Managing Insurance Needs

How to Buy Insurance ?

-Which Company ?Which Policy ?

How Much Cover I need ?

Why Life Insurance ?

Why Insurance

• Life is uncertain• Protect from uncertainties of life

– Protection for your family– Protection against major medical bills– Protect what you have

• Decisions– Which risks to cover– How much cover to take– Choosing

• The right insurer• The right policy• The right agent

Risk Rating Matrix

5B A A A A

Key

4C B A A A

3C C B B A

2D D C B B

1D D D C C

1 2 3 4 5

Risk Quadrants

LIKELIHOOD

IMP

AC

T

A ExtremeB HighC MediumD Low

Risk Response

RISK - KITE

Risk Avoidance

Risk

Tra

nsfe

r

Risk Retention

Risk Reduction

Personal Risk Management

• Risk Avoidance• Loss prevention• Loss Mitigation• Risk assumption• Risk Transfer/pooling

– Insurance allows individuals to pool risk associated with a contingency

– Person transferring risk is called insured– Person assuming risk is insurer– Small amount contributed by the insured is called premium– Person designated to receive the insurance proceeds is called

the beneficiary

Insurance

• Life Insurance• Health Insurance• Critical Illness• Permanent disability

Life Insurance

• Why Life Insurance– To protect your dependents from financial hardship in event of

untimely death• To meet financial needs of dependents• To protect what you already have• To ensure attainment of unfulfilled financial goals

– As an Investment vehicle• Long Term commitment• Disciplined investing• Tax benefits

Basic Principles

• Insurable Interest– Insured must be in position to lose financially if a loss occurs– To prevent gambling– To reduce moral hazards

• Indemnity– Insurers agrees to pay not more than the actual amount of loss– Insured should not profit from the loss

Basic Principles

• Subrogation• Subrogation is the right for an insurer to pursue a third party that

caused an insurance loss to the insured. This is done as a means of recovering the amount of the claim paid to the insured for the loss.

• Utmost good faith– A higher degree of honesty is imposed on both parties to an insurance

contract – Concealment of material information that may have a bearing on the

decision of the insured makes the contract voidable

Need for life insurance

• Who does not need life insurance– Single with no dependents– Children– Non-earning members of family– Retired with no dependents

• Who needs life insurance– Any earning member with dependents

• Insurance need keeps on changing with different phases in life– Should be reviewed periodically

Calculating Insurance Need• How much insurance you need• Two Approaches

– Earnings Multiple Approach– Needs Approach

• Earnings Multiple Approach– Life cover equivalent to a multiple of your gross annual

income (100-200 times of monthly income) – You want to replace a stream of annual income that is lost

due to the death of the breadwinner– The longer you need to replace the income stream, greater

the multiple– Higher the return you can earn on settlement the lower the

multiple

Calculating Insurance Need

Needs Approach• Determine the need of the family after the death of the primary

breadwinner• Assessing Needs

– Immediate needs at the time of death– Debt elimination– Immediate Transitional funds– Family Expenses– Educational Expenses/ Marriage Expenses

• Take stock of available resources• Needs minus resources

Type of Life Cover

• Term Insurance– To provide a lump sum amount to the family in the event of untimely

death of the breadwinner– Pure risk cover, no investment component

• Pure Endowment– Amount is payable only if the insured survives till the end of selected

period– Accumulation of saving

Term Policies

• Pure risk cover with no investment component• Risk cover for a fixed term• Premium paid goes towards risk cover• Sum assured payable only in case of death of the insured

during the term• Nothing payable in case of survival• Premium paid is significantly lower compared to investment

based policies• No loan against policies• Suitable for taking a huge cover at a low cost

Term Policies

• Renewable Clause– The policy can be renewed by the policy owner without medical

examination– No need to prove continued insurability– Premium will be adjusted at each renewal– Restriction in terms of numbers of renewal or age

• Convertible Clause– Option to convert a term policy into a whole life or endowment policy– Conversion takes place from the date of commencement of the original

policy or from the attained age

LIC vs. Others

Company Name Policy Name Mode Riders AvailablePremium(1 crore SA)

Aegon Religare iTerm Online Yes 7,300

Bharti Axa e-Protect Online No 7,300

Aviva i-Life Online No 7,368

HDFC Life Click2Protect Online No 10600

Kotak e-Preffered Online No 10825

Edelweiss Tokio Life Protection Plan Online Yes 11,500

Metlife Met-Protect Online No 11,600

ING Vyasa My Term Insurance Offline NA 11,891

ICICI Prudential i-Care Online Yes 13000

DLF Pramerica U-Protect Online Yes 13,400

SBI life Smart Shield Offline Yes 16,798

Bajaj Allianz iSecure Online Yes 18400

Max NewYork Platinum Protect Offline Yes 23,500

IDBI Fedral Termassurance Online No 25,350

LIC Amulya Jeevan Offline No 33,600

InsurerCSR for 2011-12

CSR for 2010-11

CSR for 2009-10

Policy Name Premium

LIC 97.42 97.03 96.54 Amulya Jeevan 15169

ICICI Prudential 96.53 94.61 90.17 iCare 7303

HDFC Life 96.17 95.41 91.14 Click2Protect 6067

SBI Life 95.48 82.24 83.27 Smart Shield 8539

Kotak Life 92.1 89.3 86.97 ePreferred Term 5843

Birla Sunlife 90.94 94.66 89.09 Protector Plus 8202

Bajaj Allianz 90.61 88.69 88.19 iSecure 6505

Max Life 89.84 77.96 65.51 Platinum Protect 10281

Aviva 89.55 84.15 87.11 iLife 4707

ING Vysya 88.82 90.49 89.3

Bharti AXA 87.7 87.17 77.8 eProtect 4607

Whole Life Policies

• A variation of term insurance where the term is equal to the life of the insured

• Term insurance for the longest term• Sum assured is paid to the nominees on the policyholder’s

death• Premium is higher than term policy as every policy eventually

would have a claim• Variations

– Pure Whole Life Insurance –Premium is payable throughout the life– Limited Payment Whole Life Insurance – Premium is payable for a

limited period

Endowment Policies

• Investment based policies• Dual benefit

– Life cover for a specific tenure– Wealth accumulation

• Insurance money is payable to the insured/nominee– In the event of the death of the insured during the endowment period– In the event of insured surviving till the end of the endowment term

• A combination of Term Insurance and Pure endowment

Endowment Policies

• Money-back policies– A variation of endowment policy– A part of the sum assured is paid to the insured at regular intervals

• Unit Linked Insurance Plans (ULIP)– A variation of endowment policy– Investment as per the choice of the insured e.g.

• Equity• Balanced• Debt

ULIP CHARGES

• ULIP’s usually have following charges built into it :

a) Up-front Chargesb) Mortality Charges ( Charges for providing the risk cover for life)c) Administrative Chargesd) Fund Management Charges

• Mutual Fund’s have the following charges :

a) Up-front charges ( Marketing, Advertising, distributors fee etc.)b) Fund Management Charges ( expenses for managing your fund)

Riders

• Additional features• To customize insurance policy by taking optional features• Additional cost• Examples

– Critical illness rider– Major surgical assistance– Accidental Death– Permanent Disability Rider– Medial benefit rider

Other terms

• With or without Profit– Insurance company declares bonus every year– With profit policies are entitled to the bonus– Premium on without profit policies is lower

• Guaranteed Bonus/addition– Bonus is guaranteed as certain amount per thousand of sum assured– Payable at the end of the term or death

• Loyalty Bonus/ addition– Additional bonus based on the length of the policy

Insurance Policy

• Defines rights and obligation of the insured and the insurer• Identification

– Insured– Beneficiaries/Nominee– Term of Policy

• Payment of premium– Payable in advance– Monthly, Quarterly, Half Yearly, Yearly

• Grace period– Extension of time granted for making payment of premium– Payment can be made without penalty and the policy remains in force

Insurance Policy

• Non forfeiture clause– Enables termination of policy before maturity

• Get surrender value• Exchange surrender value for a paid-up policy with a reduced face

value• Exchange surrender value for a paid-up term policy

• Policy reinstatement– Reviving a policy within a specified period after it has lapsed due to

non-payment– Generally within 5 years from the due date of first unpaid premium– On a medical basis or non-medical basis

Insurance Policy

• Loan– Loan permissible against the surrender value– Rate of interest is generally low compared to commercial rate of

interest

• Suicide clause– Policy is void if the insured commits suicide within the specified time

period

• Multiple Indemnity Clause– Double or triple cover in case of death because of accident– Double or triple cover in case of death, payment of the face value on

maturity

Insurance Policy

• Joint Life Policies– Joint life insurance for husband and wife– In case of death of the first life, sum insured is paid to the surviving

spouse– Risk cover continues for the second life, with or without payment of

premium– On maturity or death of second life, sum assured is paid

• Settlement Clause– Pay in lump sum– Pay the face value with interest over a fixed period– Pay as annuity for the rest of life

Buying/Maintaining Life Insurance

• Review need & coverage• Compare features and costs• Selection of a company• Selecting an agent• Understanding the policy document• Nomination• Inform the family about the policy and policy documents• Keep Insurance company informed about change of address

Some Interesting Questions..

• Suicide cases• Smokers and non smokers, Drinkers/non

drinkers (How do they know ?)• Pre existing diseases • Non disclosures and misrepresentation• What if I close a policy ?

Health Insurance

Why Health Insurance

• Increasing Life expectancy• Improved healthcare services• Increasing cost of healthcare• Second most important insurance cover after

life

Health Insurance Plans

• Covers medical expenses due to hospitalization from sudden illness or accident– Covers pre-hospitalization (30 days) and post-hospitalization (60 days)– Covers Domiciliary hospitalization

• Age group of 5 to 80 years. Children can be covered from the age of 3 months provided at-least one of the parents is covered

• Benefits– Reimbursement of medical expenses– Discount on family package– No claim bonus

• Increase in policy cover for every no-bonus year

Health Insurance Plans• Cash Less Facility

– Third Party Administrators• Maintain data-base of policyholders• Issue identity cards to policyholders• Handle claim settlements• Advise as to whether the ailment is covered by the policy

• Exclusions– Hospitalization within 30 days– Certain diseases within the first year– Pre-existing conditions– Pregnancy/child-birth

• Indicative premium for Rs.3,00,000 cover – Rs.3,500• Premiums paid are eligible for deduction under section 80D of Income tax

Act.

Critical Illness Plan

• Financial assistance in the event of insured contracting any of the covered critical illness.

• The policy covers First Heart Attack, bypass surgery (Coronary artery), Stroke, Cancer, Kidney failure, Major organ transplantation, Multiple sclerosis, Aorta graft surgery, Primary pulmonary arterial hypertension, Paralysis.

• Clams to be supported with a certificate from the specialist confirming occurrence of the critical illness

• Premiums paid are eligible for deduction under section 80D of Income tax Act.

• Exclusion– Illness contracted within 90 days– Death within 30 days after diagnosis

Critical Illness Plan

• Indicative premium for age 45 years

Cover Premium

1,00,000 800

2,00,000 1600

5,00,000 4000

Hospital Daily Allowance

• Cash benefits in the event of insured persons being hospitalized due to sickness or accident.

• Age group of 3 months to 60 years. • Daily allowance for every day of Hospitalization -Rs.500/-, Rs.1000/- or

Rs.2000/- per day• Maximum of 30/60 days of hospitalization per policy period• Premium paid eligible for Tax benefit u/s 80 D of IT Act• ICU admission double the scheduled amount (maximum of 7 days)• Indicative Premium for 25-40 years old for Rs.2000 per day for 30/60 days

- Rs.600/ Rs.1020 per annum

Overseas Travel Cover • Personal Accident - covering death and permanent disablement• Medical Expenses and repatriation - covering hospitalization expenses

arising out of illness/sickness and also repatriation expenses for sending mortal remains to India

• Loss of checked baggage - covering total loss of baggage checked by an international airline

• Delay of checked baggage - covering cost of emergency purchase of replacement items

• Loss of passport - covering the actual expenses incurred in obtaining duplicate passport or alternate travel document and

• Hospitalization Allowance - covering daily allowance maximum for 30 days applicable only for Corporate Frequent Traveler policy holders

Personal Accident Cover

• Covers death or bodily injury due to accident• Benefits

– Basic Cover - Death – Wider Cover

• Death• Permanent Total Disablement• Permanent Partial Disablement

– Comprehensive Cover• Wider Cover plus • Weekly compensation

Choosing Health Insurance

• What is right for you• How much insurance

• Cost• Risk assumption

• Choosing an insurer– Cost– Benefits

• Hospitalization/Pre-Hospitalization/Post-Hospitalization– Coverage

• Attached hospitals /Others– Services – TPA/ Cash Less Settlement

Using Health Insurance

• Read & understand the policy document• Keep a list and phone number of the TPA and network

hospitals• Keep the card issued by the TPA handy• In case of need of hospitalization get is touch with the TPA

and obtain prior-approval• Inform the hospital about your policy and TPA• Bill would be settled directly by the TPA• Amounts not admitted by the Insurance company would have

to be paid by the insured

Property Insurance

Basics

• Covers losses to real and personal property caused by perils such as fire, theft, accidents etc.

Home Insurance• Fire• Covers loss or damage to Building and its contents due to Fire, Lightning, riot,

strike, malicious and terrorist damage, Storm, cyclone, tempest, hurricane, tornado, flood and inundation. Earthquake, subsidence and landslide including rockslide,

• Sum insured can be on market value or re-instatement value basis.• Burglary• This section covers the property against housebreaking and theft.• The sum insured should be the market value of the property• The jewelry, electronic equipment/TV that one wishes to cover under the

respective section need not be insured under this section.

Home Insurance• Jewellery And/Or Precious Stones All Risks• Under this section, Jewellery and/or Precious stones can be covered

against all risks.• Plate Glass• Fixed plate glass can be covered against accidental breakage.• Domestic Appliances• Domestic appliances like air conditioners, refrigerators can be covered

against accidental electrical or mechanical breakdown.• The value should be on reinstatement value basis.• Losses, which can be repaired, will be settled by paying the repair cost

without applying any depreciation.

Home Insurance

• Electronic Equipments • Electronic Equipments like Computer, TV, and VCR can be covered

against all risks of damage and breakdown.• Sum insured is to be on reinstatement value basis• Losses, which can be repaired, will be settled by paying the repair cost

without applying any depreciation. • Pedal Cycles• Pedal cycles can be insured against all risks • Third party liability arising out of the use of pedal cycle is also

covered.

Home Insurance

• Baggage Insurance• Loss of baggage while on tour or on holiday can be

covered under this section. • Personal Accident Insurance• Covers the insured and his family members under this

section.• Following extensions can be taken under this section by

payment of additional premium: Temporary Disability BenefitsPermanent Partial DisabilityHospital Confinement Allowance

Public Liability

• This section provides for any legal liability arising out of bodily injury to or loss or damage to property of third party.

• The policy provides for any legal liability arising out of accidental death of or bodily injury or occupational diseases to workmen, as per the Workmen's Compensation Act, 1923.

Buying home insurance

• Make an inventory of the property• Identify perils• Stand alone policies vs. comprehensive policy• Shop around • Jewelry – kept in lockers/ home• Review insurance cover • Exclusions• No claim bonus

Claim Settlement

• Were necessary steps to minimize the loss/damage were taken?

• In case of fire, was the fire brigade informed promptly?• In case of theft, was the police informed and provided

with a list of items stolen?• Was the insurance company informed promptly?• Exclusion e.g. if the house remains unoccupied for more

than 60 days.

ICICI Lombard Home Insurance

Key Benefits

• Comprehensive cover available, which covers both structure and / or contents of your home

• Coverage up to 10 years for only structure, 5 years for only contents and 5 years for structure & content

• Cover against Fire and allied perils, Burglary & Theft and Optional cover for Terrorism and Additional expenses of rent for alternative accommodation.

Sum Insured and Coverage• What is covered•

You can choose to buy insurance for only the building (structure) of your home, or only the contents (belongings) or both.

The policy covers the losses to the structure and contents of your home due to any natural and man-made calamities.

The calamities covered are:Fire

• Lightning• Impact Damage• Aircraft damage• Explosion / implosion• Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation• Riots, Strike, Malicious and Terrorism Damage(optional)• Subsidence and Landslide including Rockslide• Bursting and/or overflowing of water tanks, apparatus and pipes• Missile testing operations• Leakage from automatic sprinkler installations• Bush Fire• Earthquake

The contents of your home are also covered against loss due to burglary or an attempted burglary / housebreaking including theft. It also covers loss of jewellery, silver articles and precious stones kept under lock and key, up to 25% of the total content sum insured or Rs. 1 Lac, whichever is lower.

Optional covers:

Terrorism Cover: Covers any damages and losses to the structure and / or contents of your home due to acts of terrorism.

Additional expenses of rent for alternative accommodation: If you are forced to shift into an alternative accommodation because your home is destroyed or damaged by any insured peril, the policy will cover you against the additional rent.

The maximum coverage is up to 1 Lakh for up to 6 months. This cover is available only if you are insuring the structure of your home

What is not covered

• Willful destruction of property.• Loss, damage and destruction caused by war,

wear and tear etc.• Losses if your home has been unoccupied for

more than 30 days, without prior notice to the company.

• Cash, bullion, painting, works of art and antiques

How to calculate the Sum Insured

• The home insurance policy insures the structure of your home for its reconstruction value (and not for market value).

• Reconstruction value is defined as the cost incurred to reconstruct the home if it is damaged.

• On the other hand, market value is a combination of cost of land, demand & supply scenario, etc.

How to calculate the Sum Insured

• Sum insured is calculated by multiplying the built up area of your home with the construction rate per sq. feet, e.g. if your built up area of your home is 1000 sq. feet and the construction rate is Rs 800 per sq. feet, the sum insured for your home structure is Rs 8 Lakh.

We recommend the rate of construction for few major cities when you are buying online. However, this value can be revised appropriately if expensive material - like marble flooring, etc. - has been used in construction. If your home has lawn / garden surrounded by a perimeter wall, the construction rate can be revised to include the cost of construction of this wall in home structure sum insured.

Home Contents:The contents of your home - furniture, durables, clothes, utensils, jewellery, etc. - are to be valued on market value basis i.e. the current market value of similar items after depreciation.

CITY  RATE (RS.)  STATEMumbai                  2,000 MaharashtraNew Delhi                  2,000 DelhiJaipur                  1,800 RajasthanChennai                  1,800 Tamil NaduKolkata                  1,800 West Bengal

Hyderabad                  1,800 Andhra Pradesh

Ghaziabad                  1,800 Uttar Pradesh

Noida                  1,800 Uttar Pradesh

Gurgaon                  1,800 HaryanaFaridabad                  1,800 HaryanaKolhapur                  1,500 MaharashtraBangalore                  1,500 KarnatakaMysore                  1,500 Karnataka

Ahmedabad                  1,500 Gujarat

Pune                  1,500 MaharashtraBaroda                  1,500 Gujarat

Lucknow                  1,500 Uttar Pradesh

Ludhiana                  1,500 PunjabNagpur                  1,500 Maharashtra

Trivendrum                  1,500 Kerala

Kanpur                  1,200 Uttar Pradesh

Vizag                  1,000 Andhra Pradesh

Rest Of India                  1,000 Rest Of India

Section I - Premium for Fire & Special Perils Cover

(a) Building(in lakhs)

5 7.5 10 12.5 15 17.5 20 22.5 25 27.5 30 35 40 45 47.5 50

Premium I (a)(in rupees)

382 573 764 955 1146 1337 1528 1719 1910 2101 2292 2674 3056 3438 3629 3820

(b) Contents(in lakhs)

1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8

 

Premium I (b)(in rupees)

76 115 153 191 229 267 306 344 382 420 458 497 535 573 611

Section II - Premium for Buglary and Theft Cover

Buglary and Theft(in lakhs)

1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8

 

Premium II (in rupees)

270 404 539 675 809 944 1079 1213 1348 1483 1618 1753 1888 2022 215

KEY FEATURES

• Section I : Fire and Special Perils (a) Building (b) Contents• Covers Against• Fire/Lighting/Explosion/Implosion/Aircraft Damage/Riots, Strikes

and Malicious Damage/Storm, Cyclone/Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation/Impact Damage/ Subsidence and Landside including Rockslide/Bursting and/or Overflowing of Water Tanks, Apparatus & Pipes/Missile Testing Operations/Leakage from Automatic Sprinkler Installations/Bush Fire/Earthquake, Volcanic Eruption & other Convulsions Of Nature.

• Section II : Burglary and Housebreaking• Burglary cover for Contents cannot be opted for on a stand alone

basis.

Motor Insurance

• Type A – Third party liability– Compulsory

• Type B – Comprehensive Cover– Type A plus loss/damage to the vehicle

Motor Insurance• Liability policy • Liability policy covers risks required to be covered under the Motor

Vehicles Act. It is mandatory that every car owner be covered against Act Risks under Section 146 of Motor Vehicles Act 1988

• The scope of cover is to pay compensation for death of or bodily injuries to third parties and damage to the property of third parties. While the insured is treated as the first party and the Insurance Company second party, all others would be third parties

• This policy provides personal accident cover of Rs.2,00,000 to owner driver.

• While the compensation for the personal injuries to third parties is unlimited, property damage is limited to Rs.7,50,000.

Package Policy (Comprehensive)

• This policy covers all the risks of Liability policy as well as the loss of or damage to insured's vehicle also

• The perils covered are: – Damage to vehicle by accidental external means, fire, lightning,

explosion, self-ignition, Burglary. Housebreaking – Riot & strike, malicious acts and terrorist acts – Earth quake – Flood, cyclone etc – Landslide/ rockslide while in transit by rail, road, air, inland

waterways, lift or elevator

Motor Insurance

• Package policy can be restricted to loss or damage due to fire or theft or both fire & theft in combination with policy A

• The geographical limits for use of the vehicle is India but the limits can be extended to Bangladesh, Bhutan, Pakistan, Nepal, Sri Lanka and Maldives by charging an extra premium

• Policies can be issued for periods less than one year. In such cases, short period scales are charged, which are higher than pro-rata rates.

• No claim Discount: For every claim free year, the insured is rewarded with discounts in premium

• In case of a claim in any year, bonus earned till that year is wiped out.

Motor Insurance• Discounts • If the insured is a member of recognized Automobile Association in

India• If the insured's vehicle is fitted with anti theft device approved by

automobile research association of India • By opting for deductibles - Deductible is the portion of each and every

claim, which has to be borne by the insured. • No Claim Bonus – 20-50% depending upon number of claim free years• Vintage Cars• Vehicles specially designed/modified for use of the handicapped

persons

Motor Insurance

• Exclusions– Accident outside geographical area– Consequential loss– Normal wear & tear– Driving without a valid driving license– Driving under the influence of liquor/drugs– Vehicle not being used as per regulations