life insurance

Quick Notes: AEGON Religare iTerm Plan (Online)

by Vinaya HS on July 25, 2012

in Finance

For the third review in this series, I decided to pick-up the AEGON Religare iTerm Plan (Online) — perhaps the most popular online term insurance plan out there. What stood out and immediately cried for attention on the portal was that the claims statistics are openly published for everyone to see. Impressive. The company also provides an explanation behind the one rejected claim. Supports my hypothesis that if you’re brutally honest when filling up the policy form, you really would have nothing to worry about.

Image of statistics for Aegon Religare iTerm Plan

A quick reminder: To help you to keep up with new term plan reviews, to go back and refer to past reviews, and to share all of this content with your friends, I’ve created the following easy to remember link — http://bit.ly/termplans. So, please go ahead, bookmark and share — I see that many of you already are. Thanks!

  • The plan offers some optional riders — Accidental Death Benefit, Waiver of Premium on Critical Illness, and Women Critical Illness. I’m not too impressed by the features offered by the latter two, so the only useful rider seems to be the Accidental Death Benefit. But I couldn’t find a way to customize the coverage offered under this rider — the premium calculator seems to automatically pick a coverage based on the other factors such as policy term, your age, etc. and in some combinations the rider option seems to disappear.

  • I also like the built-in Terminal Illness clause, which, on diagnosis of any Terminal Illness, 25% of the base sum assured will be paid (maximum of Rs 100 lacs) & the base sum assured will be reduced by an amount equal to the benefit paid under this clause. In my opinion, large cash infusions into your savings account in such situations would directly benefit you.

  • Maximum maturity age is 75. So, unlike the current incumbent Bharti AXA Life eProtect plan, you’ll be very well covered even into traditional retirement. The policy term is continuous rather than being restricted to blocks of years (5-years, 10-years, 15-years, and so on).

  • Medicals are not required up to a coverage of 25 lacs, seem to be optional up to a coverage of 50 lacs and are compulsory beyond that. The great thing is that all of these are stated upfront. That’s what I am generally liking about AEGON Religare — the portal is very well designed and everything seems to be stated up-front and in a very visible way.

  • For our usual 30-30-1 benchmark plan (30-year old buying a 30-year plan for Rs 1 crore cover), the indicated premium is Rs 7,300 excluding service tax which happens to be exactly the same as that for the Bharti AXA Life eProtect plan.

  • I’m also comfortable with the AEGON Religare brand.

So, do we have a new winner?

I believe we do. In my opinion, the AEGON Religare iTerm Plan offers you a lot more flexibility than the Bharti AXA Life eProtect Plan (the current title holder) at the same benchmark premium. That now puts the AEGON Religare iTerm Plan in pole position.

What do you think?

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Quick Notes: Kotak e-Preferred Online Term Plan

by Vinaya HS on July 23, 2012

in Finance

I simply love my readers. I was a bit apprehensive about how my “quick notes” reviewing online term life insurance plans would be received, but seeing your responses to the first one has me motivated. Now, for the second review in this series, I’ve picked up an online term plan from Kotak Life Insurance called Kotak e-Preferred Term.

Note: To help you to keep up with new term plan reviews, to go back and refer to past reviews, and to share all of this content with your friends, I’ve created the following easy to remember link — http://bit.ly/termplans. So, go ahead, bookmark and share.

Here’s what I think of this plan –

  • I really like the Step-Up option that lets you increase your coverage at key stages in your life (marriage, purchase of a house, and birth or legal adoption of a child being the key ones) without undergoing new medical tests. These typically are the situations when you’d need to review and increase your life insurance needs. And normally these changes in your life do occur before you turn 45 which is when this plan would no longer give you the step-up option. So, I’m OK with that clause.

  • What’s more, there’s even a Step-Down option if you need to lower your insurance needs!

  • Maximum maturity age is 70. So, unlike the Bharti AXA Life eProtect plan, you’ll be pretty well covered even into traditional retirement. The policy term is continuous (anything from 5-years to 30-years) rather than being restricted to blocks of years (5-years, 10-years, 15-years, and so on up to 30-years).

  • For our 30-30-1 benchmark plan (30-year old buying a 30-year plan for Rs 1 crore cover), the indicated premium is Rs 11,500 excluding service tax which is 1.57 times the Bharti AXA Life eProtect plan. That’s quite expensive!

  • I’m also comfortable with the Kotak brand and if you’re keen on knowing the claims settlement ratio it’s about 89.30% for the time period 2010 — 2011.

  • But what concerns me the most is the high premium (and the premium would only increase further with the step-up options and with service tax) for nothing spectacularly different. And remember, you’d be paying these high premiums for the next 20- to 3o-years.

So, for now, I still keep the Bharti AXA Life eProtect plan in pole position.

But what do you think? Do you agree with my reasoning?

Again, to help you to keep up with new term plan reviews, to go back and refer to past reviews, and to share all of this content with your friends, I’ve created the following easy to remember link — http://bit.ly/termplans. So, go ahead, bookmark and share.

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So finally, I am coming around to reviewing online term life insurance plans. I’ve lost track of how many requests I have received through Capital Advisor over the past few months asking for my thoughts and perspectives on purchasing term life insurance plans online. I’ve also been meaning to buy one for myself from quite some time now, but you know the whole ere-thing has me totally consumed reading up on strategies and ways and means.

I thought I’d keep my reviews a bit different by simply jotting down quick notes on whatever plans I happen to review. Each quick note will compare an online term plan against the one from the previous quick note and then pick my choice from the two. That way I hope to emerge with the one online term plan that looks like the best bet.

I’d be delighted if you could participate in this process by offering your own thoughts, perspectives, and experiences as well as suggesting other online term plans that you’d like reviewed in subsequent quick notes.

So here’s the first one inspired by an email ad that I received for the Bharti AXA Life eProtect online term plan.

Quick Notes on Bharti AXA Life eProtect

  • Maximum age at maturity is 60. But the maximum policy term is only 30 years. So, if you’re some bits below 30, you will be left uncovered (!) for a few years before you retire (taking the traditional retirement approach and when you’d typically not need life insurance anymore due to your retirement corpus kicking in).

  • I like the Family Care Benefit clause that promises an initial payout of Rs 1 lac within 2-business days of claim submission. Immediate cash is always useful in such situations.

  • I also like the simple and no-frills approach of this plan. For a 30-30-1 plan (30-year old buying a 30-year plan for Rs 1 crore cover), the indicated premium is Rs 7,300 excluding service tax.

  • I’m also comfortable with the Bharti AXA brand but this is extremely subjective and also subject to bias. You might have experienced otherwise. But when in doubt, simply go by your gut feel and you will do fine. I’ll also stick my limb out and say that all those arguments about claim ratios and payouts shouldn’t bother you if you’re honest when filling up the forms. Plus with IRDA cleaning-up it’s own act and that of the industry, things would only get better.

That takes us off to a good start.

Again,

I’d be delighted if you could participate in this process by offering your own thoughts, perspectives, and experiences as well as suggesting other online term plans that you’d like reviewed in subsequent quick notes.

I’ll pick the next one based on your comments.

Note: To help you to keep up with new term plan reviews, to go back and refer to past reviews, and to share all of this content with your friends, I’ve created the following easy to remember link — http://bit.ly/termplans. So, go ahead, bookmark and share.

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A few days back, I happened to see an ad for this Monthly Income Plan from MetLife, a life insurance company. In this plan, you’re supposed to pay the premiums for about 10-years and then post these 10-years of paying premiums you’re guaranteed a fixed monthly income for the next 15-years.

As it always happens, I immediately started to think if a Do-It-Yourself (DIY) Monthly Income Plan (MIP) would be much much better off for you (after all why would you ever want the monthly income to stop after X number of years?) than a monthly income plan from a life insurer. In the MetLife plan, there are some complexities involved around your death and the related death benefits (since this is an insurance-cum-investment plan) but we’ll ignore all of these since I assume that you’d want to enjoy the monthly income in your own hand and not eye it virtually (!) from up above.

In the product brochure of the MetLife Monthly Income Plan (click here to download the product brochure), the following example illustration is shown –

Image of an example benefits illustration from the MetLife Monthly Income Plan product brochure

You can see from the above illustration that you pay Rs 35,541 each year for 10-years and then you get back Rs 2,500 per month for 15-years. After 15-years, the monthly income stops!

But what if you think a bit different from everybody else, don’t mix insurance and investment, and go for a do-it-yourself monthly income plan? Here’s what the above illustration would turn into –

Image of a do it yourself monthly income plan at a 6 percent rate of interest

You’d get the same Rs 2,500 per month in perpetuity! You could open a new Fixed Deposit each year for 10-years and implement this plan. It’s as simple as that. Or, you could even open a Recurring Deposit with a monthly payment of Rs 3,000 per month. There are many options. But what’s more important is that you stay in complete control of your money (it’s in front of your own eyes).

For the purpose of comparison with the insurance plan, if your DIY MIP were to earn an 8% rate of interest, here’s what your monthly income would look like –

Image of a do it yourself monthly income plan at an 8 percent rate of interest

About Rs 3,700 per month in perpetuity! (The insurance plan still continues to pay out only Rs 2,500 per month.)

And at a 10% rate of interest, here’s what your DIY MIP look like –

Image of a do it yourself monthly income plan at a 10 percent rate of interest

More than Rs 5,000 per month in perpetuity! (The insurance plan still continues to pay out only Rs 2,500 per month.)

Finally, the corpus left over (the maturity benefit figure in the insurance illustration) from the insurance plan is seriously laughable when you compare it with the corpus left over from your DIY plan.

So, why would you ever want to give your hard-earned money to a life insurer?

What do you think?

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I’ve simply lost track of the number of horror stories I’ve heard about totally junk life insurance being forcibly dumped on your head by relatives/friends-cum-insurance-agents. Everyone out there seems to have bought a life insurance policy from either a relative, or a friend, or a friend of a relative, or a relative of a friend, or a relative of a relative, or a friend of a friend, and similar relationship chains. It’s quite horrible.

I asked D, who also happens to be a victim of such a life insurance policy, to create an art of finance sketch on this concept. Here’s the result –

Image of an Art of Finance sketch on insurance agents.

I think all of her bottled-up vengeance came out in this sketch! And I think it’s true to every word. A junk life insurance policy is like a tight noose around your neck just waiting to snap it into two. The scenario is just like a guillotine and you can guess who the executioner is! So, if you currently happen to be in such a mess, make a plan to jump off the frame before the axe wields. And if you currently being led towards one, now’s probably a great time to run away. Think about it.

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As a follow-up to my recent post on Capital Advisor’s impact on the Indian life insurance industry, I thought it’d be a fun idea to figure out where all those download requests for my ULIP Surrender Request Letter template were coming from.

Here’s a chart of the Top-10 Countries along with the total number of download requests coming from each of them. Not much surprise over here given the rule of thumb distribution of the Indian diaspora.

What do you think?

Capital Advisor ULIP Download Statistics by Country

Data as on 03-Apr-2012

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About a month back, you read my analysis of the Bajaj Allianz Cash Rich Insurance Plan. From the analysis, you also found out that it’s most certainly NOT YOU who’s becoming rich as part of this plan (literally?).

So, imagine my utter horror when I came across this interview piece (in a personal finance magazine) with management –

Bajaj_Allianz_Interview_Cash_Rich

I really can’t find that “corpus which can be used in your retirement years” anywhere! What you actually get from this plan is more of a financial corpse than a financial corpus. And what’s that end-to-end retirement solution? You end your working career and then get ended by this plan?

Seriously! Run away as fast as you can in the opposite direction. I can’t even fathom what that pension [tension?] product being talked about would look like. I’m already running away just hearing about it.

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I seriously think ULIPs ought to be called Unit “Loss” Investment Plans.

I am yet to come across someone who has actually made money off a ULIP. A recent comment on one of the other posts reads — “My wife had taken a ULIP from Bajaj Allianz 5-years back and the first year charges were 90%! Would you believe it? We sold the policy after 4-years and just about managed to recover the investment amount.” There are countless other ULIP-horror stories that you can read when you have some leisure time.

But then, it’s very easy to be misled into buying a ULIP, especially when you see ads such as this:

LIC_Ad_Edited

You’d be forgiven for thinking that life insurance can solve all major problems in your life from [having children?, to] educating your children, to marrying them off, to saving/investing for your goals, to saving enough money to say no to work that you do just for the sake of doing it. Wow! So, is there something that life insurance can’t do?

But then remember these words: “One click is all it takes to lose your hard-earned money.” That should have been the ad’s tagline but then you really can’t publish that can you?

With ULIPs, Units Lose and United [We] Lose. Simply run away as fast as you can whenever someone (usually it’s a relative or a family friend isn’t it?) uses the words “unit” and “linked” in the same sentence. You’ll be financially much better off in life.

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I seem to be writing quite a bit about insurance of late. But I’m also seeing quite a number of absolutely “WTF?” insurance products of late. For example, see this piece on Birla Sun Life’s Classic Child Plan

20120312_134801_a

To quote –

This joint-life, unit-linked, children’s plan covers both the child and the parent. Later, any time after the child attains majority, but before 27-years of age, he can become the primary life assured and the parent the secondary insured. The date on which this option is exercised is known as the Savings Date.

Prior to the Savings Date, on the death of the life assured (parent), the policy pays the Sum Assured (SA) to the nominee to take care of the child’s immediate financial needs. The future premium from the next policy year is borne by the insurer (called waiver of premium option). On the death of the child, the policy is terminated on the Savings Date and the Fund Value (FV) is paid. From the Savings Date onwards, upon the death of the child, the basic SA is paid. In both the cases, on the last death, of either the primary or the secondary life assured, the policy is terminated and the FV along with the commuted value of any future premiums (if any) is paid.

Seriously, what a complete mess! Why in heaven’s name would you want to be paid were your child to die? Have we as a race really become that cruel and insensitive? Let’s make money no matter how? I really wonder who designs such insurance plans. I so wish this plan dies a horrible death because there were exactly zero takers for it.

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Tweets on 2012-03-07

by Vinaya HS on March 7, 2012

in Finance

Read elsewhere –

Risk is typically measured as the variability of returns. Thus, a bank fixed deposit with sure shot 10 percent returns versus a mid-cap stock that could return 30 percent or lose 10 percent have very different risk-return profiles.

I also happened to read an interview with the CEO of a life insurance company where it was quoted that “the insurance company asked its customers if they’d like the insurance company to manage their investments and 95% of the customers replied in the affirmative.”

That’s one risk-return bet I’d advise you not to take — ever.

Life insurance — and insurance in general — shouldn’t be a risk-return game. It’s a risk-only game. You can do much much better elsewhere on the returns-game.

Seriously, I wonder who these people who replied in the affirmative are. Then again, I have my own doubts about the sample set chosen.

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I was reading this ad for Bajaj Allianz Cash Rich Insurance Plan (in a recent issue of a personal finance magazine) when something about the calculations just didn’t seem right. In fact, they smelt downright fishy in painting a rosy picture of your retirement facilitated through this policy. I wanted to figure out who’s actually becoming cash rich here — You (as you’d obviously expect) or the Insurance Company?

BA_Cash_Rich_0

First, how about the ridiculous Rs 10,284 as monthly premium for the next 240-months! Who, even in their worst financial state of mind, would be mad enough to get into such a contract to begin with? I then ran some simple calculations using Excel. As you can see, you turn into a real cash-cow for the Insurance Company a few years into the policy when the corpus accumulated with the Insurance Company exceeds the Sum Assured on the policy. When that happens — and that’s an event that is statistically guaranteed to have the highest probability of occurrence — the Insurance Company already has the cash (generated off the premiums you paid) to pay the Sum Assured. No sweat!

BA_Cash_Rich_1

Then, I projected the numbers over the life of the plan. As you can see, the money that the Insurance Company is earning off you is several orders of magnitude higher than what its liabilities (what it owes you in the form of cash backs and one-time pay outs) are. Compounding at its brilliance. But compounding that’s against you!

BA_Cash_Rich_2

I wonder who’d buy such a policy! You wouldn’t right?

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2,150+ readers have downloaded my ULIP Surrender Request Letter template!

Close_ULIP_bitly

1,500+ readers have downloaded my LIC Jeevan Anand Surrender Request Letter template!

Close_Anand_bitly

If even 50% of them have taken action, that’s a pretty good impact! Just think of all that hard-earned money readers are retaining in their pockets and the equivalent lost revenue for the insurance industry.

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I regularly receive emails where readers express their horror stories about LIC’s Jeevan Anand policy. Believing an agent’s (who often happens to be a neighbor/relative/friend) fictional stories of risk and return, they buy the policy only to discover that they need to pay exorbitant premiums for the next 20-years and that when they want to surrender the policy realize that they have a pure yellow lemon in their hand. This realization usually comes after two annual premiums have been paid and the third one is shortly due. So, the question that I am asked to address is should they choose to “pay exorbitant premiums for a few more years and incur a loss” or “pay one more exorbitant premium and incur a loss.”

Here are two sample emails that I recently received.

Email #1

Please suggest whether I should opt for LIC’s Jeevan Anand policy or not. I am looking for a short-term plan. My agent suggested taking a Jeevan Anand policy for 5-years. I need to pay an annual premium of Rs 24,000 and after the term of 5-years, I will supposedly get Rs 2 lacs (1 lac sum assured plus 1 lac bonus as quoted by the agent).

Does this sound OK or are there any hidden loop holes? Will I get al least Rs 2 lacs after 5-years? Is there any better short-term plan offered by LIC?

Email #2

I have an LIC Jeevan Anand policy for which I have already paid 2-annual premiums of Rs 25,000 each. In February, I need to pay the third premium. When I purchased the policy, the agent had said that I can close the policy after 3-years. But he never disclosed the fact that even after paying the third premium, I will only get 30% of the last two premiums paid which comes to somewhere around Rs 15,000. If I close the policy now, I won’t get even a rupee back.

I’m not able to understand how you got Rs 50,000 after 6-years. My agent isn’t helping me with any information either. Should I wait for 6-years and get back Rs 50,000 (like you did)? But I don’t want to pay any more premiums after 3-years. Won’t it be better to pay Rs 75,000 in premiums and get back Rs 50,000 after 6-years rather than pay Rs 75,000 in premiums and get back Rs 15,000 after 3-years?

And, way back in May last year, reader Raghuram had asked:

I have been a regular reader of your blog and have learned a lot from you. I have made good investments and have taken proper health insurance and pure term insurance covers for my family. But one mistake I’ve made goes 3-years back when I took an LIC Jeevan Anand policy for 10 lacs cover for 20-years.

After my marriage, because of pressure from a relative (who happened to be an insurance agent), I buckled and bought this policy without reading it or knowing what I was doing. Now I am repenting. I am paying a premium of Rs 42,016 per annum and I have paid 3 premiums so far. The next premium is due in June, 2011.

I went to the local LIC Office and inquired about “the surrender procedure and the surrender amount” that I may get. If I surrender the policy now, I will get around Rs 24,000, which is less than 20% of what I have paid till now. The officer suggested that I hold on to this policy for 2 more years (total 5-years) and then surrender it so that I can get a surrender value of 12.5% of the insured amount (means 12.5% of 1,00,0000 = 1,25,000.)

That means I have to pay another Rs 84,000 and wait for 2 more years to get 1.25 lacs. Here’s what I’m thinking:

Plan #1 — Surrender the policy today

Total Payment = Rs 42,016 x 3 = Rs 1,26,048
Surrender Value = Rs 24,000
Loss = Rs 1,02,000

Plan #2 — Surrender the policy after 2 more years

Total Payment = Rs 42,016 x 5 = Rs 2,10,080
Surrender Value = Rs 1,25,000
Loss = Rs 85,000

Now I need your help. What shall I do? Please let me know your views and thoughts on this and help me out. Waiting to hear back from you.

Here’s what I had replied and this could be a framework to base your decision upon:

Hi Raghuram,

I’d cut my losses today.

Reasons –

Think about it this way.

Surrender value of 24,000 today = 28,250 two-years from now @ 8.5% in an FD

1st extra premium of 42,000 today = 49,500 two-years from now @ 8.5% in an FD

2nd extra premium of 42,000 one year from today = 45,600 two-years from now @ 8.5% in an FD

So, at the end of two-years you’ve roughly made 15,350 in interest. More if the interest rate is higher. The notional loss of 17,000 b/w Scenario 1 and Scenario 2 is more or less made up by the interest you earn. Plus, you don’t know what will happen 2-years from today…and the 12.5% return is somewhat suspicious…I didn’t find any such Terms and Conditions in my Jeevan Anand.

Regards,

Vinaya

What do you say?

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IMG_1350

Sketch © D.

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A reader writes-in:

Is it worth taking term insurance when you’re in your late 30’s? Let’s say I purchase term insurance for a sum assured of 50 lacs and for a period of 22-years. The yearly premium is around 18,000 which means I will be losing nearly 4 lacs by the end of the policy term. Can you suggest a better option so that I am covered on both insurance and investment? I am not interested in other types of life insurance schemes.

Now I fully understand that the purpose of term insurance is death benefit to family who are dependent on me. My only worry is paying such high premiums and not earning any returns. It’s really pinching. Please share if you have any thought that covers life and gives good returns so that my hard earn money does not go to insurance company.

First things first. When you have family dependent on you, term insurance is always great to have. Irrespective of your age — but only so long as you can afford to pay the premium. Next, as you have correctly pointed out, term insurance is a pure-risk cover. You (and several others) pay X amount to Insurer Y in the hope of your dependent family receiving Z (a very high multiple of X). Since Z is a very high multiple of X, it’s not fair to also expect returns on X. You give up earning returns on X so that your dependent family can get Z.

Now, there are indeed some term insurance schemes that do offer a Return of Premium (RoP) (such as this one). Perhaps this might be what you’re looking for. But do note that the premium on RoP-term schemes will be higher than that on non-RoP term schemes.

Here’s another thought. Perhaps you could also stagger/ladder your term insurance purchase. Say instead of buying one term plan for one big amount in one go, you could buy multiple term plans for smaller amounts and with varying maturity periods. This way, as you slowly build your own safety-net or self-insurance corpus, you can easily drop one or more term plans and hence reduce your premium outgo. This does however require some upfront thinking and planning.

This directly leads to a much broader question: Should you invest to [self-] insure or should you insure to invest? Too many of us think of investment as a great side-effect of purchasing insurance (because it is marketed that way and so we obsess over ULIP NAVs!) whereas it should be the exact opposite. But how does investing — not only your money but also your time and your skills — with the purpose of becoming self-insured in most aspects of life sound? When you are self-insured you stop worrying about 99% of the things that generally keep people awake. Very easy to say, not that easy to do, but definitely doable if you keep chipping away at it.

What do you think?

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A Life Insurance Scam in My Email

by Vinaya HS on July 15, 2011

in Finance

See what I received in my Inbox.

Observe the calculations.

From Year 9 to Year 10, there is a magic jump in the figures. Between these two years, the amount more than doubles. Zero explanation for why that’s happening. A perfectly hidden trick amongst all those figures.

What a scam!

I wonder how many people have fallen for it.

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Tweets on 2011-06-02

by Vinaya HS on June 2, 2011

in Finance

If I could make one wish, I’d honestly wish that a copy of my Jeevan Anand surrender request letter be stapled right on top of the policy document that you see in the video below. Now, that would be one insane — but totally spot-on — wish, wouldn’t it?



[Here's the video link if you can't watch the embedded one.]

And if you’ve been itching to know how to get rid of your LIC Jeevan Anand Policy, here’s a step-by-step approach to nirvana.

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Future Champs or Future Chimps?

by Vinaya HS on April 5, 2011

in Finance

I happened to see an ad for Bharti AXA Life’s Future Champs life insurance policy in a recent issue of a personal finance magazine and couldn’t help wonder that if by purchasing this policy you’d more likely turn out to be a “future chimp” rather than a “future champ.”

I’ll let my analysis — which you can download here — do the talking.

It’s quite evident who’s becoming rich here — maybe the “future champ” wasn’t really meant to refer to you to begin with.

What do you think?

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Asked and Answered: February, 2011

by Vinaya HS on February 25, 2011

in Finance

Here’s what was asked and answered by Capital Advisor in February, 2011. If you have a question on managing your personal finances, send me an email and I’ll respond at the earliest. If your question’s beneficial to a wider audience, I’ll publish it in a future edition of “Asked and Answered,” without revealing your personal details.



Query #1: On continuing a guaranteed-return life insurance policy.

I have a question regarding my TATA AIG Maha Life Gold life insurance policy. For a sum assured of Rs 400,000, I am paying Rs 35,000 as annual premium for 10 years. After the 6th year, which is this year, the policy gives me a small cash dividend of around 2%. After the 10th year, a guaranteed annual coupon of 5% that is Rs 20,000 would be paid to me. I am not sure if its good to discontinue this policy at this point of time. Please suggest.

I ran the numbers on this situation — you can download my analysis here — and the results were quite shocking. (Note: The sheet doesn’t consider the paltry cash dividend. Even if it did, the results would still be shocking.) And as I told the reader, “if you play around with the Excel sheet, you’ll find that all TATA AIG needs to do is park your money in a FD and they’d still make money off you! But since you’re already in the 6th year (and I don’t find a surrender option), I guess you have no choice but to continue this policy.”

I then ran the numbers on a similar policy from Bharti AXA called Bharti AXA Aajeevan Anand — you can download my analysis here — and the results were equally shocking.

I’d stay away from such policies. In my opinion, the minimum guaranteed coupon should be equal to the current risk-free rate of return, but then that wouldn’t make business sense to the life insurance company, would it?

Just put those premiums in a Fixed Deposit and you’d do far far better.



Query #2: On the New Pension Scheme.

Could you review the New Pension Scheme (NPS)? I want to invest in a Pension Plan without being taken for a ride.

In my opinion, most Pension Plans, these days, take you for a ride — so much so that sometimes I wonder who the pension is for: you or the insurance company.

While I have a general sense of the NPS, I’m not intimately familiar with its structure and working. Therefore, I pointed the reader to a recent article on NPS in ET Wealth for further information.

Personally, though, when it comes to financial instruments, the NPS isn’t on my radar.



Query #3: On infrastructure bonds.

Have you analyzed the Infrastructure Bonds from IDFC and L&T?

I haven’t. But reader Nikhil Shah was kind enough to share his detailed analysis of these infrastructure bonds some time back.

(Note: Follow me on Twitter, and you’ll have advance access to these downloads.)

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This post should actually be titled “How I Made LIC Richer by Rs 90,000?”

First, a background on how this Jeevan Anand policy came into my life. :-)

Towards the end of 2004 and in my early twenties, when I was at the peak of committing one financial mistake after the other (taking loans from my employer, charging my credit cards to shop for things that I really didn’t need, failing to save a rupee, etc.), I bought a LIC Jeevan Anand life insurance policy simply to avoid paying income-tax. This policy required me to pay Rs 25,000 each year for 20 years for a life insurance cover of Rs 500,000. I somehow paid the premium for 3 years (2005, 2006, and 2007) and then stopped because it was exactly at that time when I started educating myself about personal finance and discovered the existence of term-plans. Since the policy was now surrender-worthy, I decided to go ahead and surrender it for whatever it was worth.

However, for one reason or the other, I kept putting off surrendering this policy (even after hearing from LIC that I’d need to surrender and close this lapsed policy before I could apply for a term-plan with them). Now, having recently made this resolution, I finally went ahead and surrendered the policy. The lady at the counter informed me that with accrued bonus the value of the policy now stood at Rs 140,000 but if I surrendered the policy I’d only get a far far lesser amount of Rs 50,000. I was indeed tempted for a moment to have the policy revived but I stood by my decision (and my resolution) and asked for the policy to be closed.

So there you go. I paid Rs 25,000 each year for 3 years, am only getting back Rs 50,000 after 6 years, while LIC pockets a cool Rs 90,000 at my expense. And I write a blog on personal finance!

That apart, I thought I’d share with you the procedure for closing such a policy (it’s somewhat similar to what you’ve read before on closing your unit linked life insurance policy).

Procedure to surrender and close your LIC Jeevan Anand Policy.

  • Get the documents listed below into one file:

    1. Original life insurance policy document.
    2. Original premium payment receipts.
    3. Download this surrender request letter, fill-in your specific details, and print a copy.
    4. Get a copy of the S.V. Application and Form No. 3510/5074 either from your agent or from a nearby LIC office and fill it up.
    5. Photocopies of #1 and #2 above.

  • Staple together the filled-up surrender request letter, original life insurance policy document, photocopy of premium paid receipts, S.V. Application and Form No. 3510/5074 in that order. Let’s call this as our “Submission Packet.” This set of documents is what you’ll need to submit at the LIC Branch Office from where your policy was issued (you cannot submit them at any other branch office).

  • Staple together the photocopy of the policy document and original premium paid receipts. Let’s call this as our “Reference Packet.”

  • Go to the branch office from where your policy was issued and handover the “Submission Packet” at the counter. Once your policy details are verified, the person at the counter will print and sign an acknowledgment receipt. Verify the details on this receipt and attach it to your “Reference Packet.”

  • Wait for the check to reach you by post.

  • Once the check arrives, verify your name and account number for correctness and take a photocopy. Attach this photocopy to your “Reference Packet.”

  • Deposit the check at your bank.

  • Once the check is credited to your account, tear-up your “Reference Packet” if you feel like doing so.

I did. Here’s pictorial evidence.

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It’s now time to execute the next steps of my strategy.

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