 2011.

First let’s look at what the current draft of the DTC says.

Under the DTC all receipts from any life insurance policy is treated as revenue. However full deduction is allowed for any receipts from a life insurance policy if the amount is received at the completion of the original period of contract or death and

the capital sum assured is at least 20 times the premium payable in any year.

In simple words it means that under the DTC (effective next year onwards) tax exemption will be available for sums received under the insurance policies only if those sums are received on maturity (or earlier on death) and also if it has a certain minimum level of death protection. Since tax is a major driver for buying Insurance policies (a rather unfortunate situation) this single change itself will make sure that any potential mis-selling around the tenure of the policy will be limited.

Combine this change with the fact that a 5 year compulsory lock in period has been introduced by IRDA will make sure that this is perceived as at least a 5 year product. In the other very significant change IRDA now requires charges to be spread over the first five years (and not front loaded as is the case currently) and has additionally introduced a maximum spread of 4% between the gross yield and the net yield at the end of 5 years. These two changes when combined will ensure that the commission structures and other charges are kept reasonable.

On the pension front the revised discussion paper on the DTC, in a surprise announcement, has also promised an EEE treatment for “approved annuities”. It is not very clear which kind of “annuity plans” will be approved but in any case it will breathe new life in the moribund annuity market. “If”, as is being speculated, the approval of the annuity plan is linked to the corpus coming only from the NPS then it will sound the death knell for accumulation pensions plans (for example those being offered by Life Insurance companies) offered outside the NPS system.

If all the changes proposed above (especially those in the Direct Taxes code) which are yet to be finalized and legislated, are actually enacted then it would change the investment landscape in the country.

At the risk of sticking my neck out let me do a bit of crystal gazing for the next financial year:

1. It goes without saying that commissions on ULIPs will reduce significantly and be spread over a longer period. This will force the much-needed professionalisation of the financial services distribution industry, which will contract as the non-serious players leave the industry. However the serious challenge of consumers paying for advise separately from execution will continue to remain (this is a subject matter of another article) and hence mis-selling though reduced will continue to be driven by the products that offer relatively higher fee to the distributors.

2. At some point (and I am really sticking my neck out here) SEBI will have to relent and allow for fees to be paid to intermediaries upfront as well. Maybe this may take time but I think there may not be an alternative if the retail MF industry is not to become extinct.

3. We will see an increase in the mortality charges in ULIPs as these are not taken into account while calculating net yield and thus can be used to pay some additional commissions to the distributors.

4. 5 year or more single premium plans will become popular – as they are currently- but collections will not be as high as they are today simply because of the high life protection required to make the plans tax exempt. This requirement will prevent too many applications coming in from the high net worth band. They will do some circumvention by putting in applications in the name of their younger children etc. but the high cost of the protection plus the difficulties in doing financial underwriting for large insurance polices will ensure that the maximum investments are kept in check.

5. There will be an increased focus on risk products (term insurance as well as Income protection plans)

6. There will be a big focus on online distribution of products (or telephone assisted online distribution) with simple products specifically tailor made for online consumers as the insurance companies look for cost effective channels for distribution.

Of course there will be lots of other ramifications as well.

We are in for some very interesting times from the next financial year. I would welcome readers views on what they expect will happen next.

Recently I came across a newspaper report mentioning the number of insurance policies being lapsed. According to the said report, during the year 2009, insurance policies worth Rs. One trillion had lapsed and their number was over 9 lacs. And this number did not account Unit Linked Insurance Plans (ULIPS). In the same year, 1.73 million policies of Private Insurers worth Rs. 47,000 crore lapsed as against 1.28 million policies worth Rs. 25,000 crore lapsed during 2008.

The lapse ratio (a proportion of policies lapsed during a year vis-à-vis

policies in force at that time) in respect of one of the leading Private Insurance company stood at 53% in 2009, implying that 53% of the insurance policies were not renewed when they fell due for renewal. The reasons could be many but most important one which I could figure out is the selection of misfit Insurance Advisor, which is the first step we make towards insuring our lives.

This way we see that the number of Insurance policies as well as the amount of lapsed policies is on the rise and the major reason for this as mentioned above is wrong selection of insurance advisor who indulge in misselling. This mis selling happens when an insurance advisor sells an Insurance product without evaluating and matcing the insurance needs and financial strength of the customer.

The above statistics of lapse ratio made me appreciate how important it is to select a right insurance advisor which is equivalent to selecting your family physician.

So what qualities/ merits one should look into while selecting the Insurance Advisor?

• He/ She should possess financial integrity. A person with intergiety will only put a customer’s interest before his own interest. Integrity of an insurance agent should be verified by checking with mimimum two strong refernces provided by the Insurance advisor who are known to you also.

• He/ She should possess good level of enthusisam and dynamism.

• He/ She should have excellent analystical skills which makes him competent enough to evaluate various insurance products available in the market.

• He/ She should be abreast with latest developments in the insurance industry as well at his company level as insurance is a dynamic sector and keeps on changing constantly.

• He/ She should be into full time insurance business. This is important as only a full time person can spend time to keep himself abreast on the various products available in the market as well as to give you after sales service. Inadequate after sales services is another major factor leading to lapse of policies .

To quote my own experience here, I had taken an insurance policy from a new entrant in the business through an insruance advisor. After debiting my first premium amount, I have not heard from him since then. I myself serviced my own policy by finding ways and means of keeping it alive. A lay person may not be able to ensure that his life insurance policy remains in force in case there is no one to provide after sales service.

Thus it is very important that you select the person who can understand your financial position and insurance needs. Do not retain a person who does big ticket insurance only because later on he may not be able to provide you after sales service. Moreover the big ticket insurance advisor may even persuade you to buy insurance beyond your insurance needs.

It is always good to verify that the insurance advisor has been in this field for a reasonable period of time. Many insurance policies are taken by first year insurance agents and when they are not able to fulfil the criteria for continuance as an insurance advisor, you are left with no one to take care of after sales service of policies taken through them.

It is not advisable to select the advisor only because he/she has been referred to you by one of your relatives or friends, overlooking all the above mentioned merits.

Also do not buy insurance products from an insurance advisor, who is operating from place other than the place where you reside say in a different city. I know number of insurance agents coming to Mumbai on annual pilgrimage to solicit and get insurance business from their friends and relatives staying in Mumbai. Buying an insurance policy from an insurance advisor from a place other than place of your residence creates administrative problems of payment of premiums year after year. Getting after sales service becomes another big limitation in such long distnace relationships.

This is also important when a claim in resepct of such insurance product arises. A local insurance advisor will be able to give you better services than an insurance advisor loacted in a different city.

Thus above pointers will enable you to appreciate the importance of having a right person as an Insurance advisor, who can help you in identifying the proper insurance product for you at the selection stage.

A good insurance advisor plays an equally important role in servicing the insurance policy during continuance of the policy. His role is most important at final stage of an insurance product, when a claim in respect of an insurance policy is to be made. Unless you have someone to run around for you in the eventuality of you not being around.

Ensure that you have an insurance advisor who will walk an extra mile to help you dependents.

To Summarise here, I will say that it is very important to have a good insurance advisor not only at the stage of buying an insurance product but also, during the currency of the insurance policy till the final stage of of claim.

All in all your insurance advisor should be able to work right for concept to commissioning…till After Sales Service!

Recently, an incident reported in media caught everybody’s attention, where a lady who was allegedly drunk and was under the influence of alcohol banged her car into a traffic policeman, as well as a biker whom the traffic policeman was checking. Sadly both died in this unfortunate accident. There are many such instances which have been highlighted by the media in the past also. It is worth mentioning that at least in Mumbai we have seen that the traffic police’s consistent drive against drunk driving, has succeeded in reducing the road accidents to a significant extent, thus clearly establishing the connection between drunk driving and accidents.

In fact the Motor vehicle act states that if any person while driving (a) has in his blood, alcohol in any quantity, howsoever small the quantity may be or (b) is under the influence of a drug to such an extent as to be incapable of exercising proper control over the vehicle shall be punishable for the first offence with imprisonment for a term which may extend to six months. So drunk driving carries stiff legal penalties besides the social stigma that it brings and of course it also has an impact on your insurance policy.

Let’s turn to the impact of drunk driving on matters of insurance.

If we look at life insurance, there are two things to consider –

1) The death of the person herself/ himself while driving under the influence of alcohol. My colleagues and I spoke to various life insurance companies and also looked at various policy documents. We believe that the death caused in the above circumstances would still be covered under the basic life insurance policy, although in most cases if she/he has taken an additional rider for accident insurance (to pay additional sums of money over and above the basic sum insured in case of death due to an accident or the accidental disability benefit) , it will not be granted to the person driving under the influence of alcohol.

2) If we look at the Motor Insurance policy documents then the reading of the policy documents and discussions with the general insurance companies seem to suggest that the affected third parties ( in the reported case the policeman and the motor bike driver) will still be eligible to be paid the damages despite the driver causing the accident while under the influence of alcohol. Of course the courts reserve the right to decide who shall pay the damages (whether the owner of the vehicle or the insurance company) and in most such cases the court is likely to ask the owner to bear the payment rather than the insurance company. Coming to the damage to the car itself, this will not be payable by the Insurance company as the damage occurred due to the actions of the driver, who was drunk.

In most countries drunk driving or speeding gets you not only a suspension/cancellation of license but it also increases the insurance premiums for the future. But in India Car insurance policies are not issued with named drivers. In the UK your car insurance premium will depend on the age and the driving records of the named driver (and if you name more than one driver the premium will be higher) and the insurance monies are not payable if the accident is caused by a driver who is not named in the policy. In India this is a far cry as we are not even able to identify who was driving the car at the time of fatal accident ( Readers will remember the fatal accident at Bandra which was allegedly caused by a famous film star while under the influence but till today the prosecution has not been able to conclusively prove who was driving the car. Since selective increase in car insurance premiums is not an option in India ,everybody has to share the burden of the losses caused by a few drivers who indulge in drunk driving.

So more power to the Mumbai traffic policeman (and their counterparts in other cities) who make sure that the road accident rates come down by strictly enforcing the rules against drunken driving.

Remember this the next time you grumble about the delay caused at a check point while returning home late from the office or a party. And if you have downed a few and have still chosen to drive, I hope they put you in a cell and throw the key away.

Ever wondered if you have a single source to manage, execute and account for all your personal financial planning needs like retirement planning. insurance planning, taxation planning, investment planning, loans, mortgage and cash flow management. It would make lives considerably easy cause you wont have to run behind ten different people to get a hold of all your personal finance documents and account statements. With a financial planner your financial management will be easy swift and all in one place.

The biggest advantage of a financial planner is that he will not be a salesman trying to sell products to you with the main intention of filling his pockets with the commissions of the products he sells to you. His main goal and motive is to keep you financiallly safe and secure and help you achieve your goals.

Many agents and salesmen in India pronounce themselves as a financial planner but the diffrenciating factor is that if a person is an agent or a representative of any company then he will not be in a position to give you unbiased advise as his aim will be to tell you some story and sell his companies’ products to you. To be an unbiased advisor the person must be able to provide a comparison of various available product options.

Financial planners charge fees from their clients for the advise given just like a doctor, lawyer or an architect. The advise is genuine and based on the clients needs, budget and after a detailed analysis of several available options

guarantee on the highest NAV of their ULIP scheme. ULIP funds invest in market listed securities which can be both

equity and debt related. Since these schemes are long term in nature, investors invariably choose 100% equity

allocations. Such investors had taken a huge beating during the crash of 2008 and have seen significant erosion in

their investment values. This volatility had put off potential as well existing investors from committing more funds into

these schemes.

Now “Assured Highest NAV” schemes have been projected as the ultimate solution to market risk. You are guaranteed

the highest Nav during a certain period, or fund value whichever is higher at the end of term. What sold to investors is

the idea that the fund will be invested completely in equities and the highest returns from such an equity portfolio will be

made available to them. This is not the truth.

First let us understand how these products work

1. The initial investments may be 100% equity or a combination of debt and equity depending on the strategy followed

by the fund manager

2. The fund manager follows a portfolio insurance strategy that can be done by allocating funds between debt and

equity – Here the fund manager sells equity as the market falls, so as to protect the downside. Unfortunately the

‘guarantee’ on highest Nav does not allow for the reverse to happen i.e. to buy equities as the market recovers. This

results in sub-par returns from the Equity portfolio

3. Money removed from the Equity portfolio is invested in debt. The proportion of debt increases steadily and soon the

debt part of the portfolio will become large enough to ensure the highest NAV.

So let’s say over the next 10 years a 100% equity portfolio will deliver a 15% CAGR. A ‘highest NAV assured scheme’

will deliver anything between 6 to 10% CAGR during the same period. From this further deduct costs that when spread

over the duration of the scheme could range from 3 to 4% p.a. You also pay for insurance (mortality charges). So cut

out that too from your returns and you will see that these are really inferior products. In fact they are inferior to even

regular ULIP products because the guarantee on highest NAV is available only if you survive the term. If you die during

the term, your nominees will get the prevailing value of the fund. They are inferior to even a regular debt product

because of the high cost structure.

A guaranteed NAV does not guarantee ‘equity linked’ returns. There is no way of knowing what the highest NAV would

be and that Nav would probably have nothing to do with the stock market’s highest level during the same time. The so

called guarantee is a marketing gimmick and is implicitly a result of the way the investment is structured i.e. with high

proportion of debt. As an investor you are paying for such a guarantee, by accepting less than optimal returns.

Please evaluate your insurance needs and asset allocations before investing in any product. And it is best to avoid

expensive investments for your long term goals. To get equity related returns invest in equities. A good quality, well

constructed portfolio is a better guarantee to optimal returns.

by kavitha menon

Be an Investor

Use Money in Order to Make More Money follow the “Cash Flow Quadrant”

There are four types of income generators in the world
1.    E – The Employee safe and secure job.
2.    S – The Self - Employed own their own job.
3.    B – Business owner why to do it yourself if you can hire someone to do it for you like Tata, Birla etc.
4.    I – investor who makes money with money.

AS SAID RICH V/S MIDDLE CLASS

Rich Earns    - 30% from E or S and 70% from I
Others Earns - 80% or more from E or S and 20% or less from I

Let’s resolve in 2010 to be an INVESTOR:

The Must Haves!

• “Health is wealth” Absolute Truth; when it comes to health. Remember, for yearly executive health check up. Cover your family under Regular Mediclaim / Family Floater Plans & enjoy tax benefit u/s 80D. Sec 80D allows deduction of max limit of 15000, additional limit of 15000 for coverage of dependant parents and for senior citizen the limit is 20000. Opt for LIC’s Health protection plus alongside  and enjoy tax benefit of Rs 15,000 from 2 different files. Sec 80DD allows deduction of max amt of 50,000 or Rs 1, 00,000 for treating maintenance of severe disability for dependent family members. Sec 80DDB includes deduction of medical expenditure on treatment of prescribed ailments.

• “Review Liability Portfolio “ when Too Much is Dangerous clear all your liabilities especially when we are not getting tax benefit out of it e.g. personal loan, car loan, other than business loans and education loan so that we have complete financial independence. Sec 80E includes tax relief of interest payment on education loan for higher studies of child, spouse & self.

• “Home Loan” Let You Family Inherit the House Not the Home Loan; owing a house is not just a dream but a necessity and there are several tax benefits as well. We can always opt for housing loan, as interest paid on home loan can be deducted up to 1.50 lacs, it can be doubled in case of joint borrowers. Further there is no cap on deduction of interest if the house is either let out or deemed to be let out u/s 24 as this can be worked out as a good tax planning tool at the same time it creates asset for you.

• “Life Insurance “is a plan that exalts life and defeats death; At any time human life value in society is far greater in magnitude than value of all property put together.Life insurance plans not only gives peace of mind, but also help us in securing our liabilities. Premiums paid also qualify for sec 80C & 80 CCC. The maturity proceeds are tax free u/s 10(10D)

• “Ready to retire rich ?” Chase your passion, not your pension; With stretched work hours and strenous routines, saturation level are setting in earlier for the youth today. In such a scenario, early retirement has beecome more a need than desire. Remember, the later you start for your destination, the faster you have to travel …the later you start saving for retirement, the more you have to accelerate your rate of saving You can earn tax free monthly income per month by investing monthly from today. Retirement planning assures dignified and independent life.

• Key Person Insurance ; It is an old cliché, but a true one nevertheless, that one of the most essential elements in the success of any business is the quality of people working within it. As a business owner you are a valuable asset to the company ensuring yourself can ensure your company’s future and protect the future of your business. Cost (premium) under Key man Insurance is 100% exempt from business income u/s 37(1).

• “Prepare for Education and Childs Marriage” through mutual funds. With higher apetite to take risk at younger age we can consider investing in mutual funds or unit linked policies  with respect to short term planning. Investing amounts is SIP’s can lead to better results than having lump sum in traditional bank by taking advantage of the volatility in the market.ULIP and few mutual fund schemes are eligible for deduction u/s80C.

Note;The premium can be paid upto Rs 1,00,000/-to avail deduction u/s 80C,80CCC. However the limit of 1Lac can be exhausted by paying premium under any of the said section

• “Succession planning “the key to better planning; Succession Planning combines elements of business design, ownership/management succession, wealth accumulation, retirement design, and estate planning. For further reference we have added the factor on our website www.bharatparekh.com at InstaWILL

• “New Direct Tax Code”; In this budget finance minister is planning to introduce the DTC code which is believed to more simplified and easy but lets talk abt it once it comes.

Please check if you’ve taken the benefit

• Sec 80C/80 CCC  -  Investments upto Rs 1.00 Lac in Life insurance, ULIP, NSC, tax saver - bank deposits, mutual funds, post office schemes, EPF, PPF, Prin. Payment - home loans & children’s tution fees

• Sec 24  -  Upto Rs 1.5 Lacs on home loan interest payments - For joint borrowers Rs 3.00 Lacs. For let out property, no limit on deduction of interest

• Sec 80E  -  Interest payments on education loan taken for higher studies

• Sec 80D -  Deduction upto Rs 15,000 under mediclaim/ health insurance policies. Additional Rs 15,000 for cover of dependent parents. Sr. Citizens, limit is Rs 20,000

• Sec 80 DD  -  Upto Rs 50,000 for treating  maintenance of a handicapped dependent/ Rs 1,00,000 for treating maintenance of a dependant family member with severe disability. E.g. amt deposited with LIC under Jeevan Adhar plan.

• Sec 80 DDB  -   Deduction on medical expenditure on prescribed ailments

• Sec 37(1) - Cost(premium) under Key person Insurance is 100% exempt from business income u/s 37(1)

Last but not least the “Right Choice”: choose your financial advisor with

• Service Attitude
• Thorough knowledge in his domain
• Efficient team
• Rich experience
• Strong client base.

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.

The Life Insurance Council has decided to standardize the formula to calculate charges linked to ULIPS (Unit Linked Insurance Plan). This reform just comes after the big bang reform of abolishment of the entry load in the Mutual Fund.

Behind these announcements is the ongoing struggle between life insurance companies and mutual funds.

A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.

The ulip scheme is a mixture of investment and insurance. ULIPs scheme is like a wayward chicken which doesn’t stick to one place . It’s policy value at any time varies according to the value of the underlying assets at the time.

However, this distinction has blurred over the last few years. Indeed, one gets a feeling the life insurance companies are also in the business of running mutual funds, categorised somewhat differently as unit-linked insurance plans (ULIPs).

Round one-The reforms will put ULIPs in higher pedestrian compared to Mutual Fund.

The insurance agents gets more commission for selling ULIPs schemes. Hence the marketing of ULIPs is on much larger scale which in turn hampers the sale of Mutual Funds. This has given ULIPs a headstart and is doing very well in comparison to the Mutual Funds.

The abolishment of the entry load will discourage the distributors and agents to sell Mutual Fund, since it has completely vanished their revenue stream.

In ULIPs, the agent’s commission varies, but in the first year, it could be as high as 25% and more. This

has definitely put ULIPs in the higher pedestrian and agents will be more than eager to sell the product. In round one ULIPs has clearly taken a lead and entry load abolishment has hurt mutual fund a lot.

Next is the issue of transparency.

There is a vast difference between the meaning of net asset value (NAV) of ULIPs and mutual funds.

In a mutual fund, the NAV announced is net of all expenses and charges the fund company deducts. If your investments were worth Rs 1 lakh when a fund’s NAV was Rs 22, then it will be worth Rs 2 lakh when the fund’s NAV is Rs 44. That’s it.

The arithmetic of insurance companies is different. NAVs of ULIPs are effectively pre-deductions. The NAV may double, but your investments won’t double because the insurance company will reduce the number of units you hold to pay for expenses and commissions etc. This means the announced NAV has no clear and transparent relation to what the unit holders are actually earning.

The Round two- The knockout punch-Ulips to be simplified , standarised.

The new reform of simplifying ULIPs and standardizing the formula to calculate charges linked to ULIPs going to be the game changer for this ULIPs vs Mutual Fund war.

This reform will be the knockout punch for the Mutual Fund. The standardization of the ULIPs charges will make it easier for the consumer to compare the ULIP plans and this will the last armour that ULIPs needs.

The round two - ULIPs wins by a heavy lead.

In the battle of ULIPs vs Mutual Funds, ULIPs has a clear advantage after this two big bang reforms, but it’s still early days to rule out Mutual funds. They can raised up to this challenge and emerge as a winner.

The Supreme Court has held that in motor accident insurance claims the compensation fixed by the official surveyor is not binding on the claimants or the insurance companies. - A newspaper reported on the 22^nd of June 2009. This basically means that the surveyor’s report is not the final verdict for the claim amount. The insurer or the insured do not have any legal liability to rely or adhere to what the report has to say.

Currently every claim needs to have a surveyor report and on the basis of surveyor report the insurance companies had to pass the claim and the insured had to accept the claim amount. So in turn made surveyors very powerful. This creates lots of ambiguity on the entire process. However, now the insured & insurer do not have to depend on the surveyor’s approval of the claim amount.

This may prove to be a good move to incorporate professionalism in this sector of insurance. This can get a whole lot of stability and ethical behavior to this side of insurance.

However, the other argument to this can be the possibility of inflated claims. Since the insurer as well as the insured can argue or not abide by the surveyor’s report, one can inflate the claims. So who will be the final judge of what exactly will be the amount of the claim is left unanswered. Only once, claims are registered from now on, one will know what exactly is the appropriate process. The role of a surveyor now is also in question. This is because the company or the insurer who themselves appoint the Surveyor, now has the authority to not agree to their claim figures. Does it mean that the job of the surveyor is in danger? Or have they realized or witnessed the unethical behavior?

Hence will this move help to get the truth out or worsen the situation? Only time will tell!