Personal Finance Management Blog

4 things about Home Loan you might not Know

2011-02-22T21:15:00.000-08:00

Can you claim tax deduction for your under-constructed house? Can you claim tax for the home loan taken from your friend and not from Bank ? These are some of the questions which are not generally discussed over and lot of investors have no idea about actual rules. In the video below I will talk about four not so known rules of home loans . Keep reading ! . Readers on email can watch the video on this article.

1. Tax deductions for House under-construction

Can you claim tax benefits for home loan taken for under-construction house ? A lot of investors assume that they can claim tax deductions and without doing much research, they go ahead with the loan. However they should know the fact that claiming tax in case of under-construction house is different. You cannot claim the tax deductions for the principal amount for under-construction house. You need to have possession and certificate of ownership to claim tax under 80C. However Interest part is little different. You can not claim the interest amount, unless you get the possession of house . However you can always claim the deductions later in 5 equal installments for next 5 yrs from the end of financial year of possession.

Example : Suppose Ajay bought a house on loan on 5th June 2010 and he pays total 3 lacs as interest in next 2.5 yrs and gets possession on 7th Nov 2012 . He will be able to claim this 4 lacs Rs in equity installments in the next 5 yrs period , which is 80,000 per year in 2013 – 2017 . However the total limit for exemption will still be 1.5 lacs per year.

2. Selling the House before 5 yrs reverses the tax saved earlier

We think of saving tax, but once the tax is saved for a particular year, it does not mean the story ends here. The tax benefit under sec 80C is allowed for home loans considering the condition that it wont be sold before 5 yrs from the date of purchase. Read some nice tips for house buying from real buyers

If you sell your house before the expiry of 5 yrs, all the money you saved under sec 80C in earlier years will be deemed to be your income in the year of sale and added to your salary. For example, if you bought the flat in Oct 2010 and in next 4 yrs you saved 1 lac in tax under sec 80C, then this 1 lac will become your income in the year of sale and will be taxed . However interest component once saved is saved and it wont be reversed.

The tax benefit under section 80c is allowed subject to the condition that house property should not be sold before a period of 5 years. If you sell the house before the expiry of five years from the end of the financial year in which you obtained the possession, the deduction will be discontinued and the entire tax deduction claimed in earlier years under section 80c – for repayment of principal component of the home loan – will be deemed to be your income (in addition to capital gains) in the year in which you sell the property. However, the housing loan interest deduction claimed under section 24(b) won’t be reversed.

3. Loan taken from Friends and Family is eligible for Deductions (Interest)

Incase you want to take loan from your friends , parents or any other person , you can still claim the interest on the loan under sec 24 , which is upto 1.5 lacs per year . However you can not claim the principal amount under sec 80C, that’s applicable only if you take up the loan from some Bank or financial institution . So you don’t always need to take the loan from Bank. if you can take it from a friend or Family , you can still claim tax deductions on Interest part .

4. 80C is not allowed for loans taken for Extension or Renovation of House

If you take a loan for extension or renovation of your existing house, in that case you can not claim the principal part under sec 80C , but you will be able to claim interest amount under sec 24 , which is 1.5 lacs per annum.

Courtesy: Jagoinvestor.com

Financial freefall: Mistakes newly-weds should avoid

2011-02-15T02:13:00.000-08:00

As many a cynic would have you believe, marriage is a zero sum game. You gain some, you lose some. If, however, you’ve been pinned by the crafty glare of Cupid, scuppering your logic, marriage would seem a profitable equation, promising zestful returns. Now take a moment and expunge the extremities; chart the middle course, where realism rules. Marriage is what you make of it. Get your math right and it doubles your dividends, fudge it and you halve them. So with the finances in a marriage.

One of the most critical changes you encounter after tying the unwieldy knot is the financial reality. Single income can convert to double, but so can the debts; buying assets may become easier, but insurance liability could increase; your spending or saving habits could be a disastrous mismatch, but your long-term goals may be the same. In fact, numerous studies have claimed money to be the primary reason for all marital discords. While it’s not easy to find a snug financial match, it’s not impossible to home in on feasible solutions either. These can work for or against you depending on how you deal with them. You not only need to harmonise the different financial ideologies and habits that you bring into a new relationship, but also streamline your individual finances in a way that you can work towards the combined goals.

To help you find a firm foothold in the new financial paradigm, we present a primer that will not only help avert any faux pas but also provide ready resolutions to fiscal irritants that can unravel a stable marriage.

Reveal your cards

Talk. Discuss. Debate. Confer. Communicate. There aren’t enough synonyms in the thesaurus to emphasise the importance of talking about your finances. Preferably even before you get married. So be it your income or expenses, savings or debts, liabilities or assets, proclivities or aversions, habits or cravings, lay them all on the table. List out your outstanding debts like car loans or credit card bills and assets like jewellery, real estate or stock investments. “Talk about your attitude towards money, your values, what you plan to do with it after marriage,” says Kartik Verma, co-founder of iTrust Financial Services.

These inputs will act as building blocks for your new financial equation and make it easier to formulate goals and stick to a plan to achieve these. Mumabi-based Raj and Rahmat Tapal, both 32, know about the importance of talking. They’ve been married for only a month, but have known each other for several years and have discussed their finances in detail. “We talked about our savings and spending and knew that we wanted a house. So we started saving Rs 50,000 each every month to be able to buy it. After marriage, we have increased the inputs to around Rs 1 lakh per month,” says Raj.

Talking not only helps meet your goals, but also irons out misunderstandings and differences. Besides, it keeps both the partners in the loop and in the absence of one spouse, the other is not left in the lurch.

Frame a budget, fix the goals

If, after the revelations and discussions, you have not already set your goals, it would be the next logical step. Frame your short- and long-term goals in accordance with your priorities and earning capacities. So whether you plan to buy furniture, car or a house, establish a time frame. You should also discuss the financial implications of having a child, savings required for his/her education and marriage, vacations and, of course, your retirement. It’s never too early to start planning and saving for such goals because the compounding effect of investments works in your favour.

To ensure the fulfilment of these objectives, it is critical that you make a budget. Start with bigger expenses like loan EMIs, house rent or insurance premiums and go on to smaller ones such as utility, grocery or credit card bills. Then move to discretionary expenses like those on clothes, cosmetics or outings. “A budget, which includes tracking your spending, is the only way to really know where your money is going,” says Kshitij Gupta, a Mumbai-based financial planner. So you could resort to remedial measures like cutting down on dinners or vacations. “We were both spendthrifts,” admits Bangalore-based Amandeep Singh Chawla, 29, who has been married to Divya, 27, for nearly a year. “But once we framed our goals and budget, we realised than an ‘x’ amount of money had to go towards savings. So we cut down our spending,” he adds.

Work out the plan dynamics

This is perhaps the most critical aspect of financial management for newly-weds. The plan is ready. The execution should be easy, right? Wrong. This is a pitfall that brings on most of marital confrontations. Should you merge your finances? Should the debts of both spouses be settled jointly? Who will ensure the budget is on track? “There is no blueprint for the way a couple should handle finances,” says Gupta. “Merging finances is one of the first big decision married couples make—and often the most difficult. For some, it feels natural to merge all assets. They feel that they are taking the marriage seriously. For others, giving up their financial identity makes them nervous,” he adds.

A simple solution is to have both. While you can retain your individual accounts for paying your credit card bills and other personal expenses, you can have a joint account for household payments, including utility or grocery bills. The latter allows flexibility to operate it in each other’s absence. “You could also decide contributions towards different household baskets, depending on the income ratio, and make allocations from separate accounts. This will give room to both for indulging in discrenationary spending and maintaining independence,” says Surya Bhatia, a Delhi-based financial Planner.

Another fragile decision that needs to be made at the start is how to build assets and settle debts. If you build assets jointly, keep in mind that there can be legal problems in case of a split. As for debts, you could do it by pooling in resources and trying to pay off the one with the highest interest, or continue to do it as you were before marriage. “I am paying my EMIs on the car loan, while Divya pays the house rent from her salary as the house has been leased by her company,” says Amandeep. What’s important is that the decision is made by both so that they are comfortable about managing their finances.

Buy more insurance

Before marriage and without dependants, you can make do with small insurance. After being hitched and if you are the sole earning member, you will need to upgrade it; more so when you have kids. “Now you have to cover the risk of dying young and leaving a dependant(s). So a term life insurance is critical,” says Ajay Bagga, GM of wealth management at Duestche Bank. Your cover should be enough to pay your outstanding loans so your spouse isn’t burdened with it. Then there should be enough left for the spouse to live off it. Ideally, you should have at least 10 times your annual income as life cover. Another important cover to consider for upgrading is health and disability insurance. Chances are you are insured by your employer, but it’s advisable to buy a separate policy. “On an average, a combined cover of Rs 5 lakh for a couple should be adequate, especially in a big city,” says Jayant Pai, vice-president of Parag Parikh Financial Advisory Services.

Know about taxation benefits

You can’t be blamed for a mild aversion to the taxman, but after tying the knot, you’ll find a few reasons to toast him. As a married couple, you will be eligible for a higher home loan and both can claim tax deduction on repayment. A joint home loan offers a benefit of Rs 1 lakh each under Section 80C of the Income Tax Act (for repaying the principal) and an additional Rs 1.5 lakh each on the interest repayment under Section 26. This takes your total deduction as a couple up to Rs 5 lakh a year. If you are planning to get married soon, remember that a wedding is one of the few occasions when cash gifts are not taxed, but the recipient will have to prove it was a gift. So be more amenable to cheque or demand draft gifts. You should, however, beware of two words: clubbing provision. The money that a woman receives from her husband and parents-in-law is not taxed, but any income earned from investing this money is clubbed with the income of the giver. Similarly, the income from the money received from the wife will be clubbed with her income.

Take care of documentation

To snuff out irritants if you go in for a name change after marriage, ensure you indulge in the necessary paperwork. One of the most crucial alterations involving name and address would be in your PAN card, besides the passport, KYC, bank account, etc. “It’s also the man’s duty to bring in his wife by appointing her as a nominee in his investments and policies. He should include her as a secondary holder for ease of administration in his absence,” says Kartik Jhaveri, a Mumbai-based financial planner. Adds Gupta: “Go through all your investments, savings accounts, insurance policies and other accounts and review the designations if you want your spouse to own these assets, should something happen to you.”

Till divorce do us part

It might be criminal to think of a split when you are just married, but it’s a possibility one should not negate. “While marriage works on trust, one needs to be prudent while making joint investments to avoid financial implications later,” says Pavan Duggal, a Delhi-based lawyer. You could face problems in claiming your contribution towards joint assets like a house. If the property or asset is mortgaged with the bank, both parties can continue to be co-borrowers and co-applicants and service the EMIs. There would be no change in the borrowers’ liability despite the change in their marriage status.

There could be problems even if it is mutually decided that the property will go to one of the spouses. They will have to first foreclose the loan account. “Even if there is a joint property with a clear title, the situation is tricky because real estate is not as liquid as stocks and cannot be easily sold,” points out Jhaveri.

Besides, what happens if the property is registered in one person’s name but the other has also contributed to it purchase. “In such a situation, the contributor will have to provide evidence of the contribution in the asset. Most of the time people don’t maintain records of such intra-family transactions because they never think about such a situation,” says Osama Suhail, associate partner in law firm Anzlawz.

To bypass legal and tax hassles, it is necessary to open accounts and investments in your own name and make the spouse a nominee or secondary holder. However, if you do make joint investments make sure you collect all receipts for any payment towards these in your name.

Courtesy: ET Wealth.

Details on Section 80D, 80DD and 80DDB

2011-02-14T22:56:00.000-08:00

Details of Section 80D

Any amount paid by an Individual or HUF to an Insurance company as Medical Insurance Premium i.e. premium paid in respect of Mediclaim Policy can be claimed as deduction under section 80D.

Note: Life Insurance Premium is NOT covered under this category.

Important points:

Premium paid should be in respect of Mediclaim Insurance policy.
The deduction is also available when the Taxpayer makes any contribution towards Central Government Health Scheme.
Deduction is available only to Individuals and HUF’s (Hindu Undivided Family). Corporates or Partnership firms cannot claim this deduction.
Deduction is not allowed when the premium is paid by cash. In other words, the deduction will be allowed when the premium is paid by modes other than cash i.e. cheque or DD.
Deduction is allowed in respect of following persons:

Taxpayer	Insured Person
Individual	On the health of taxpayer himself/herself, spouse, parents, dependent children of taxpayer
Hindu Undivided Family (HUF)	On the health of any of the member of the family

Amount exempted under Section 80D

Least of the following is allowed to be deducted from Gross Total Income of the Taxpayer for 80D:

a. Actual Mediclaim Insurance Premium paid

b. Rs. 15,000

In case the Mediclaim Insurance Premium paid is for a Senior Citizen (person above 65 years), least of the following is allowed as deduction :

a. Actual Mediclaim Insurance Premium paid

b. Rs. 20,000

Details on Section 80DD

This is a deduction in respect of maintenance including medical treatment of handicapped dependent that is a person with a disability.

It is available to individuals and HUFs (Hindu Undivided Families).

In the case of an individual the deduction is available to spouse, children, parents brothers or sisters of the individual.

In the case of HUF the deduction is available to any member of the HUF.

The second condition is that the disabled person should be wholly or mainly dependent on the person seeking the deduction for their support and maintenance.

The dependent should have a disability of at least 40%, and for claiming the deduction the assessee has to furnish a copy of certificate issued by the medical authority

There are two ways in which the expenses could have been incurred:

Option 1	Option 2
The taxpayer has incurred an expenditure for the medical treatment, training, nursing and rehabilitation of the dependent	The taxpayer has paid/deposited under any scheme framed in this behalf by the LIC or any other insurer or the administrator or specified company and approved by the Board in this behalf, for the support/maintenance of the dependent

Amount of deduction eligible under Section 80DD:

1. Fixed deduction of Rs 50,000/- is allowed irrespective of amounts incurred in Option 1/2

2. Deduction of Rs. 1,00,000/- is allowed in case where the dependent has the disability of more than 80%

If the dependent predeceases the Individual/HUF, an amount equal to the amount paid shall be deemed to be the income of the individual/HUF and will be chargeable to tax

Details on Section 80DDB

This deduction is in respect of medical treatment of a specified disease or ailment as prescribed by the Board.

80DDB deductions are also available to individuals or HUFs and are available for expenditure incurred in respect of assessee himself or his dependent spouse, children, parents, brothers/sisters.

In order to get 80DDB deduction the assessee has to submit a certificate in the prescribed form from a neurologist, oncologist, urologist, haemotologist, immunologist or such other specialist as prescribed working in a government hospital.

Amount of Deduction under 80DDB:

Actual amount paid or Rs 40,000/-, whichever is lower

In case the amount incurred is in respect of a person who is a Senior citizen then:

Actual amount paid or Rs 60,000/-, whichever is lower.

Courtesy: Onemint.com

Will your Nominee get the money on your death? May be NO!

2011-02-08T22:58:00.001-08:00

So we heard from everyone that nominee gets the money from your Insurance policy or Mutual funds or Fixed Deposits, and we happily believed it . Can you afford to beleive that this is WRONG ! .

Did you think that your nominee is the person, who will get all the money legally from your Life Insurance Policy and Mutual funds investments? Ha! That is exactly what you'd think if you aren't aware of the legal aspects. We assume a lot of things which sounds like they're obvious, but are not true from the legal point of view. Today, well concentrate on nominations in financial products, Insurance policy, and when you are dead and gone, all the money goes to person X and he/she becomes the sole owner? You are wrong, dude ! It doesn't work that way. Lets see how it actually does!

For whom are we earning? For whom are we investing? Who, do we want to leave all our wealth to, in case something happens to us? It might be your children, your spouse, parents, siblings etc., or just a subset of these. You also might want to exclude some people from your list fo beneficiaries!. So you think you will nominate person X in your

What is a nominee ?

According to law, a nominee is a trustee not the owner of the assets. In other words, he is only a caretaker of your assets. The nominee will only hold your money/asset as a trustee and will be legally bound to transfer it to the legal heirs. For most investments, a legal heir is entitled to the deceasedâ€^(TM)s assets. For instance, Section 39 of the Insurance Act says the appointed nominee will be paid, though he may not be the legal heir. The nominee, in turn, is supposed to hold the proceeds in trust and the legal heir can claim the money. A legal heir will be the one whose is mentioned in the will. However, if a will is not made, then the legal heirs of the assets are decided according to the succession laws, where the structure is predefined on who gets how much. For example, if a man during his lifetime executes a will. In the will, he mentions his wife and children as legal heirs, then after his death, his wife and children are the legal owners of his assets. It is essential that one needs to execute a will. It is the ultimate source of truth and replaces the succession law. Nominee can also be one of the legal heirs.Important

Mention the Full Name, Address, age, relationship to yourself of the nominee.
Do not write the nomination in favour of "wife" and "children" as a class. Give their specific names and particulars existing at that moment.
If the nominee is a minor, appoint a person who is a major as an appointee giving his full name, age, address and relationship to the nominee.

Why is the concept of nominee ?

So you might be wondering, if the nominee does not become the sole owner, why does such a concept of "nominee" exist at all? Itâ€^(TM)s pretty simple. When you die, you want to make sure that the Insurance company, Mutual fund or your shares should at least get out of the companies and go to someone you trust, and who can further help, in process of passing it to your legal heirs. Otherwise, if a person dies and hasnâ€^(TM)t nominated anyone, your legal heirs will have to go through the process of producing all kind of certificates like death certificates, proof of relation etc., not to mention that the whole process is really cumbersome! (For each legal entity! The insurance company, the mutual funds, for the shares, for the real estate..) . So, to simplify, if a nominee exists, these hassles don't happen, since the company is bound to transfer all your money or assets to the nominee.The company the goes out of scene & then, itâ€^(TM)s between nominee and legal heirs.

Example of Nomination

Ajay was 58 years old who died recently in an accident. As his children were settled, he wanted to make sure that his wife is the sole owner of all the monetary assets. This includes his insurance policy and mutual funds. So during his lifetime, he nominated his wife as a nominee in his term insurance policy and mutual funds investments. However, after Ajayâ€^(TM)s death things didnâ€^(TM)t turn up the way he wanted. The reason being Ajay did not leave a will. Though his wife was the nominee in all his movable assets, as per the law, his wife, along with children, were the legal heirs and all of them had equal right to Ajayâ€^(TM)s assets. One simple step which could have saved the situation was that Ajay should have made a will which clearly stated that only his wife was entitled to get all the money and not his children.

Nomination in Life Insurance

A policyholder can appoint multiple nominees and can also specify their shares in the policy proceeds. Nomination in life insurance has one limitation, as insurance policies are bought to secure your financial dependents, your first choice of nominee has to be your family members. In case you want to nominate a non-family member like a friend or third party, you will have to show/PROVE the insurance company that there is some insurable interest for the person. This happens because of a Clause called PRINCIPAL OF INSURABLE INTEREST in insurance. Note that provision of nomination in life insurance is related to Section 39 of the Insurance Act. Note that as per LIC website

Nomination is a right conferred on the holder of a Policy of Life Assurance on his own life to appoint a person/s to receive policy moneys in the event of the policy becoming a claim by the assuredâ€^(TM)s death. The Nominee does not get any other benefit except to receive the policy moneys on the death of the Life Assured. A nomination may be changed or cancelled by the life assured whenever he likes without the consent of the Nominee.

Make sure, you have a nominee for your policy for easy settlement of the claim, if you do not have any nominee mentioned in the policy, it can turn out to be a disaster for your dependents to get a claim.

Nomination in Mutual funds

In case of mutual funds, you can nominate up to three people, who can be registered at the time of purchasing the units. While filling in the application form, there is a provision to fill in the nomination details. Even a minor can be a nominee, provided the guardian is specified in the nomination form. You can also change nomination later by filling up a form which is available on the mutual fund company website. Nomination in mutual funds is at folio level and all units in the folio will be transferred to the nominee(s). If an investor makes a further investment in the same folio, the nomination is applicable to the new units also. A non-resident Indian can be a nominee, subject to the exchange control regulations in force from time to time.

Nomination in Shares

Quiz for you :). Now you know what a nominee means and who actually gets the money. So if there is a husband H, with wife W and nephew N, and he has nominated his nephew N to be the nominee of his shares in demat account, who will have the legal right to own the shares after husbandâ€^(TM)s death? If you answer is wife, you are wrong in this case! In case of stocks, it does not work the usual way, if a will does not exist.

In the verdict, Justice Roshan Dalvi struck down a petition filed by Harsha Nitin Kokate, who was seeking permission to sell some shares held by her late husband. The Court noted that as she was not the nominee, she had no ownership rights over the shares. Ms KokaTheâ€^(TM)s lawyer had argued that as she was the heir of her husband who had died intestate (without a will), she should have ownership rights of the shares, and be able to do anything with them as she wished. In this case, Ms Kokateâ€^(TM)s husband had nominated his nephew in favour of the shares. Justice Dalvi however noted that under the provisions of the Companies Act and the Depositories Act, Acts which govern the transfer of shares, the role of a nominee was different.

A reading of Section 109(A) of the Companies Act and 9.11 of the Depositories Act makes it abundantly clear that the intent of the nomination is to vest the property in the shares which includes the ownership rights thereunder in the nominee upon nomination validly made as per the procedure prescribed, as has been done in this case.â€

Source : Moneylife

It means that if you have not written a will, anyone who has been nominated by you for your shares will be the ultimate owner of those stocks, The succession laws on inheritance will not be applicable but in case, you have made a will, that will be the source of truth.

Nomination in PPF

Let me give you some shock first. If you have Rs 10 lakh in your public provident fund (PPF) account and you have not nominated anyone for your PPF account, your legal heirs will get maximum of Rs1 lakh only! Yes, itâ€^(TM)s so important to have a nominee, now you get it :). You can nominate one or more persons as nominee in PPF. Form F can be used to change or cancel a nomination for PPF. Also note that you cannot nominate anyone if you open an account for a minor.

Nomination in Saving/Current/FD/RD Account in Banks

FD's also come with nomination facility. While opening a new account, there is a column for nomination in the same form and you should fill it. You can nominate two persons with first and second option. Note that in case you have not done any nomination till now, you should request Form No DA-1 from your Bank which is used to assign a nominee in future. (Examples of ICICI Bank , HDFC Bank , Canara Bank) . In the same way to change/cancel the nomination you need to fill up Form no DA-2. Read about Corporate Fixed Deposits As per a famous case, A Bench of Justices Aftab Alam and R M Lodha in an order said that the money lying deposited in the account of the original depositor should be distributed among the claimants in accordance with the Succession Act of the respective community and the nominee cannot claim any absolute right over it.

Section 45ZA(2)(Banking Regulation Act) merely put the nominee in the shoes of the depositor after his death and clothes him with the exclusive right to receive the money lying in the account.It gives him all the rights of the depositors so far as the depositors's account is concerned. But it by no stretch of imagination make the nominee the owner of the money lying in the account," the Bench observed.

Conclusion

Now you know! Taking Personal finance for granted can be fatal :) Just investing knowledge, isnâ€^(TM)t enough to have a great financial life. You also need to be well versed with basic legal aspects and make sure you carry out all due arrangement . Nomination is one important aspect you should seriously consider, when checking for the financial products you have bought or plan to buy in future. Mistakes in Personal Finance Its important to make sure that your loved one's do not face legal issues and only say and think lovely thoughts about you when you are not around, rather than crib & grumble :)

Courtesy: Jagoinvestor.com

Avoid these 9 common mistakes in your Financial Life

2011-02-08T22:57:00.001-08:00

We all are trying to make our Financial life better and better day by day and we are ready to do what ever it takes to improve it ! . However more than what you should do, you have to concentrate on what all to avoid ! . So Here I list 9 mistakes which if you avoid can substanially improve financial life

Mistake #1 : Spending more than you should

Sometimes, people spend impulsively, on things which they do not really need. Just because, your plastic card is in your wallet and you "might" need it in future makes you believe that you need to get it right now. A brand new camera, with a 100 megapixel sensor and a 2000 x zoom is available at an EMI of just 1999 per month -- and suddenly you're interested in Photography! An EMI of 2500 a month, for that magical million colour, anorexic Flat Screen TV creates a magical belief in you that your normal TV at home is now really blurry these days (not to mention really fat!) Is there a need, to splurge on Movies and eat out, every weekend?

A regular meal at home, with a movie on tv is also a good weekend, at times. With many people, savings occur, only if they are left with any money at the end of the month. This needs to change - start saving first, then spend on what's necessary and then spend on your desires - last. Financial planning does not mean compromising your dreams or what you love to splurge on; it's all about knowing what you need and what you don't, & knowing it well! .

Mistake #2 : No Financial Education to Spouse and Kids

Most people are more comfortable talking about SEX rather than FINANCE to kids (just kidding.) They dont feel the need to tell their children that they have bought life insurance for them (the kids) should they be hit by a bus tomorrow (the parents, not the kids :) ). Once children reach an age of maturity like 16 or 17; when they can understand things & reason well and can take on responsibilities to some extent... Please start telling them about money and finances. Once you are gone, you can't even regret. Kids should know what your work is & how much you earn. They should be clear on how you are saving money to fund their education, bike , trips etc. Once they know about life t it, chances are they will be a lot more supportive, would be realistic in their demands & stay well within their limits. Kids don't know sometimes, how much pain you take in earning money.

Most of the times, kids know your salary and your designation at company and assume the family to be a "higher middle class" one. Once you tell them about Home loan EMI, Car Loan, other liabilities, Retirement Savings, Education Expenses, Marriage expenses and the medical emergencies for which you are saving, they will have a better idea about the current situation and they will act responsibly. Parents feel a little uncomfortable, telling their kids these things, as they feel children are still young and such information will create unneccessary psychological pressure and they would not talk about their demands and be unhappy. Parents feel that children should start learning about finance and applying that knowledge, once they are in a job and start earning. I say, if your finances and spending habits are messed up today, a big reason could be that, your parents never talked about finance with you openly. The same applies to spouses. Imagine, if you had all the knowledge and best practices you have learned on this blog, 10 years ago; or when you started earning? The situation would have been very different today, wouldn't it? Dont let this happen to your kids: Teach them!

Mistake #3 : Imbalanced Asset Allocation

A lot of people have a tendency to start working and then never look at, or review their finances. Tax Planning is nothing more, than a "signature" on some form for them. Initiatives from their side are limited to just calling an "agent" and nothing more. When they finally look back at their finances, they find that they have 40 Lacs in FD's and 25 lacs lying in Bank. This happens a lot with NRI's working outside the country. These are 35 yrs old who have 90% in debt or Cash, and 3-4 mutual funds and shares bought in recent years just for "trying". This category misses a huge amount of returns which they could have made with just 4-5 hours of planning or hiring a proper investment consultant.

On the other hand, there are investors who have no PPF, no FD, no Debt Funds, no bonds; they just do share trading, buy direct stocks, invest in just Mutual funds (pure equity). Their imbalanced Asset allocation is responsible for the huge ups and downs their portfolio takes. One year the worth of their portfolio will be 10 lacs, the next year it will be 7, then suddenly it will be 14 lacs the next year. The numbers dance with huge fluctuations, but at the end of let's say, a decade, they look back & find they are nowhere better than their "High debt Instrument" kind of Investor brothers .

Mistake #4 : Buying products from Close One's

Will you sell a junk product to yourself if there's a 35% commission and it will be a burden to you all your life ? I don't think so, but if you had to sell it to your friend, colleague, brother-in-law, sister-in-law, father's friend etc, you'd consider it, wouldn't you? That's what happens in real life too. Most times, the "Best plan" comes from one of your relatives or some one known. STOP IT PLEASE! .

A simple NO might hurt your relations with said person, but it will save you, your hard-earned money, rather than waste it on idiotic products, which you'll regret for life :) It's just common sense that there are better advisors and consultants than your relatives or a close ones, unless they themselves are known and respected in the field (of finance). Read : "Papa Kehte Hain" problem in Personal Finance Most of the readers here, have shared their bitter personal experiences, where they bought products because it came from their relatives, Uncle's et al. This happens a lot with young guys yet to start working, and their fathers have bought policies for them and then delegated the premium paying responsibility to them once they start earning, it's a real "burden of legacy" .

Mistake #5 : Unrealistic returns

Risk free returns, in our country are amongst the highest in the world. In countries like US, the interest rates are 1-2%. Equity markets in our country continue to provide 12-15% annual returns (Find Why) . But how much do investors expect from equity these days? A lot! No one is ready to settle below 20-25%? 12% is abusive to them, & makes them feel like they are cheated. A reader told me that he earned 100% this year from equity (2009) and he will be happy with even 25% next time! LOL! This happens when you look at short-term returns.

Investors who started in 2004 started thinking that they are all "Warren Buffet" and can leave their jobs in some years! Whereas all investors who started in 2007 end or 2008 start compare equity with their mother-in-laws, they just can't stand it. Think long-term, and timing will just not matter much. For retirement and child education, which is 15-20+ years away, just start a SIP in an Index fund and then go into a COMA, come back once in a while and just review it every 6 months to a year. That's all.

Mistake #6 : Feeling special when it comes to Life or Health Insurance

I'm not sure why, but some people feel that they are god gifted. They feel good health is a good excuse to skip Health Insurance and just because they don't drive carelessly, it makes them "Accident proof". They don't realise that most people die in accidents not because they don't drive well; it's because the other person does not. Probability of dying is almost the same for everyone, but everyone feels that they have better chances, of not being part of an accident or an attack. Be realistic; especially in bigger cities the chances of accident is higher than smaller cities. Most and more casualties happen in bigger cities. Take adequate Life and Health cover.

Mistake #7 : Excessive Leverage and careless spending

In recent times, we spend like there's no tomorrow. Easy available credit for home loan & the tax breaks available on them, EMIs available as an option for buying almost anything these days; all these easy means for laying hands on money has suddenly changed the way we see "Acquiring Assets" and "Spending". Unlike our parents and grandparents, we are spending money, which we haven't even earned. We buy houses, cars, vacations etc., and then pay the cost for the rest of our working lives. In some cases, it might make sense, but a large section of society just lives beyond their means (See this eye-opener from Subrmoney) .

Research shows, that we feel less guilty when we pay with our credit cards rather than cash. When we use cards, we don't see money going out; there's just a consolidated bill at the end. Nothing can be done (or undone) then, you just pay it. Imagine you are paying cash every time you are buying something you really do not need. We buy unwanted clothes, & unnecessary gadgets we can do without. How many of us claim, sometimes that we just can't survive without a certain device, or feel that we can't enjoy our life without certain doodads? Didn't our parents and the old generation live without them or with limited quantities ? Why have we all suddenly shifted to plasma TV rather than the old TV we have used in our childhood? Of course, technological changes should happen and we should always move forward, but buying a Plasma TV just because it looks cool in your drawing-room, does not make sense at all; that too, if you haven't yet planned for your retirement or taken care of all the important goals in life. If it's really your need , then go ahead , I would encourage , but most of the time people buy it out of comparison with friends and relatives. Once your other priorities have been achieved , you can go for it, But not at the cost of something more important .

I've heard horror stories of people who have bought homes and are crying today. Their home prices are moving up, but the quality of life has drastically decreased. They suffer horrible amounts of stress because now, even small things in life which gave them happiness, look unaffordable... all because that 2 BHK Flat's EMI has to go through next month (A close look at Real Estate Returns in India). No quality trips & vacations, heavy stress because of insecurities of jobs. Imagine a double income family with income of more than Rs 1 lac, who belongs to top 1 percentile of the highest earners in the country, but not leading a happy life because of excessive debt they have taken on all the loans and not enjoying little things in life because of these issues . Whats the point of earning so well then ? Don't try to be over ambitious at the cost of your current lifestyle and happiness! If you can't manage your life successfully and happily, then the car, and the house, and all that financial planning is just a waste. (Read What is the goal of Financial Planning)

Mistake #8 : Short vision

Close your eyes and try to imagine your retirement, child education & marriage related expenses, and health care costs after 30 years. Can you predict your grocery bills after retirement? Living in present is great, but planning your future is critical now. Let us do a small exercise to show you what your dietary (food & eating) expenses at home after retirement will be. Consider a 30 years old couple today... How much do they need to eat a decent breakfast, lunch and dinner at home? Even if you consider a meal at Rs 25, that's Rs 150 for 3 meals/2 person a day, thats Rs 4,500 per month. I guess that's what the grocery bill of most married couples in their 30's would look like (I am unmarried, as yet). Now, Rs 4,500 per month today, means 25,000 per month after 30 yrs, which is 3 lacs per year just for groceries.

Forget inflation for now, if you live for 30 yrs after retirement (worst case), that's 30 years X 3 lacs = 90 lacs just for your breakfast, lunch and dinner and this, doesn't even consider inflation. Some people think they would need 1 crore for their retirement , LOL !! . You will require at least 10-15 crores, start working on it NOW !! . Pray to God, you don't live longer than that, else it would be really painful!

Mistake #9 : Not ready to pay for Advice

This is in our culture & our genes, it seems. The very idea of paying for advice is anathema to us. We rely on "free" advice most of the time. If we can get the top 10 mutual funds from valueresearchonline.com, then why pay someone for advice? When we know term insurance is best, and we have a good formula to calculate life insurance requirement, then why do we need a financial planner to tell us how much Insurance we need? If we have so many personal finance websites and magazines then why do we need financial planner, we can do it all by ourselves? We are a DYI (do it yourself) country! . I get many questions over email and comments, Imagine me asking for money for giving personalised advice, How many people will consider paying or will even accept that its fine ?

We must understand, however, that there are situations where you just can't match professionals in some areas. The other thing is some advice can be general. For example "top 10 mutual funds" might not work for you, & might not be suitable for your situation. A different set of mutual funds might work in your case and to analyse your situation, an investment consultant can be helpful. You have to take a call on whether its worth doing it all yourself or pay the fees & have a pro handle it. Take large real estate transactions for example; I am amazed to see many people mailing me questions on complicated real estate deals, they are doing themselves, which actually might need a CA attention or professional advice to deal with. But why pay the CA that extra 10k or 15k he will ask for? They then, make mistakes and in long run lose a big amount of money just because of ignorance and not having optimized the whole deal.

The above article is posted by Manish@Jagoinvestor.com

Choose Best Term Insurance Policy for your Family

2011-02-08T22:50:00.001-08:00

Are you searching for the best Term Insurance policy which will take care you your children and spouse and overall family incase you are not around tommorrow ? This article will give you some direction on that and help you choose the Term plan for yourself ! .

LIC Term Insurance or Pvt Life Insurance Term Plan ? Which is the best term insurance in India ? Which Insurance company has the best claim settlement Ratio? Online term Insurance or Offline Term Insurance ? These are some of the questions which comes in the mind of every Term Insurance buyer! . So are you looking for Term Insurance comparison at one place ? Do you have all the sufficient information to decide which is the Best Term Plan you can buy?

Today I will show you all the data like riders, maximum/minimum tenure, max age till when term plan covers a person and data on the premium, Claim settlement Ratio at one place! . There are many term insurance plans in India, but all of them have different premiums and features which confuses a prospective customer to choose the best term plan for him. If you any question about Term plan you can look at these 9 most asked questions about Term Insurance

Looking at above comparison chart you would have got a fair idea about the online term plans also, which have recently made its entry in India.

Note : The premiums displayed are indicative and should not be considered as final

premiums as they are taken from online insurance comparision sites. Its only for

illustration purpose and very much correct as on Dec 2010 . They might change in

future, please check the premiums on the respective websites.

Brief overview of Riders

AD (Accidental Death) : The policy pays you additional sum assured in case the death happens due to an accident . Note that even if you don't take this rider, the sum assured is always paid on death, whether accidental or not !.

CI (Critical Illness) : This rider gives you a lump sum amount if you are diagnosed with an illness which is mentioned in the policy . Generally all the major illnesses are covered in Critical Illness cover.

DR (Accidental Disability Rider) : This rider covers you for disability and pays you Sum assured in 10 installments per year incase you becomes temporary or permanent disabled person.

WP (Waiver of Premium) : This rider makes sure that incase you are not able to pay future premium due to disability or income loss, the future premiums are waived off , but your policy is still in force like always !

Claim settlement Ratio of Insurance Companies

While deciding on a term plan, the biggest point which a person concentrates is the Claim settlement ratio (read this comment) . So here is the list of all the Insurance companies in India with the claim settlement ratio . The data are from the recent IRDA report for 2009-2010. One important detail you should note down is that 8 out of 23 life Insurance companies have reported profits , which are LIC, ICICI Prudential, Kotak Mahindra, SBI, MetLife, Bajaj Allianz, Sahara India and Aegon Religare . If you do not beleive in Term Plans then you should read this article .

Online Term Insurance vs Offline Term Insurance

With online term plans coming in market, two things has happened. First, Customers have really got excited seeing very low premiums which insure them at throw away prices, however low premiums does not appear on the top wish list of customers and what everyone needs is very high claim settlement ratio and excellent customer service. This is where online term plans have disappointed customers, there has been huge disappointment from ICICI iProtect and Aegon Religare iTerm Plan in terms of customer service. There have been cases where customers bought the online term plan and after that, they had horrifying experiences starting from increase of premium once they bought it, No-response from the company for long duration and Long & frustrating delays in medical tests. This is what pisses off customers most and they get a feel that If situation is bad at the time of buying the policy, then what will be the response when their families for claim settlement .

Another important point which comes to a persons mind is Are private Insurance companies safe ? and what is the claim settlement ratio of the company. From last year IRDA report, we came to know that Aegon Religare did not settle even a single claim out of total 7-8 claims they got . However, this years IRDA report (2009-2010) shows that its better at 48% settlement ratio for Aegon Religare, but Life Insurance is not a maths exam where 90-91% marks will make people happy. We all need 100% or 99% at least !. Because most of the companies are very new, the trust factor is missing from public. Note that not everyone who bought online term plans had bad experience, there are many buyers who got very good response and good customer service, but it was a smaller section . So if you a kind of buyer who understand Insurance very well and how things work in this area and you also have trust in online term plans then you can go for online plans. But if you are not comfortable with it, then you should try the old way of buying insurance through an agent.

However it would cost more than online term insurance, which many are comfortable with! . If you concentrate on the claim settlement and trust factor then the only option is LIC Term Insurance (Jeevan Amulya). However if you are fine with the pvt Insurance, but still want the best features, I personally see Kotak-preffered Plan as a good option. The premium for Kotak-Preffered is the lowest in the offline term plans and this plan has good riders along with other good options. Term Plan from LIC is obviously the best option if you do not believe in the pvt companies and insist on high claim ratio, but premium for LIC term plan is too high . So I think you can consider a mix of the LIC term insurance and any one from Pvt insurer.

Special Features in Some Term Insurance Policies

There are some term plans with very different set of features. Lets have a look at some of the those. These features can help you further in your decision.

Courtesy: Manish Chauhan @ Jagoinvestor.com

Know about Direct Tax Code

2011-02-05T20:38:00.000-08:00

THE CHANGE
The new Direct Taxes Code and the Goods and Services Tax, both of which are set to transform the direct and indirect tax structure.

THE INTENT
Both the reforms are aimed at improving compliance by simplifying the tax structure and lowering the tax rate. While the DTC seeks to remove the anomalies in the way we save tax, the GST intends to do away with the cascading impact of taxes on goods and services.

THE IMPACT
While the intent behind the DTC is laudable, the government seems to have lost the plot. There is a chasm between what the DTC was originally meant to be and what was eventually tabled in Parliament. The maze of exemptions will continue. The tax slabs are much lower than promised and the enhanced savings limit of Rs 3 lakh is a sham.

"(The intent) was to improve the efficiency of our tax system by eliminating distortions in the structure, introducing moderate levels of taxation and expanding the tax base."
PRANAB MUKHERJEE
Finance Minister

Even so, the DTC proposes to remove some of the problems that plague the existing income-tax rules. One of the most important changes relates to life insurance and will push people to buy policies for the right reasons. Most customers buy life insurance to save tax, not to cover themselves against risk. But the DTC says that tax benefits will be available only if an insurance policy offers a life cover of at least 20 times the annual premium.

The DTC has also harmonised the tax rates for various asset classes. While equities will continue to be pampered with exemption on long-term capital gains, the distinction between short- and long-term capital gains from other assets will be eliminated. This will remove the discrimination between asset classes.

Home owners too stand to benefit from the new tax regime. The DTC proposes to remove the presumptive tax on notional rental income from a vacant house. This should be a relief for those who own two or more residential properties but haven't rented them out.

Use of Saral II (ITR-1) Form

The taxpayer can now use the two-page Saral II or ITR-1, instead of the 8-page ITR-2, even if his income includes rent from a house or tax-free capital gains.

They will no longer have to pay tax on income they haven't earned.

If the DTC proposes to cut your tax liability, the GST could bring down prices. Right now, service providers, manufacturers, dealers and retailers pay taxes levied by the Centre and state governments at every stage of the supply chain. This cascading effect of taxes pushes up the costs of products and services, which the consumer has to bear.

Under the GST regime, businesses will be allowed to set off the taxes they have paid on inputs. This refund will lower production costs and will, hopefully, result in lower prices. The deadline for rolling out these tax reforms has been extended. The GST will be effective from April 2011, while the DTC will be from April 2012.

Courtesy: Business Today

Ways to prune your tax burden

2011-02-05T20:33:00.000-08:00

Two millennia ago, Aesop penned a fable about an ant and a grasshopper. The ant toils through the whole year storing food for the winter while the grasshopper sings and dances during the summer months.

As the grey clouds of winter cover the sky, the ant remains comfortable and cosy, while the grasshopper is hard-pressed and starved during the cold months. Aesop's moral about hard work and preparation is apt even today, more so at the end of the fiscal year.

Like the ant, some investors have been systematically investing to save tax . However, most investors find themselves in a situation similar to the grasshopper's-scrambling during the last quarter to invest in tax-saving avenues.

Fortunately, you still have time, and a multitude of options to choose from. Also, unknown to many investors, some of their expenses, such as house rent, have already contributed to their tax-saving plan. We take a look at how the money you have already spent can help you save tax, the financial instruments you can invest in and the various sections of the Income Tax Act that can benefit you.

The Cover Advantage
Insurance is essential for every individual. Though it should never be bought as a tax-saving avenue alone, it can help to reduce your tax burden.

LIFE INSURANCE
The premium paid for a life insurance policy that covers you, your spouse and dependent children is eligible for deduction of up to Rs 1 lakh under Section 80C. However, this should not prompt you to buy a money-back or endowment policy where you have to pay high premiums. A better alternative is to opt for pure term plans, which are cheaper than traditional policies, and invest the balance money in other tax-saving avenues that deliver higher returns.

HEALTH INSURANCE
Buying a medical insurance policy will provide you peace of mind and tax savings. You can claim a deduction of up to Rs 15,000 under Section 80D for the premium paid for a health cover. You can also buy health insurance for your parents for an additional deduction of up to Rs 15,000. The limit is increased to Rs 20,000 in case of senior citizens.

A Tax Haven
Here's how expenses on your house can also help you save tax.

HOUSE RENT
The rent you pay is often a big chunk of the household expenses. Most employers structure their salaries to include a house rent allowance (HRA), which is exempt from taxes if receipts are furnished. The lowest of these three will be considered as exemption on HRA:

a) The HRA received
b) 40% of the basic pay (50% in case of metro cities)
c) The rent paid minus 10% of basic pay

If your salary does not include HRA, you can still claim a deduction under Section 80GG. However, to claim this, you or your family (spouse and minor children) should not have a residential property in the place of accommodation. You should also not have a self-occupied house in any other place. The least of the following can be claimed as a deduction: rent paid less 10% of the total income, 25% of the total income or Rs 2,000 per month.

If you're a landlord who receives rent, you can claim a standard deduction of 30% on the annual value under Section 24. You can also deduct municipal taxes from the amount of rent received.

HOME LOAN REPAYMENT
If you have taken a loan, the EMIs you are paying will help you out of the tax quagmire. The cumulative principal amount of the EMIs paid is eligible for deduction of up to Rs 1 lakh under Section 80C. However, the deducted amount will become taxable if the property is transferred within five years of the claim. The bigger advantage is the deduction you can avail of for the interest component of the EMI. You can claim up to Rs 1.5 lakh under Section 24(B). The benefits double if you have taken a joint loan as both co-borrowers can avail of the tax deduction separately.

Savings and Investments
Putting your money in the following financial avenues can help relieve your tax burden.

PROVIDENT FUNDS
Every month, it may pinch a little to watch a part of your salary go into the Employees Provident Fund (EPF), but this contribution can be a saving grace now. The money that has been contributed to the EPF is eligible for tax deduction of up to Rs 1 lakh under Section 80C. This benefit is available to all recognised provident funds, including the Public Provident Fund (PPF), a favoured avenue for investors as it carries no risk and gives a return of 8%.

In case of the PPF, the maximum deduction allowed is Rs 70,000. Also, the 15 year lock-in period ensures that you reap the benefits of the power of compounding. However, if you need to, you can withdraw up to 50% of the money in your account from the seventh year onwards.

The EPF usually gives a return of 8.5%, though this year it has proposed to increased it to 9.5%. Negotiations are also on to use a portion of the EPF corpus to invest in the stock market. If, and when, this does happen, you could hope to earn even higher returns. Also, you cannot withdraw the money till you retire or opt out of the job market, which means that you're also steadily building your nest egg. You can withdraw the money if you desperately need it for specific purposes.

PENSION SCHEMES
A pension plan is an important tool that can help you build a retirement corpus. You also earn tax benefits as contributions up to Rs 1 lakh are deductible under Section 80C. You can choose from three types of pension plans-unit-linked pension plan, plans from mutual funds and the National Pension System. Unit-linked pension plans are cheaper than unit-linked insurance plans (Ulips) because they do not offer life insurance. However, on maturity, only 33% of the corpus that you get will be exempt from tax. If you do not get gratuity, up to 50% of the pension corpus can be commuted.

NSCs AND FDs
Investments in National Savings Certificates (NSCs) are as secure as those in the PPF. However, the returns earned from them are taxable, so these are less profitable. What appeals to most investors is the shorter lock-in period of six years. Another less risky instrument with a short tenure is five-year fixed deposits (FDs) with banks or the postal department. The interest rates for FDs vary each year, though they usually fall in the range of 7-8%.

INFRASTRUCTURE BONDS
These bonds acan help to further lessen your tax burden as investments in infra bonds can be claimed as an additional deduction up to Rs 20,000 under Section 80C, beyond the Rs 1-lakh limit. However, these may not be suitable for all investors (see May Not Always Bond, pg 50).

ULIPS
The overhauling of unit-linked insurance plans (Ulips) by the Insurance Regulatory Development Authority (Irda) has made these plans more attractive to investors. Most people prefer to invest in Ulips as these offer a unique combination of life cover, equity exposure and tax savings. Investment in Ulips can be claimed as deductible under Section 80C up to Rs 1 lakh. Though you may only need to pay the premium for 3-5 years, to get the maximum benefit from your investment, it is advisable to remain invested for at least 10 years.

SENIOR CITIZENS SAVINGS SCHEME
This scheme offers a return of 9%, higher than those offered by most other safe instruments. However, the income is taxable though it should not affect you much as the tax exemption limit for senior citizens is Rs 2.4 lakh per year. Investment in this scheme is again eligible for deduction under Section 80C.

EQUITY-LINKED SAVINGS SCHEMES
ELSS have an edge over other taxsaving instruments as these have the largest equity exposure compared with others. This also ensures higher returns in the long run. Over the past year, tax-saving plans have delivered an average return of 14.5%. The top ELSS over five years, Canara Robeco Equity Tax Saver, has delivered 22.26% returns (see pg 48). However, ELSS may not be everyone's cup of tea as they are also considered more risky.

The Learning Curve
You may grumble about how expensive it is to educate your children. But this can provide a respite when you have to save tax.

TUITION FEES
Under Section 80C, you can claim deduction of up to Rs 1 lakh for the tuition fees paid for two children. This can be availed of by both the parents, though not for the same two children. Only the tuition fees paid for full-time courses of institutions based in India are eligible. Other expenses such as transport fee, development fee, hostel charges, etc, do not qualify and neither do fees paid for coaching classes or to institutions abroad.

EDUCATION LOAN
If you have availed of a loan for your education or that of your spouse or children, the interest paid on the amount is eligible for deduction from your income under Section 80E. This is in addition to the Rs 1 lakh deduction allowed under Section 80C. However, you cannot claim the benefit for repayment of the principal amount.

Other Ways to Save Tax

PROFIT FROM LOSSES: You win some, you lose some, and sometimes you win by losing. It isn't as convoluted as it sounds. You can set off your short-term capital losses from equities and equity-based mutual funds against other short-term capital gains, which includes gains from debt funds, gold and property. Such losses can also be set off against long-term gains from property and gold and can be carried forward up to eight years.

DONATIONS: Here's a reward for your kindness. You can avail of tax deductions of 50-100% under Section 80G for donations to charitable causes. This is subject to a ceiling of 10% of your gross total income. Donations to other specified organisations are also deductible. If you have given money to an institution involved in scientific research or rural development, you can avail of exemption under Section 80GGA, while full deduction for the amount given to a recognised political party can be claimed under Section 80GGC.

DISEASES: The expense on the treatment for certain diseases is eligible for up to Rs 40,000 as deduction under Section 80DDB. In case of those above the age of 65 years, the maximum exemption is Rs 60,000. You can claim the deduction for yourself or for a dependent suffering from specified diseases, such as neurological diseases (including dementia, Parkinson's disease), malignant cancers, AIDS, kidney failure and haematological disorders (haemophilia and thalassaemia). However, no deduction is available if the amount spent is reimbursed by the employer or an insurance company.

DISABILITY: Under Section 80U, if you suffer from a disability, such as blindness, leprosy, hearing impairment, loco-motor disability and mental illness, you can claim deduction of up to Rs 75,000. If you have a dependent who suffers from a disability, you can claim up to Rs 50,000. The deduction will depend on the degree of impairment, which should be at least 40%.

Courtesy: Business Today

Inflation impact: Govt may hike tax exemption limit in Budget

2011-02-05T20:27:00.000-08:00

Tax payers can expect some relief from high inflation in Budget 2011-12, as the government may raise the income tax (I-T) exemption limit for individuals.

"Finance Minister Pranab Mukherjee is alive to the price situation and its impact on the common man," sources said, adding he would favourably consider the issue of raising tax exemption limit.

Moreover, as the government is committed to raise the income tax exemption limit from Rs 1.6 lakh per annum to Rs 2 lakh in line with the Direct Taxes Code (DTC) in 2012-13, tax payers could expect at least some relief in the upcoming Budget on February 28.

"The finance ministry would keep in mind the high inflation in the Budget. Since there is no dearness allowance for a vast section of the society, hike in income tax exemption limit is likely," a source told PTI.

At present, income up to Rs 1.6 lakh is exempt from tax for individuals. For women and senior citizens, the limit is 1.9 lakh and 2.4 lakh, respectively.

However, under the the DTC Bill, which was introduced in Parliament last year, the I-T exemption limit is of 2 lakh. Through the Bill, the government seeks to widen tax slabs to levy 10 per cent rate on income between Rs 2 lakh and Rs 5 lakh, 20 per cent on Rs 5-10 lakh and 30 per cent above Rs 10 lakh.

DTC, which would replace the Income Tax Act, is slated to come into effect from April next year.

"Since inflation is eating into the income of the people, some of DTC provisions can be implemented to benefit the common man," the official added.

Inflation, particularly food inflation, has been a concern for both the government and the common man. For the past few months, food prices have been staying at very high levels.

The wholesale price food inflation rose to 15.57 per cent for the period ended January 15, on escalating vegetable prices, particularly, onions. It was at 15.52 per cent for the week ended January 8.

The overall inflation in December last year had also gone up to 8.43 per cent, up from 7.48 per cent in the previous month, mainly driven by costly food items.

Recently, P Chidambaram who served as Finance Minister before moving to the Home Ministry in the previous UPA regime, said there is no tax worse than inflation.

Courtesy: Business Today

Importance of Life Insurance in India

2011-02-04T22:35:00.001-08:00

One of my good friend had a small argument with me, that she would not invest in Term Plan of Insurance, because she will not get any “returns” out of it. I believe investing in a term plan looked a very unprofitable thing to her as she never gets back the money she paid as “premiums” , if she survives.

Endowment plans looked nice to her, because they provide money if you are dead and even if you survive. You get back money as the prize for not dying !!!.

With respect to Term insurance , she understood the fact that her family will get the money from insurance company in case of her death, but she was concentrating on the fact that she would not get back anything if she survives. What is the return in that case? Nothing !!! , and looked like some one is fooling you with a product called “Term Insurance” , where you are “investing” premiums to get nothing at the end.

Let me now tell why this happens and some give you some insight on this matter.

I have already talked earlier in my last post “Life Insurance and how to go about it” , about Term Insurance . Let me now take more deep dive into it and talk about the reasoning part.

I will first talk about fundamentals of Insurance and then talk about Endowment Policies and why are they popular, and what people don’t realise about them. and how Term insurance is the right thing for most of the people.

Basics of Life Insurance

What happens in a average family : There is someone who earns and his family comprises of wife , kids , parents . if not all there is a subset of these family members. The head of the family earns and his family lives happily. All the expenses are met from the earnings of this main member , most of the time the husband. Now consider this person dies in an accident or for that matter because of any event. What happens? What happens to his family members other than thepsychological trauma . If they don’t have money to take care for them selves ,either some one from family have to take up the job and start working which may not be possible for them, or They have to decrease their standard of life to maintain the expenses . They are now totally unsecured from future’s point of view. In short they are totally messed up , which should not have happened. I gave this detailed explanation for the circumstances because i wanted you to understand how bad can happen and proper measures must be taken care for this.

What is the Solution?

Adequate Coverage !!! , this cant be compromised… You must have a backup plan which can give your family the same kind of income which confirms that they are not short of money in case the main earner is gone. If there are some debts like Home Loan , or any other tasks which need money apart from regular income , the cover must be good enough to cover that too..

For example : Robert has a family expenses of 25,000 per month and there is a Home loan of Rs 25 lacs to be paid within 10 yrs. He is 27 yrs old. He has a wife , 2 kids and parents. All of them are dependent on him financially. He has investments of 5 lacs. Now in this case. In case he dies , who will take care of Home loan, how will provide them enough money to live life comfortably. They need 25k * 12 = 3 lacs per year. which they can get per month if they have 35-40 Lacs of money . If they put this in bank , they will get Rs 25,000 per month as interest which they can use. Considering inflation it will not be enough after some years , but lets leave it now for this example. Add home loan of 25 lacs to this 40 lacs and what we come to know is that this family must be covered with minimum Rs 65 lacs . Rs 75-80 Lacs is a decent cover for this family. Now if he takes a cover of 80 lacs for his family, from that day he can happily live all his life without any tension , thinking what will happen if he is not there. He will be attain peace of mind , and not be worried for it. He must get a lot of internal peace because his Family is protected with a good enough cover to take care for them . And this is what you get in “return” from Insurance. No monitory return can give you more satisfaction than peace of mind.

So before doing anything else , his first step is to give adequate cover to his family and that’s the most important responsibility for him as a Husband , Father , Son . He must understand that this is not an investment for monitory benefit later in his life , but its for his family happiness and future.

One point to remember and not forget is that this is the minimum cover required for family and anything less than this will be taking risk with family future.

Endowment or Money back Policies

Lets discuss the problems with these plans with respect to the above example.

High Premium : For an 80 lacs cover for say 30 yrs , the premium payable will be At least 2-2.5 lacs/year (this is a conservative figure) . So now premium so high is not possible for anyone like Robert, so what they do? They go with a kind of cover for which they can pay premium easily , can then they take cover for 5 lacs , 10 lacs or maximum 20 lacs. And guess who suffers in case of his death : HIS LOVED ONE’s .

It might also happen that they are compromising on a lot of small things which are important at that moment in time , like buying a bike for son , which they cant buy because of the insurance they have to premium, or some vacation they could have gone to with family , but compromise on that because of premium.

Money back at the end of the maturity is like a penny after so many years :

This is some thing most of the people overlook. They just see the numbers , 5 lacs 10 lacs or 20 lacs . And at the time of taking Insurance it looks good figure to them , because they see numbers , theydont see its value after many years, They don’t consider Inflation into account . In case of above example , if Robert takes a cover of 15 lacs by money back policy , what happens if he survives the tenure. He gets 15 lacs at the end , Great Money after 30 yrs . Isn’t !!!

Lets see how great this money is? His monthly expenses will grow from 25,000 per month to 1.5 lacs per month (considering inflation of 6%) . Now this money will help him survive for not more than 10 months … For so many years he pays high premium each year, just to get back money to cover his 10 months monthly expenses. ? What the hell !!!

Under Insurance : Because of the fact that people want money back on survival and because of high premium , people end up taking policy for which they have to pay premium under there budget , which means less cover.
Without realising the fact that they are highly under insured , the reason for this is that they see Insurance as investment product and not a protection cover for there family. When they die , there family get the money from Insurance company , but most of the time its not enough for them and it erodes very soon.

Term Insurance Policies

Lets discuss the features of Term Policies with respect to above example.

Cheap Premium : The premium is very low for Term insurance Policies. For above example . The yearly premium for Rs 75 lacs cover for 25 yrs is just Rs 20,000 yearly or just 1,600 per month !!! . This is in any way affordable for most of the people. Its providing the fundamental requirement of Good cover and low premium and if you think of returns , Good cover and low premium can themselves be seen as good enough return. You family protection at low cost is the return you get.

Opportunity to invest rest of the money in High return Investments :

With term Insurance you save a lot of money in premium and now you can invest this money as per your wish in high return instruments , anyways in Endowment policies you put money for long term and you get it after so long time. So you can now always put your saved money in things which are long term investment products and return great returns.

One of those things is Equity Diversified Mutual funds and Direct Equity (depending on persons ability and interest). In long term Equity Diversified gives fabulous returns (15-20 yrs) and the risk is minimised because of long term. And if you consider India growth story , it looks great in long term , hence Equities for long term is the most obvious choice . They will give you return of 15%+CAGR. (15-20 yrs)

Also it will be flexible , you can not invest for a year or two , if you want to use the money for your family vacation or some important event.

Conclusion :

Insurance is not an investment product , its a Protection instrument for your Family or any one your want to cover. There are other products for your investments .

Let your finances be the way you want your life to be , SIMPLE !!!
Don’t mix Insurance and Investments. There are products like ULIPS(What are ULIPS) and Endowment or Money Back policies which never excited me. They complicate things , confuse people.

They can be good if you understand how to make most out of it, but it require knowledge and expertise. They offer some flexibilities , but still they are not worth it .

Read more on Term Insurance at my Old article

I would be happy to read your comments or disagreement on any topic. Please leave a comment.

Disclaimer: All the opinions are personal and shall be taken as knowledge sharing and not asencouragement.

Courtesy: Jagoinvestor.com

Introduction to Health Insurance in India

2011-02-04T22:33:00.001-08:00

How many accident you need to realise that you need Health Cover? It takes just one visit to a hospital to make us realize how vulnerable we are, every passing second. For the rich as well as poor, male as well as female and young as well as old, being diagnosed with an illness and having the need to be hospitalized can be a tough ordeal. Heart problems, diabetes, stroke, renal failure, cancer – the list of lifestyle diseases just seem to get longer and more common these days. Thankfully there are more speciality hospitals and specialist doctors – but all that comes at a cost. The super rich can afford such costs, but what about an average middle class person. For an illness that requires hospitalization/ surgery, costs can easily run into five digit bills. A Health insurance policy can cover such expenses to a large extent. Read why Health Insurance is more Important these days compared to Old days

Types of Health Insurance

There are mainly three types of Health Insurance covers:

Individual Mediclaim : The simplest form of health insurance is the Individual Mediclaim policy. It covers the hospitalization expenses for an individual for up to the sum assured limit. The insurance premium is dependent on the sum assured value. Example : If you have 3 family members you can get an individual cover of Rs 2 lacs each . In this case each of you are covered for 2 lacs , if 3 members face a need for hospitalization , all 3 of them can get expenses recovered upto Rs 2 lacs . All the 3 policies are independent .

Family Floater policy : Family Floater Policies are enhanced version of the mediclaim policy. The sum assured value floats among the family members. i.e each opted family member comes under the policy, and it covers expenses for the entire family up to the sum assured limit. The premium for family floater plans is typically less than that for separate insurance cover for each family member. Example : In this case if suppose there are 3 family members , you can take a Family floater policy for Rs 6 lacs in total . Now anyone can claim upto 6 lacs in expenses , but then the cover will go down by that much amount for that year . So if one of the family member is hospitalised and the expenses are 4.5 lacs . It will be paid and then the cover will be reduced to 1.5 lacs for that particular year . Next year again it will start from fresh 6 lacs. Family floater makes sense for a family because that way each one in family gets a big cover and probability of more than 1 getting hospitalized in same year is too low untill and unless whole family is travelling together most of the times in a year .

Unit Linked Health Plans : Taking the ULIP route, health insurance companies too have introduced Unit Linked Health Plans. Such plans combine health insurance with investment and pay back an amount at the end of the insurance term. The returns of course are dependent on market performance. These plans are very new and still in development phase . This is only recomended for people who can handle market linked products like ULIP and ULPP . Read who should buy ULIPs .

For a number of reasons, it is advisable to steer clear of unit linked health plans. The best way is to treat insurance purely as an expense. So if you are single, opt for an Individual Mediclaim policy and if you have family, opt for a Family Floater policy. The amount paid (by cheque or debit/ credit card) for health insurance premium provide tax exemption under section 80D for a maximum of Rs.15,000.

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What is the Ideal Cover for Health Insurance

As mentioned earlier, the cost of Health Insurance depends on the sum assured , age, current health condition and your previous medical history. Higher the sum assured, higher the premium. So what is the ideal health insurance cover requirement? There is no standard answer or thumb rule for this. If we agree that health insurance is important, one has to look at his/ her own lifestyle, health condition, age/ life stage, family history of illnesses and affordability. Keep in mind that most insurance companies limit the sum assured to a maximum of 5 lakhs. Also note that many health insurance policies “provide additional benefits” such as daily allowance, ambulance charges, etc. for hospitalization. Not only are such “benefits” superfluous, they tend to drive the premiums higher. So it is best to avoid such plans and stick to something basic and simple.

Image courtesy

Health Insurance provided by Employer

Many employers provide health cover for their employees. Isn’t that sufficient? Three aspects need to be considered in such a case – Is that cover sufficient? Is the insurer good enough? What happens if you change your job? Health insurance is provided as a perk to the employees. So it is important to understand the policy a bit more in detail and to check for coverage. The best way is to ask the HR Department for policy details. Get into details , what is covered , what is not covered ? Many times Employees just think that they have health Insurance and are just relaxed only to find later that it does not cover X and covers Y only upto a limit . That can be a painful situation .

Health Insurance for the aged

Till a few years back, health insurance companies were reluctant to provide cover for the aged. But nowadays there are a lot of insurance companies providing policies for the senior citizens. Insurance cover paid for a person of age 65 years and above, can provide additional tax exemption of up to Rs.20,000. But keep in mind that the premium rates are higher for senior citizens. For the employed, another option is to approach the employer to negotiate with the official insurer to provide an option for additional cover to parents. Since the volumes are high, the insurer can provide such added cover at attractive premium rates.

One of our readers Pattu has shared a great calculator which he discussed in his comment is uploaded here , If you want to download it , Click here

Tax Exemption from Health Insurance Premiums

Sec 80D covers Health Insurance . You can get exemptions of

Upto Rs. 15,000 paid for self + spouse + cildren.
Upto Rs 15,000 paid for Parents (Rs 20,000 if parents are senior citizens)

So in total if you pay your health insuance and your parents health Insurance premium , you can save upto maximum of 35,000 .

Note : If you take Health Insurance riders with Term Insurance like Critical Illness cover , the extra premium paid for that will be actually be covered under Sec 80D , not sec 80C . See Tax Rules

What is TPA (Third Party Administrators) ?

TPA stands for Third Party Administrator. TPA is a middlemen between Insurer and the Customer . Customer can directly deal with TPA at the time of claim and TPA will help with with all the process of claim settlement . A TPA is a specialized health service provider rendering variety of services like networking with hospitals, arranging for hospitalization and claim processing and settlement. The concept of TPA has been introduced by the IRDA (Insurance Regulatory and Development Authority of India) for the benefit of both the insured and the insurer. While the insured is benefited by quicker & better health service, insurers are benefited by reduction in their administrative costs, fraudulent claims and ultimately bringing down the claim ratios. An insurance company can have more than one TPA and a TPA can serve more than one insurance company. Some of the services TPA provides are

Maintain database of policyholders
Issue of identity card to all policyholders
Provide ambulance service
Provide information to policyholders about hospitals.
Check various investigations
Provide Cashless service
Process claims

Health Insurance Claims settlement process

A bit on how health insurance claims processing works. In most cases, the Insurance companies appoint a third part administrator (TPA) for claims processing. That means once the health insurance policy is sold, the insurer passes on the baton to the TPA. In case of a claim, the insured has to get in touch with the TPA for all versification and formalities.

There are 2 ways by which health insurance claims are settled:

Cashless : For availing cashless treatment (only at authorized network hospitals), the TPA has to be notified in advance (for planned hospitalization) or within the stipulated time limits (for emergencies). The insurance desk at hospitals usually helps with all paper work. The claim amount need to be approved by the TPA, and the hospital settles the amount with the TPA/ Insurer. Typically there will be exclusions and such amount will have to be settled directly at the hospital.

Reimbursement : Reimbursement facility can be availed at both the network and non-network hospitals. Here the insured avails the treatment and settles the hospital bills directly at the hospital. The insured can claim reimbursement for hospitalization by submitting relevant bills/ documents for the claimed amount to the TPA.

The TPA mode of claims settling has its own problems. The TPA is incentivized to limit insurance claims and they are not the one’s who sells the policy. There are many cases where the insured had a tough time to claim for his hospital expenses. So before taking health insurance it would be useful to check who the TPA is and how good are they when it comes to claims processing. Internet search and a friendly chat with the hospital staff can give you good insight on the insurer/ TPA. There are also some health insurance providers who do not employ TPAs and does claims settlement directly (this is called Inhouse TPA) .

Comments , What are the best health Insurance policies you are aware of ? Do you feel it makes sense to buy health insurance at early stage or after getting married only ? Please share your views on this .

This is a Guest Article from Ganesh who is an avid follower of this blog and his blog is My Graffiti Page. Please note that this post is NOT intended to promote or suggest any Health Insurance plan. If anyone is planning to take Health Insurance this New Year, the post can possibly provide some useful tips and pointers for selecting a suitable plan. Your comments and thoughts are most welcome.

Courtesy: Jagoinvestor.in

Introduction to Health Insurance in India

2011-02-04T22:33:00.000-08:00

Types of Health Insurance

There are mainly three types of Health Insurance covers:

Individual Mediclaim : The simplest form of health insurance is the Individual Mediclaim policy. It covers the hospitalization expenses for an individual for up to the sum assured limit. The insurance premium is dependent on the sum assured value. Example : If you have 3 family members you can get an individual cover of Rs 2 lacs each . In this case each of you are covered for 2 lacs , if 3 members face a need for hospitalization , all 3 of them can get expenses recovered upto Rs 2 lacs . All the 3 policies are independent .

Family Floater policy : Family Floater Policies are enhanced version of the mediclaim policy. The sum assured value floats among the family members. i.e each opted family member comes under the policy, and it covers expenses for the entire family up to the sum assured limit. The premium for family floater plans is typically less than that for separate insurance cover for each family member. Example : In this case if suppose there are 3 family members , you can take a Family floater policy for Rs 6 lacs in total . Now anyone can claim upto 6 lacs in expenses , but then the cover will go down by that much amount for that year . So if one of the family member is hospitalised and the expenses are 4.5 lacs . It will be paid and then the cover will be reduced to 1.5 lacs for that particular year . Next year again it will start from fresh 6 lacs. Family floater makes sense for a family because that way each one in family gets a big cover and probability of more than 1 getting hospitalized in same year is too low untill and unless whole family is travelling together most of the times in a year .

Unit Linked Health Plans : Taking the ULIP route, health insurance companies too have introduced Unit Linked Health Plans. Such plans combine health insurance with investment and pay back an amount at the end of the insurance term. The returns of course are dependent on market performance. These plans are very new and still in development phase . This is only recomended for people who can handle market linked products like ULIP and ULPP . Read who should buy ULIPs .

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What is the Ideal Cover for Health Insurance

Image courtesy

Health Insurance provided by Employer

Health Insurance for the aged

One of our readers Pattu has shared a great calculator which he discussed in his comment is uploaded here , If you want to download it , Click here

Tax Exemption from Health Insurance Premiums

Sec 80D covers Health Insurance . You can get exemptions of

Upto Rs. 15,000 paid for self + spouse + cildren.
Upto Rs 15,000 paid for Parents (Rs 20,000 if parents are senior citizens)

So in total if you pay your health insuance and your parents health Insurance premium , you can save upto maximum of 35,000 .

What is TPA (Third Party Administrators) ?

Maintain database of policyholders
Issue of identity card to all policyholders
Provide ambulance service
Provide information to policyholders about hospitals.
Check various investigations
Provide Cashless service
Process claims

Health Insurance Claims settlement process

There are 2 ways by which health insurance claims are settled:

Cashless : For availing cashless treatment (only at authorized network hospitals), the TPA has to be notified in advance (for planned hospitalization) or within the stipulated time limits (for emergencies). The insurance desk at hospitals usually helps with all paper work. The claim amount need to be approved by the TPA, and the hospital settles the amount with the TPA/ Insurer. Typically there will be exclusions and such amount will have to be settled directly at the hospital.

Reimbursement : Reimbursement facility can be availed at both the network and non-network hospitals. Here the insured avails the treatment and settles the hospital bills directly at the hospital. The insured can claim reimbursement for hospitalization by submitting relevant bills/ documents for the claimed amount to the TPA.

Courtesy: Jagoinvestor.in

Step by Step Process of Buying Life Insurance

2011-02-04T22:28:00.000-08:00

Have you already bought Life Insurance ? Though you might have done the sin of beingunderinsured, I would say its fine, because today we are going to look at detailed steps of buying Life Insurance and we will also learn a lot of things. Almost everyone has his own set of doubts regarding Life Insurance contracts, but in this article we will not just look at detailed procedure of buying Life Insurance, but also see why most of the people have the doubts which they have. This is probably going to be the last article on Life Insurance you would need. So here we go. Today for the savvy life insurance buyer, it is possible to buy the policy on the web – it saves money for sure.

Choose company that suits you

The first step in buying Term insurance is to shortlist the company from where you wish to buy the product. There are many companies in India selling life insurance and almost all of them have a Term cover available. Let us call them companies A to M. If you do not TRUST say five of those companies – or you do not believe that you wish to deal with them, you need not even look at them.Why you dont like Term Insurance and why you are wrong !

Inquire about insurance cost

Now let us say you like to deal only with A, D, F, G and H. Visit these companies’ websites and find out how much a term insurance for you costs. If you are 35 – look for a policy that will protect YOUR INCOME till the age of say 55 years (choosing age 65 will increase the premium) if your retirement age is 55. However, if you think you will be earning till the age of 65 years, choose a 30-year plan.

Formalities to fulfill

If you are savvy and patient enough, you could fill up the form online – and a person will get in touch for the formalities. Or you could call up and ask for an agent. On an average the agent will not be very well qualified – but most of them will try to dissuade you from buying a term insurance. Just say, ‘give me a term insurance form’. There will be other documentation like income proof (3 years IT return), one photograph, pan card etc.

Filling the form

Next is the process of filling the form. This is one crucial thing that people are normally too lazy to do – so they delegate it to the agent. The life insurance form, the medical insurance form and the embarkation form when you are landing in the US or Israel should always be filled by you personally! You know about yourself – not the agent whom you have just met. Many of them are worried that you will not be eligible to be insured. So in order to protect their commission (and to please you) will take short cuts, be careful.

Fill details accurately

Every word, every column in the life insurance form is crucial – that is the reason why they are there in the form. All details should be accurately filled. Make sure that the name in your passport, pan card and the life insurance form are EXACTLY the same. To the authorities K Balakrishnan is not the same as Balakrishnan Kumar. It may sound trivial, but let me assure you your nominee will not find it amusing.

Besides, check your height, weight (I have seen some agents argue with the doctor to show a few kilograms less and some doctors oblige!), number of cigarettes you smoke, the amount of alcohol you drink, parents illnesses before they were 65, and also your own medical history.

Faith binds customer, insurer

Let us start from the very beginning. The Life insurance form that you are filling in is called a ‘Proposal form’ – which means you are proposing that you want a life insurance cover. Life insurance business is based on utmost good faith. The Latin word for utmost good faith is Uberrimae Fidei – which means you (the applicant) is under a basic duty to disclose all material facts and surrounding circumstances that could influence the decision of the other party (the insurance company) to enter the agreement. Non-disclosure or a partial-disclosure makes such agreements voidable – the insurance company can choose to ignore it, but they have a right to cancel the contract.

As per the contract, you are proposing and giving all your details that are asked for in the form. This includes your age, height, weight, your smoking and alcohol consumption habits.

Be Truthful

You should be truthful because of two reasons – one it is necessary to be truthful. The second perhaps the more important reason is when you are not truthful and you were to die, your nominee will not get any money. If a person has taken a policy just say 8 months before the claim happens, there is almost a 100 per cent chance that the claim will be investigated. Here the company literally looks at the application with a fine comb and anything that has not been correctly stated will be used against the claimant. If for example, a person dies in a road accident – and what has been hidden was say blood pressure – Insurance companies have said ‘his blood pressure may have caused him some inconvenience while crossing the road…’

Think about your nominee

One very important thing which most life insurance buyers forget is that by lying on the proposal form they are telling a lie to their nominee, not to the life insurance company! If on death the claim amount is not paid (IMMEDIATELY), it is almost like the policy did not exist.

Cross-check copy of application form

Apart from the critical questions, there are some other questions like caste, spouse’s name, spouse’s occupation and children’s names, especially if the nominee is more than one person. When the company issues a policy, they are bound to send you a copy of the application form – please check whether it is the same form which you had filled. A while ago I heard of a case where the agent had changed the form – and removed the illness clauses before submitting the application to the company. As the case involved an employee of the company – the critical illness claim was paid without a murmur. What helped was the fact that the client had kept a copy of the application!

Take your time

Please remember even if you are paying a small premium (term premiums are not large), the sum assured is normally a critical amount and your dependants are waiting for that cheque to carry on their lives. It is quite all right for a person to spend some more time while taking a policy but any delay at the time of claim settlement is bound to unnerve the dependants.

Everything that you say in the form – your job, income, past illnesses are all critical to the whole process of underwriting of your policy. The life insurance company also collects data – if it finds that a certain occupation is prone to a particular type of illness, they may ask you to go through some more tests before they issue a policy.

Understand the contract

There is a big difference between a mutual fund ‘investment’ and a ‘life-insurance’ contract. In case of a mutual fund, the asset management company is making an ‘Offer’ to you. This means if you issue a valid cheque, units will be allotted to you. They are making the offer, and you are accepting.

In case of an insurance contract, you are ‘Proposing’ saying that you want life insurance. If your cheque goes through, then the life insurance company calls you for a financial and a medical underwriting process. If they are satisfied that your life is a normal life, they will issue you a policy. Once a policy is issued by the company it means you have a contract that is binding. On you the liability is to pay the premium regularly, and on them is a duty that in case of death, they should pay the sum assured amount to the nominee. This is critical and a very important contract which you should understand reasonably well.

Conclusion

Life Insurance is an important decision in life and each step in this whole process is critical to make the whole decision successful and free of any hassles later. Lets look at the whole steps once again through the diagram.

Courtesy: moneymantra.co.in

Beware of Loading and Co-pay in Mediclaim Policies

2011-02-04T22:25:00.000-08:00

Today we discuss two concepts in Health Insurance, generally present in the policy document, which policyholders are not normally aware about, because they don’t care to look at those clauses. We are talking about concept of Loading and Co-Pay . Let’s talk about both the concepts one by one.

What is Loading in Health Insurance ?

Loading, in terms of Mediclaim Insurance means the Insurer (Company) will charge more amount than the regular premium from the policy holder after a claim has been made. Suppose, for eg., you have an Insurance policy and you pay Rs 8,000 each year in premium, and now suppose in 3rd year you make a claim, then from the 4th year onwards, your premium increases by a certain amount which can range from 5% to even 300%. The increase depends on the company terms and the rules. If the loading is 50%, your premium will increase by 50%, which is Rs 12,000. Loading can apply with every claim you make. Please check the brochure off loading is 50% , your permium will increase by 50% , which is Rs 12,000. Loading can apply with every claim you make.

Please check the broucher of ICICI Lombard mediclaim policy stating different slabs for different amounts of claim made. One more product, I would strictly advice all the readers to stay away from, is Star Health’s Red Carpet policy for Senior citizens. This is one of the most fictitious policy, I have ever come to known. Not only is this policy, making an option of Co-pay up to 30% but also has Loading as well. So, a senior citizen, who is normally retired and must also be suffering from one ailment or the other, will be forced to shell out a huge amount of expenses for hospitalization in addition to the premium paid. According to me, it is of prime importance, for the prospective client to look for the clause of Loading in the policy document of said company.

But it doesn’t mean that all Mediclaim Policies in the market come with the Loading clause. There are a few companies in the market without such Hidden Riders like United India(Gold and Platinum only) and Max Bupa. This concept of Loading defeats the very purpose of Mediclaim. An individual takes a Mediclaim Policy, just so that he won’t pay anything extra, out of pocket but ultimately, he is spends more by way of Loading after the claim has been made..

Why Loading concept is there from Insurance Companies ?

Generally, the insurance company is of the view, that once a policyholder has made a claim due to any illness or some major illness, he might make the claim again in future (if not near then in the distant future), so just to be prepared to face those recurring claims, the company tries to safeguard itself, by procuring a larger premium by way of Loading. Sometimes, it make sense but most times, it does not! The only justification on the company’s part, is that they make this loading thing clear, at the very inception of the policy, in its brochure as well as its policy documents and they do take, a declaration from client that they knows about it with his/her signatures. If the client doesn’t read/go through these details and is later on required to shell out more from his pocket, then it is his mistake not the company’s.

So my advice for all the readers out there; Dear friends, don’t get fleeced! By the sheer laziness of not reading/going through the policy brochure or documents, we will be facing heavy Loading, both of money and of tension.

Is loading acceptable ?

On the brighter side, companies can not just have any kind of unreasonable loading in policies. These have been challenged by consumers, and often the consumer forums have taken decisions in favor of consumers. Here’s a case in point –

Amina Sheikh, an octogenarian, was insured for Rs 1.5 lakh for a decade by the National Insurance Co. Ltd. under its Mediclaim Policy. When her policy was due for renewal in 2007, the company increased the premium from Rs 5,305 to Rs 32,787. This was done to make it financially unviable to continue with the policy. Her daughter protested, so the premium was brought down to Rs 23,845, which too was very high. She was forced to pay this premium and renew the policy to avoid a break in insurance. Her daughter wrote to the company demanding an explanation for the arbitrary increase. The divisional manager replied that the policy now stood cancelled as Amina did not seem happy with the firm. He also clarified that the premium doubles immediately when a person crosses 80 years of age and for her, the premium had been loaded by another 100% in anticipation of claims arising due to advanced age.
CWA then filed a consumer complaint. Rendering the judgment on behalf of the bench, the forum president observed: “Managers of public sector undertakings are duty-bound to take decisions based on facts and not in an arbitrary and irresponsible manner based on their emotions.”
The Forum held that the loading of the premium was arbitrary, unjustified, and contradicted the terms of the policy, which is deficiency in service and unfair trade practice. The forum directed the firm to continue the policy by charging Rs 13,112 and to refund the excess premium collected. It also directed the company to continue renewals without loading as long as the insured paid regular premium in time. Also, compensation of Rs 15,000 for mental agony and Rs 2,500 as costs were granted. Source : TOI

Click to Read 2 more cases

What is Co-Pay in Health Insurance Policies ?

Co-pay, as the name signifies is the payment made by two parties, even if that is not in equal proportions This is another important factor to be kept in mind while selecting the Mediclaim policy for oneself. Under this clause, the insured is also required to bear a certain percentage of expenses incurred on illness/disease while hospitalized, either conditionally or under certain conditions..

Usually, in our country, the concept of Co-Pay only comes into picture after a certain age. Most of the companies levy this clause once the policyholder enters the Senior citizen category, that is after the age of 60. Mostly this percentage is mentioned as 20% pay – i.e., policyholder is required to pay 20% of the expenses out of his own pocket. For eg, if Mr X, who is 63 years old falls sick and has to be admitted to the hospital for 5 days, for which hospital bills come out to be Rs 80,000 and his Mediclaim Policy mentions 20% co-pay, then Mr X has to pay Rs 16,000 and rest Rs 64,000 will be borne by the company. The basic understanding behind this clause, is that the company is expecting an increase in claims from this particular section of the policyholders, – the senior citizens. The company’s thinking is that as the age progresses, the chances of policyholders getting sick increases. The expenses on his treatment for a given complication will also be higher as compared to the same treatment for someone who is much younger, say age 38 or 40. Looking at it from the prospective of the company, this clause seems logical but as an individual policyholder, I believe this is one of the main thorns in the flesh of the policyholder who is entering the age bracket of 60s. I believe this percentage has to go down, or associated to some very major complications/illnesses, or senior citizens should given some rebate on premium year on year just to balance out this Co-Pay clause.

Some other companies, preferably PSUs, charge this co-pay clause if the policyholder is taking treatment in out of network hospitals. Earlier, they would apply this co-pay concept, in case the policyholder chooses a higher-end hospital with air-conditioned services or someone from smaller city getting treatment in costly cities like Delhi, Mumbai, Chandigarh, Bangalore etc. At that time, co-pay clause was built in to ensure that the policyholder choose the appropriate hospital/doctor/room level relevant to his economical status as well as the premium paid by him to ensure there is no overspend just because of the existence of the mediclaim policy.

So dear all, please keep an eye for co-pay clause in the policy which you are thinking of buying for yourself as later on, it may negate the very concept of cashless or reimbursement later on as later on! And in the 60s when people have mostly retired with no real source of income, to pay even 20% of the total expenses out of own pocket would be a considerably big amount.

So should you choose a company without co-pay and Loading clause ?

No, not always , you should not make co-pay and other clause as the sole criteria for choosing the policy because even if a company does not have co-pay and loading clauses today , it can include them at later stage . As per Mahavir Chopra , an expert on the topic

“Again in our opinion, a clear loading policy is better than those policies where there is no explicit loading clause. This is because every policy wording has a term where it clearly mentions that “all terms including premium are subject to change on renewal, based on claims or otherwise.” – this makes you exposed to an unlimited extent, when you grow older. Bajaj Allianz implemented a new loading clause in August 2010. The most scientific loading policy is that of ICICI Lombard, which has classified claims into Chronic and Non Chronic. Non-chronic claims like an accident or Malaria etc. would have a loading only above a certain threshold claim amount, which is not carried forward in the subsequent year. Whereas chronic ailments will have a loading of 75% and carried forward upto 200%.

Finally remember, even if you are buying a policy without loading this year, nothing stops the Insurance Company to add a loading clause at the time of renewal. Dont choose a company only because it does not have loading, choose a company which is stable in its services, and does not make frequent and big changes in their policy conditions.”

Please let me know your comments on this topic . Do you feel its ethical to just mention in the document and not make customers aware about it from their own side ? Do you think if companies disclose about it while selling the product face to face, it would create more respect for companies ?

The inputs are provided by Dhawal Sharma, who is an agent for Kotak and Max Bupa .

Courtesy: Jagoinvestor.com

Most asked questions in Health Insurance

2011-02-04T21:47:00.000-08:00

Are you confused about many things when it comes to Health Insurance in India ? Are you afraid of rules and regulation in Mediclaim policies ? Are you not clear about how will you deal with various things in Health Insurance and delaying your decision of taking a Health Policy ? Today we will look at most frequently asked questions in Health Insurance try to answer those questions.

1. Can a person get claim from his own company and spouse company if they are covered under both companies ?

Yes, if both husband and wife are covered from their employer, they can claim from insurance provided to them by both the companies. For e.g. if husband is covered for 1 lac under group insurance policy from his company (and her spouse is also covered under her husband company policy), and the same situation exists vice versa, both of them are then, actually covered for 2 lacs each; 1 lac from their company and 1 lac from their spouse’s company.Now if something happens and husband gets hospitalized and expenses are 1.8 lacs, then husband can make a claim of 1 lacs from any one of the company and remaining 80k from other company. If you have cashless facility then you just show both health cards. If you don’t, you can get reimbursed by insurance company. One important point worth noting is that during reimbursement, one should apply for the reimbursement first to his parent company and then to the one of his spouse. See some hidden health insurance policies

2. Do we have to notify the company about any illness or habit developed in between?

No, we are not required to notify the company regarding any complication or health issue. If the policyholder is hospitalized, the company will automatically come to know of it. Otherwise, no need to inform the company about any such policy. If you notify the company, your premium for year after notification will increase, if it is under their list of illness to be checked. If you don’t notify the company and when you go for a claim, they will come to know that it was developed earlier and the claim will be settled accordingly and from next year onwards they might put loading on it (All these reasons vary from company to company). So whether you tell them or not, it’s the same thing. They have doctors panels with whom they check your details before giving you the claim.

3. Does Health Insurance cover everything from accident, surgery, normal hospitalization ?

Yes, Health Insurance covers you for everything, provided you were hospitalized, be it for any reason; due to accident, illness, or disease. If someone met with an accident and he is hospitalized, then his mediclaim policy will pay for his bills, no exceptions.

4. What are the advantages of sticking to one Health Insurance company for a long time ?

The plus point of sticking with one company is that if someone is suffering from any pre-existing disease at the time of commencement of policy, those complications will be covered after 4 years. Until portability is introduced in India, this is the single biggest advantage to stick with one company for long. Another advantage is that when you have a continued policy from any insurance company, after few years you get bonus or discount in premium.

For example: Suppose you have a policy of 3 lacs and you are with the same insurer for past 4 years you can get a bonus of 50% i.e. you pay premium for 3 lac only but you get coverage of 4.5 lacs. Similarly some companies don’t offer bonus but they offer discount in premium i.e. for coverage amount of 3 lacs you pay lesser premium than actual amount. So if you don’t have any serious problems with the insurance company then it is better to stick to one company.

5. Can NRI’s take health insurance? Can they travel to India for treatment and claim? What about emergency situations ?

Yes NRI’s can take Health insurance in India. They can definitely travel to India for treatment and can claim it. however they will have to show their residence proof, ITR and a few other documents. If they don’t have those documents, then they are not eligible to get insured in India.The cost of treatment in India is different and cheaper than countries like USA, UK and other European countries. The premium amount computed depends on Indian conditions and parameters. So if a NRI has health insurance form Indian company, that person would be paying premium as per India actuaries and obviously cost of treatment in his residing country would be higher than India. For e.g. If a person get dengue and he is very critical and requires urgent hospitalization, the cost of treatment in India would come up to 1-2 lacs (and this is on higher side.) The same treatment would cost around 10-15 thousand dollars in US so this burns a hole in insurance companies’ pocket. So for treatment the person has to come to India and they don’t offer compensation for treatment there. Some Rules about NRI insurance and Investments

6. How to claim successfully in case of emergency and planned hospitalization?

The most basic fundamental for a smooth claim process is keeping all your documents up to date. If you have a past history of illness, make sure that you submit those documents too, because the TPA department will come to know whether it’s a pre-existing disease or not. While submitting your documents make sure that all the documents are proper and there is no missing document pertaining to your illness. This will just give a chance to TPAs to make excuses and you will have to run for your money. It’s worth noting that in case of planned hospitalization, if you inform your mediclaim company in advance and take prior authorization, everything will be settled by the mediclaim company or TPA, without the policyholder been required to submit any document.

7. Is it better to take accidental policy separately or mix it with term insurance as a rider?

If your accidental policy is a rider with some Term insurance (9 most asked questions about Term Insurance) then you must take care that it covers everything what accidental policy should cover. Generally when a policy is offered as a rider it does not cover each and every aspect. For e.g. An accidental policy offers insurance against partial disablement, loss of limbs, hands and many other parts. But in a rider, many insurance company offers insurance against permanent disablement only and not for partial disablement and loss of body parts. Also note that, because accidental rider is much less if taken with Term Plan as compared to the personal accidental policy taken stand alone. Under term plan, accidental death benefit could be taken for as little as Rs 1000 for a cover of upto 15 lakhs where as in a stand alone policy the same amount will be available for a premium of around Rs 2000. So it depends.

8. What are the top most things one should check in the policy documents ?

The first thing one should have a look at, is to check what the exclusions in the policy are. This is because, we get information on what is covered but no insurance company will give information on what is not covered and this creates a problem at the time of claims. So to avoid any surprises, one should have a thorough look at exclusions as well.

For e.g. A new circular was passed by many insurance companies few months ago in which they provided only Rs.20-24 thousand (different companies had different rates) compensation for cataract operation. Earlier there was no limit on it. So sometimes in list of coverage for health insurance we just read the tabular format given by companies but don’t go inside to see the details and this can land us in soup sometimes. Many insurance companies now provide Maternity benefitsbut they limit it to coverage of only Rs.20-30 thousand, we just see that maternity benefits are given but sometimes fail to notice how much coverage is given. Also check if the policy has Loading and Co-pay .

9. If there are no loading charges, can premium still change on renewal?

This is a very big question with very easy answer..If you check the premium structure of any of the mediclaim company, either there premium is increasing every year or they have premium slab for different age groups; something like for age 30-35 premium is 4200 and from age 36-40 its 6700. So under this second policy, when the policy holder moves from age 35 to 36, his premium suddenly jumps by Rs 2500 and this is not loading. So yes, premium can/will increase irrespective of loading after certain age.

10. Is it a good idea to split health insurance into 2 policies? Tips?

No logic for doing this except personal preference. If you are taking another mediclaim policy just to increase your cover, why not get your cover amount enhanced in the existing policy/company. Get another mediclaim policy only if certain other company is offering feature/features which your existing policy does not and you have surplus funds at your end to afford 2 separate mediclaim policies at a time. No other reason to, otherwise.

11 . During the course of my treatment, can I change the hospitals?

Yes it is possible to shift to another hospital for reasons of requirement, of better medical procedure. However, this will be evaluated by the TPA on the merits of the case and as per policy terms and conditions. Note that it would be prudent if you check the network hospital list and go to the best hospital in the beginning itself rather than changing midway.

12. What are the situations under which one may be denied cashless hospitalization?

If there is any doubt in the coverage of treatment of present ailment under the Policy if the information sent to TPA is insufficient to confirm coverage
If the ailment/condition is not being covered under the policy.
If the request for pre-authorization is not received by TPA in time. In such a situation, the Insured can take the treatment, pay for the treatment to the hospital and after discharge, send the claim to TPA for processing.
In case the hospital in not on the panel of the company or the disease/illness is pre-existing and not covered for 4 years.

13. Whom can I approach in case of a conflict with insurance company with regards to my claims?

The Grievance Redressal Cell of the Insurance Regulatory and Development Authority (IRDA) looks into complaints from policyholders. Complaints against Life and Non-life insurers are handled separately. This Cell plays a facilitative role by taking up complaints with the respective insurers. Policyholders who have complaints against insurers are required to first approach the Grievance/ Customer Complaints Cell of the concerned insurer. If they do not receive a response from insurer(s) within a reasonable period of time or are dissatisfied with the response of the company, they may approach the Grievance Cell of the IRDA.

Click Here to see Email ids ? Phone numbers ?

14. What is the difference between Critical illness insurance and normal health insurance ?

In a critical illness policy you are covered for certain mentioned critical illnesses only. Some of coverage’s are Kidney disease, brain tumor, and major organ transplant and many more depending on the companies. If you have normal health insurance you will definitely get covered for critical illness but in critical illness you won’t get coverage for normal disease like malaria, typhoid. For e.g. If your age is 25 and you buy normal health insurance from any XYZ company and let say its premium is Rs. 3000 for cover of 3 lacs but if you buy critical illness policy for 3 lacs the premium would be less because considering your age the changes of you getting a critical illness is lesser than any normal disease. Similarly for old age person the premium for critical illness insurance will be more than normal health insurance because chances of getting that critical disease are more at older age. One other option would be to avail critical illness rider in term plan itself.

15. What is the benefit of critical illness policy?

So as you grow older it is advisable to have another critical illness policy along with normal health insurance. So those at old age when undergo major operation or transplant, this critical illness policy can be used and for minor disease normal health insurance is used. The reason for this is e.g. if you have normal health insurance of 5 lacs and you undergo tumor surgery with other complications and the expenses are around 4 lacs and after sometime you get hospitalized because of ill-health then you have nothing left in your health insurance.

16. What is Domiciliary Hospitalization?

Domiciliary Hospitalization means medical treatment for a period exceeding three days for such illness/disease/injury which in the normal course would require care and treatment at a Hospital/Nursing Home but actually taken whilst confined at home in India under any of the following circumstances, namely:

i) The condition of the patient is such that he/she cannot be removed to the Hospital/Nursing Home or

ii) The patient cannot be removed to Hospital/Nursing Home for lack of accommodation therein

For smooth claim process, just take care that all your documents are in place and to be on a safer side have a report from your family doctor, stating that this person cannot move to nursing home/hospital due to such and such reasons. It just provides the proof and makes the process simpler. Note that every company does not offer this facility, you should check your policy document.

17. Some important exclusion under health insurance policy.

1 Pre-existing diseases i.e. Any condition, ailment or injury or related condition(s) for which insured person had signs or symptoms and/or was diagnosed and/or received medical advice/treatment within 48 months prior to his/her health policy with the company. Pre existing diseases will be covered after a maximum of four years since the inception of the policy

2. Any disease contracted during the first 30 days of inception of policy except in case of injury arising out of accident

3. Certain diseases such as cataract, piles, hernia, and sinusitis etc. are excluded for specified periods if contracted or manifested during the currency of the policy.

4. Injury or Diseases directly or indirectly attributable to War, Invasion, Act of Foreign Enemy, War like operations.

5. Cosmetic, aesthetic treatment unless arising out of accident.

6. Cost of spectacles, contact lenses and hearing aids

7. Dental treatment or surgery of any kind unless requiring hospitalization

8. Charges incurred at Hospital or Nursing Home primarily for diagnostic, x-ray or laboratory examinations, without any treatment.

9. Naturopathy or other forms of local medication

10. Pregnancy & childbirth related diseases

11. Intentional self-injury / injury under influence of alcohol, drugs

12. Diseases such as HIV or AIDS

13. Expenses on vitamins and tonics unless forming part of treatment for disease or injury as certified by the attending physician.

14. Convalescence, general debility, run-down condition or test cure, congenital external diseases or defects or anomalies, sterility, venereal disease.

This is a guest post by Kashyap Juthani from pocketsafe.in

Why you should keep track of your Cibil report card

2011-02-04T06:33:00.000-08:00

What factors on your Cibil Credit Information Report (CIR) are the most critical to lender during the loan application process? CIBIL CIRs have been widely used by lenders to evaluate loan applications for over five years.

However, only recently have people begun to realise how crucial it is to be aware of and maintain their credit history. Understanding the CIR helps you identify the right time in your financial lifecycle to apply for a loan and increase your chances of a loan approval. Listed below are the most important attributes looked at by a lender while evaluating your application.

Payment history

Days Past Due (DPD) appears in the account(s) section of your CIR. It appears with one other piece of information — the month and year of payment. DPD indicates by how many days a payment on that account is late that month. Anything other than ‘000’ is considered negative by a lender. Up to 36 months of this payment history (with the most recent month displayed first) are provided in this section.

For example, if you have taken a loan whose payments started in August 2010 and are three months late on a payment due at the end of September 2010, your DPD may be reflected as follows: Given that your credit history helps a lender ascertain your ability to pay additional debt based on your past performance, having DPD other that ‘000’ on your CIR will imply that you have not met your financial obligations in the past. Hence, lenders may view accounts that are reported with DPD as anything other than ‘000’ negatively and this may affect your chances of a loan approval. It is important to note that some lenders report DPD as per the asset classification norms defined by RBI , which are as follows:

Any classification other than ‘STD’ is viewed negatively by lenders during the loan application process. On occasion you may see ‘XXX’ reported for your DPD on a certain account. This means that the lender has not reported that months DPD to Cibil and hence, there's no need for worry.

Current balances

Also, appearing in the account(s) section of your CIR, the current balances on various loans indicate the depth of your debt. The sum of your current balances helps a lender determine your strength to take on additional EMIs, in relation to your current income. Naturally, lower the current balance, the better the chance of your loan getting approved.

New credit facilities

If a lender observes that you have recently been sanctioned a number of new credit facilities, it will mean that your monthly outflow in terms of EMIs, are likely to have increased. Hence, it may have a negative impact on your loan application.

A number of new enquiries

If you have applied for a number of loans in the recent past, the chances of your loan getting approved are likely to suffer. Simply be-cause, this credit behaviour indicates that you are ‘credit hungry’ and implies that you are in an urgent need for money. It is likely to make lenders more cautious while evaluating your application.

If you are planning to apply for any sort of credit facility for home, or car in the near future, it is imperative to check your CIR 3-4 times each year and ensure that the ‘reputational collateral' you have painstakingly built over the years is reflected accurately. This will provide you with access to credit faster and at better terms. And rest assured that enquiries are not added to your CIR when you purchase one directly from Cibil.

Courtesy: ET Wealth.

How to make the most of your performance appraisal

2011-02-04T05:59:00.000-08:00

The annual appraisal form has dropped in your mailbox. Like so many others, you sit on it till deadline looms. Then you scamper to fill it by copying from colleagues and get over with the formality. This, however, is not the right way to go about it; nor is it a good idea to see your appraisal as a mere formality.

As an employee who has gone through umpteen performance appraisals , here are a few tips to do a better job on these. Remember, however, that there is no substitute for hard, intelligent work on a consistent basis.

Making a case for promotion

Start now: Most companies set ‘time windows’ when managers can promote employees. This means that the staffers who want to move up during this period should talk to their managers about it a couple months beforehand. If, in your case, the next window is in April, then you should meet your manager now. If you wait till the performance review in April, it could be a case of missed opportunity, with no option but to wait for the next window. Companies usually decide on the number of promotions and even the people they want to promote a couple of months before the actual review date. It is, therefore, important that your case is presented well before your boss starts working on the appraisal for his team.

Ideally, you should set the stage for a promotion by keeping your bosses informed throughout the year about your successes and desire to move up.

Keep a diary: Memories are short. Our bosses forget the good things we have done and remember only the times we goofed up. It is your duty to record your successes and highlight them in the performance appraisal. These successes could be an e-mail from a customer thanking you for solving a problem, even a mail from your boss or his boss congratulating you for surpassing the target. Keeping a log of such achievements will help you put a structured argument in your appraisal. Also, before you start filling in the form, decide on your objectives. Is it a promotion, is it a grade change or is it a transfer that you want?

Keep it short and sweet: Every statement of yours should be supported by facts. And do not exaggerate. Don’t write long sentences like, “I am a loyal worker and I live, breathe and think about our company all the time...” All your remaining claims will also be taken with a pinch of salt. Remember, you are appraised every day by your boss and the appraisal form is just a way of reminding him of what he may miss out.

When asking for a raise

The first thing you can do is to check your worth in the industry. Several websites like Salary.com give expected salary ranges based on your position, location and experience. Sometimes your colleagues would also have posted their salaries on websites like GlassDoor.com. This helps in knowing your true value and helps you while negotiating with your boss.

The second thing to keep in mind is that if asked for your salary expectation, never give a figure first. If your answer is too high, you may be seen as greedy and over-ambitious. You may even be deprived of the promotion that is on the horizon. You aim too low and your boss will either think you’re not qualified or desperate. So, if possible, write ‘NA’ on the application.

Occasionally, employees make the mistake of thinking that blackmailing the employer can be a good strategy. You may want to tell your boss that you will leave unless you get a promotion and a significant jump in salary. If your boss has no alternative, you may get it in the short term. But remember that bosses have long memories and will try and develop others within the company so that they don’t have to depend upon you. From that point on, you might face trouble in negotiations not just with your employer, but with everyone in your industry who has heard about it. Word gets around.

What the company expects

The right attitude: This can mean staying long hours when required, or volunteering for that extra bit of work which others want to avoid.

Your output: Sales people are measured on target achievement. So are production people. The majority of the work force today is white collar employees working in back-office accounts, customer service, etc. Here the standards are not easy to measure. If you are in such a role, then it should be your responsibility to work out your ‘target’ with your boss.

Your loyalty: The longer you stay in your company, higher the chances of your promotion.

When you get an offer

Don’t take the first offer that you get. Most employers expect candidates to try to negotiate. So ask for time and come back the next day or next week with a higher figure, which you think the boss will agree to.

Once your salary increase is locked in, go for other benefits. You can ask for facilities, such as working from home, study loans, sponsorship by company to management programmes which can help you in your job. If you still feel your package is too low, ask if it can be reviewed again in six months. In this manner, you can show them that you’re worth the money.

At the cost of repeating myself, do remember that the appraisal season starts before you are given the appraisal form.

Courtesy: ET Wealth

How to choose the right health plan

2011-01-28T05:43:00.000-08:00

Medical costs are ballooning by the day, even a minor surgery can cost you anywhere between Rs 20,000 and Rs 50,000. Similarly, a cardiac treatment can set you back by Rs 5 lakh, depending upon the city and the hospital you choose.

Save, invest, do whatever you want, there can be no dispute over the need for mediclaim to offset the impact of rising healthcare costs. Given the plethora of options in the health insurance space, it is difficult to make a rational choice.

With life insurance companies entering the health insurance space, customers are spoilt for choice. ET chalks out the differences between traditional mediclaim policies offered by general insurers and the new generation health covers offered by life insurers. Here’s a low-down on the key components of a comprehensive mediclaim:

Defined benefit & reimbursement plans:

There are two kinds of medical policies available in India. The first is the indemnity policy, which is the traditional mediclaim policy that general insurers offer. These are largely reimbursement plans, which cover expenses related to hospitalisation.

The claims are settled by the insurer either on a cashless basis through a tie-up with hospitals or by reimbursing bills. Then, there are defined benefit plans, offered by life insurers, which include critical illness policies and payment of a lump sum on the diagnosis of any of the named critical illnesses in the policy document.

“If the insurance company is stipulated to pay Rs 5,000 for a certain critical illness, the company will pay Rs 5,000 irrespective of the size of the claim,” says Rahul Aggarwal, CEO, Optima Insurance Brokers. However, critical illnesses such as cancer, stroke, renal failure or major organ transplants are not standardised and may vary from insurer to insurer. However, the insurers will not cover any of these illnesses if they get diagnosed within 90 days from the effective date of the policy.

Difference in premium:

“The premiums of both versions of health covers are comparable but life insurers still outsource the service of claim settlement to TPAs.

Among general insurers, most private sector companies have changed this practice and carry out the claim servicing business within the company itself. In a way, the company becomes directly responsible for claim settlement.

Earlier, even when the TPAs carried out the business of claims servicing, the onus was on the insurer to ensure a hasslefree claim settlement for the policyholder,” says Sanjay Datta, head, Health Insurance, ICICI Lombard General Insurance.

Tenure of the cover:

“The main difference between health covers offered by general insurers and those of life insurers is the tenure of the cover. The mediclaim has to be renewed annually whereas health covers (offered by life insurers are renewable after three years or more, depending upon the choice of insurance and insurance company).

The premiums are likely to remain unchanged in the three-year period. If the insurer wants to increase the premium within three years, the insurer has to seek the approval of Insurance Regulatory and Development Authority (Irda). If the insurer wants to increase the premium after three years, it works like a regular mediclaim policy which usually revises premiums on an annual basis,” Binay Kumar Agarwala, senior V-P, health business, ICICI Prudential.

Size matters:

You should look at the annual limit of your policy. According to experts, if you hail from a small- or mid-sized town you should look at a cover of Rs 2-3 lakh. If you reside in a metro, then you should not look at covers less than Rs 4-5 lakh.

Look for the clause on sub-limits:

Insurers have introduced sub limits in mediclaim policies to tackle the rise in healthcare costs. The most common sub-limits are room rents, doctors’ fees and diagnostics.

If you have a sum insured of Rs 1 lakh and the insurer has capped your room rent at 1-1.5% of the sum insured then your room rent cannot exceed Rs 1,000. If it exceeds the specified amount, then you have to pay the balance from your pocket.

“If there is a sublimit on the room rent or the doctors’ fees, the ultimate payout will be much lesser than the sum assured,” Datta adds. Similarly, insurers also impose a sub-limit on doctors’ fee at 25-30% of the bill amount. Check to see that the policy states the date the policy will begin paying (some have a waiting period before the cover begins) and what is covered or excluded from coverage. Moreover, it always makes sense to have an additional mediclaim even if you are covered under your employer’s mediclaim scheme.

Co-payment clause:

This refers to the portion of claim that a policyholder agrees to bear, while the insurance company undertakes to chip in with the rest. “Co-payments happen only in certain reimbursement covers to make the insured more responsible for judicious payments. This clause is seen mostly in health covers designed for senior citizens. It is also common in group mediclaim covers offered by employers, which covers the employees and his/her family members. The co-payment clause is applicable mostly to the family members of the employee,” Aggarwal adds.

The pre-existing diseases clause:

There are mediclaim covers which do not cover pre-existing diseases for four years whereas some which do not cover it for three years. Similarly, ensure there is no ambiguity in the renewal clause of the policy. For example, under an individual mediclaim policy, Apollo Munich covers pre-existing diseases after three continuous policy years. The New India Assurance, on the other hand, covers pre-existing diseases only after four years and covers hypertension and diabetes only if you pay extra premium.

The ideal choice:

The defined benefit plan could be a handicap for an individual who has signed up for a less sum assured. But it could be a plus for an individual who has signed up for an adequate sum assured. Moreover, you will know how much you will earn from your cover in advance.

Similarly your mediclaim could have caps and limits, which can be well augmented by the health cover. But that doesn’t imply that a stand alone health cover can substitute a mediclaim in your financial kitty,” Aggarwal adds. You can top up your existing mediclaim if you want to increase the sum assured. Indemnity or reimbursement cover should be the ideal base cover for any policyholder as that would come close to the final bill amount of the hospital.

But there are various expenses which include commuting to the hospital, buying medicines post hospitalisation and so on, that fall outside the purview of a traditional reimbursement plan. In such cases, you could top up a traditional reimbursement plan with a defined benefit plan to be able to tackle all the medical-related expenses. After all you have the option of claiming a tax benefit of up to Rs 15,000 under Section 80D.

The health pack

General insurers

General insurance companies offer indemnity policies or reimbursement health plans Mediclaim has to be renewed on an annual basis. The company can increase the premium at renewal Look for the clause on sub-limits. The most common sub-limits are room rents, doctors’ fees and diagnostics Individuals from a small town should go for a cover of Rs 2-3 lakh, and in metros up to Rs 5 lakh.

Life insurers

Defined benefit plans, mostly offered by by life insurers, pay a lump sum on the diagnosis of any of the named critical illnesses listed in the policy document Insurers usually do not cover the specified critical illnesses if they are diagnosed within 90 days from the effective date of the policy Premiums are usually revised at renewal, which is usually three years or more If the company wants to increase the premium within three years, the insurer has to seek Irda’s approval.

Cheapest health covers across age categories

Here is a ready reckoner for affordable health insurance premiums for sum assured policies of -3 lakh and 5-lakh, respectively.

Courtesy: ET Wealth

Eight tax saving secrets you should know

2011-01-28T04:36:00.000-08:00

The Income Tax Act 1961 is a voluminous piece of legislation. Taxmann Publications’ latest edition of the Act runs into 1,125 pages. It’s enough to intimidate even the most diligent law student and tax expert, leave alone ordinary taxpayers. But hidden away in the 300-odd sections and 14 schedules are clauses that can benefit ordinary taxpayers-provided they know how to claim those benefit.

ET Wealth spoke to a range of tax experts to glean information on little-known tax benefits you may be entitled to. Here are eight deductions that can help you save tax over and above the tax saving investments you make during the year.

1. Use losses in stocks to cut tax

Can you gain from the short-term losses you made on stocks? Yes, says the Income Tax Act. If you have made any long-term capital gains from sale of property, gold or debt funds, you can set them off against short-term capital losses made on stocks and bring down your tax liability. “Short term capital losses can be set off against both shortterm capital gains as well as taxable long-term capital gains,” says Sandeep Shanbhag, director of Wonderland Consultants, a Mumbai-based tax planning and financial consultancy. This can be especially useful for someone who has booked profits on gold ETFs and physical gold this year. Suppose you have sold a property and made a long-term capital gain of Rs 30 lakh after indexation.

At 20%, the tax payable on this long-term capital gain is Rs 6 lakh. However, if you have also sold some junk stocks during the year and made a short-term loss of Rs 3 lakh, you can set this off against the gains from the property. Then the gain from the property will get reduced to only Rs 27 lakh and the tax payable will be Rs 5.4 lakh. However, the law makes a distinction here. One cannot set off short-term gains from stocks against long-term capital losses from the other assets. “Long term capital losses can only be set off against taxable long-term capital gains,” says Shanbhag.

How much tax can you save: Setting off a short-term loss of Rs 3 lakh against longterm gains can help you save Rs 60,000.

Proof required: Keep record of your equity trading account statement with details of the transactions that resulted in losses.

2. Get deduction for rent even without HRA

House rent can account for as much as 40-50% of the total household expense. That’s why the house rent allowance is exempt from tax to a certain limit. But what if your salary does not include an HRA component or you are a self-employed professional or businessman? Under Section 80GG, you can claim deduction of the rent paid even if you don’t get HRA. “Not many people are aware of this deduction,” says chartered accountant Mehul Sheth. But there are stiff conditions to be met. The least of the following three can be claimed as deduction: rent paid less 10% of total income; or Rs 2,000 a month; or 25% of total income. Also, the taxpayer should not be drawing any HRA or any housing benefit.

Besides, he or his spouse or minor child should not own a house in the city where he stays and he should not be claiming tax benefits for some other self-occupied house. Whew. Incidentally, if you are living in your parents’ house, you can pay rent to them. If your parent has no other income or pays a lower tax, this can bring down your tax liability significantly. However, the rent will be taxable as the income of the parent after a 30% standard deduction. This means, you can pay a senior citizen parent up to Rs 3.43 lakh a year.

How much tax can you save: Given the stiff conditions, one can’t claim more than Rs 2,000 as deduction per month under Sec 80GG. But this can bring down your tax by Rs 7,400 a year in the highest tax bracket.

Proof required: Taxpayer has to submit a declaration on form 10-BA that he is paying rent and not receiving HRA.

3. Pay lower tax if someone is ill

The treatment of a chronic illness can be a drain on the finances of a taxpayer. That’s why the Income tax Act allows a taxpayer to claim a deduction of Rs 40,000 if he has a dependent who suffers from any of the ailments specified under Section 80DDB. “The deduction is higher at Rs 60,000 if the patient is a senior citizen,” says chartered accountant Paras Savla. The diseases include, neurological diseases (including dementia, dystonia musculorum deformans, motor neuron disease, ataxia, chorea, hemiballismus, aphasia and Parkinson’s disease), malignant cancers, full-blown AIDS, chronic kidney failure and haematological disorders (haemophilia and thalassaemia). Dependents can include spouse, children, parents and siblings. However, there are a few conditions.

The patient should be wholly or mainly dependent on the taxpayer and should not have separately claimed deduction for the disability. If the amount spent is reimbursed by the employer or an insurance company, there is no deduction. If the taxpayer gets a partial reimbursement of the expenses, the balance can be claimed as deduction.

How much tax can you save: If a dependent is a patient, the taxpayer’s liability comes down by 12,360 in the highest income bracket. If the patient is a senior citizen, the tax is lower by Rs 18,540.

Proof required: One needs a certificate of the illness from a specialist in a government hospital.

4. Claim benefits for your political affiliations

Can you lower your tax if you have political connections? Apparently you can. Any amount contributed to a recognized political party can be claimed as a deduction under Section 80GGC (80GGB for corporates). “This is a new deduction and was introduced in April 2010. The donation can also be made to the electoral trust which works for the purpose of conducting elections,” says Sheth. Interestingly, unlike other deductions, there is no ceiling on the amount that can be claimed as a deduction. Of course, the deduction is available only if the donation went into the party coffers.

Cash given to individuals doesn’t count. Other donations also get you tax benefits. Under Section 80G, donations to charitable organizations get deduction ranging from 50% to 100%. It’s a good idea to know how much deduction would be available before you write a cheque. However, There is a ceiling to the deduction a taxpayer can claim in a year. “The quantum of deduction is limited to 10% of the gross total income of the donor,” says Tapati Ghose, partner at Deloitte Haskins & Sells. Also, only cash donations are taken into account. Food, clothes and medicines do not qualify.

How much tax can you save: In the highest tax bracket, a donation of Rs 1 lakh to a political party can bring down your tax by Rs 30,900.

Proof required: You must have a stamped receipt of the payment from the political party.

5. Use education loan to lower tax

The rising cost of higher education is forcing people to borrow money to pay the fee of their children’s professional courses. The taxman is sympathetic and offers a deduction that can lower the cost of the loan. The interest paid on an education loan is fully deductible from taxable income under Section 80E. Till a few years back, this deduction was available only to the borrower. Now, even a parent or a spouse can avail of it. What’s more, this now includes loans taken for vocational courses. “If a parent or legal guardian takes the loan, he can claim deduction for the interest paid for up to eight successive years, starting from the year in which the interest is first paid,” says Shanbhag.

However, loans taken for siblings and other relatives do not qualify. Also, the lender must be a recognised financial institution; loans from employers or individuals do not count.

How much tax can you save: If you take a Rs 10 lakh education loan at 10% interest for 8 years, you can save Rs 1.41 lakh in tax in the highest tax bracket. This will bring down the effective cost of the loan to 7% per annum.

Proof required: Loan statement from lender.

6. Disabilities can be tax savers

There are other signs to suggest that the taxman is not the heartless Scrooge he is often made out to be. If a taxpayer suffers from a disability, he can claim deduction of Rs 75,000 under Sec 80U. If he has a disabled dependent, he can claim the deduction under Sec 80DD. Disability includes blindness, low vision, leprosy, hearing impairment, loco-motor disability, mental retardation and mental illness and deduction is available only if the impairment is at least 40%. If the disability is severe (80% or above), the deduction is Rs 1 lakh a year. The dependant could include the taxpayer’s spouse, children, parents and even siblings.

Incidentally, the deduction is offered as a lump sum and does not depend on the actual amount that the taxpayer may spend on himself or on the disabled dependent. However, the disabled person should be wholly or mainly dependent on the taxpayer for maintenance, and should not have claimed deduction for the disability under Section 80U separately.

How much tax can you save: A deduction of Rs 75,000 can cut tax by Rs 23,175 in the highest tax bracket. In case of severe disability, the tax is lower by Rs 30,900.

Proof required: A certificate of disability from a civil surgeon or the chief medical officer of a government hospital.

7. Take unlimited deduction for your second home loan

When it comes to buying a second house, the taxman can be very encouraging. Under Section 24b, one can claim deduction of up to Rs 1.5 lakh a lakh for interest paid on a home loan. But if the taxpayer buys a second house through another home loan and gives it on rent, the entire interest paid on the home loan during a given year can be claimed as a deduction. As Savla says, “If you have more than one house, any one is deemed to be rented out. So the interest income on the home loan for that house can be claimed entirely for deduction, provided the rental income or a deemed income is charged to tax.”

How much tax can you save: If you have taken a home loan of Rs 50 lakh at 9.5% for 20 years, your interest payment in the first year will be Rs 4.7 lakh and you can save tax up to Rs 1.09 lakh.

Proof required: Loan account statement from your lender

8. Claim HRA as well as home loan benefits

But you can claim both house rent allowance (HRA) exemption as well as the tax benefits on the interest paid on a home loan. Many organizations do not allow employees to claim both benefits. Their logic is that HRA is exempt if you are paying rent and home loan benefits apply only for a self-occupied house. You can’t be doing both at the same time. But this is a gray area in the Income Tax Act. “In legal terms, silence signifies approval.

In other words, the Act need not expressly allow something. The lack of express disallowance also signifies intention of approval,” says Shanbhag. So given this, HRA and interest on home loan are two separate provisions and claiming one of them as a deduction does not influence the other. As Shanbhag puts it, “The taxpayer may own any number of flats, either in the same city that he works in or anywhere else in the whole of India or for that matter abroad, but that in no way influences the HRA deduction that he is entitled to.”

There are many such examples in the tax laws. Let’s take for instance, Section 80C (PPF, NSC, ELSS etc.) and Section 80D (medical insurance premium). “Everyone will agree that both Section 80C and Section 80D can be separately claimed. But does it expressly say so anywhere?” asks Shanbhag.

How much tax can you save: In the highest tax bracket, a deduction for Rs 1.5 lakh will bring down your tax by Rs 46,350.

Proof required: Loan account statement from your lender

Courtesy: ET Wealth.

Psychology of an Indian when it comes to Life Insurance

2011-01-25T22:43:00.000-08:00

The moment someone wants to talk about life insurance to you, what comes to your mind?

- Not again! I am already having many life insurance policies with me. How much more should I invest in Insurance. I need some other investment option.

- I really don’t need insurance now, I can plan for it during the last quarter of financial year or my limit of Rs. 1 lac is over. Now I don’t need insurance policy.

- How should I ignore this Insurance agent? Now he is going to chase me day and night

- How much commission will this agent give back to me?

- I am too young to have insurance

The above-mentioned are just few of those thoughts that come to an average Indian who has been asked to buy an insurance policy. The fact of the matter is that Indians have not understood purpose behind insurance.

Indians have understood Insurance as a Investment planning tool which combines the benefit of tax planning under section 80C and the maturity amount/ claim proceeds is tax free under section 10(10D).

Such policies are typically pushed by an agent, who happens to be some relative/ friend/ acquaintance or he is some banker who chases him until he is forced/ under obligation to buy a policy. The main point is that agent is a sales person and is not really advising the client after knowing his full situation. Agents many times suggest what gives them the best commissions.

Many agents typically give the client, some part of his commission back as a sweetner because the commission in the first couple of year’s are high which the investor is ultimately bearing. The investor feels happy to have got some money back at the time of investment.

This is very normal for Indians and there is nothing which is amazing here. The sad part is that the questions which actually should arise in the mind of an investor at the time of taking insurance are just not asked. Typically, one should ask himself the following question:

- What would happen to my family in case I am not there?

- Are my disposable assets more than my liabilities?

- Will my family be able to maintain the standard of living which they are living right now?

- Will all financial goals of my family will be met if I am no more ?

These questions just don’t arise in investor’s mind. This has much to do with their psychology. We keep reading sad stories every day in the news papers that such and such family has lost bread earner at a very young age and now deceased’s wife and small kids are left alone. Many a times, within our friends and relatives, we see that the family is in financial distress after an unforeseen bad incident happens to the bread earner.

We do feel sad and scared but after some time, these all remain just a story to us. We are just thankful that such bad incidents have not happened to us. But who knows, such an incident with you could be news for others!

This is what one needs to understand. There are things which is beyond our control and we should be prepared for such untoward incidents and always have a PLAN B with us. By the way, most of the people don’t even have Plan A. but let us explain both.

Plan A : Everything goes well and one is able to fulfill his financial goals out of his regular income and investment.

Plan B: If something goes wrong which we can’t foresee today, Insurance takes care of our Plan A.

So insurance basically is for eventuality and not for certainty. The fact is that insurance is most needed by persons who have to travel the maximum distance and not for people who have reached their destination.

And here we would say that insurance is most needed by a youngster who has many dreams to fulfill but has miles to go. Just imagine, what would be the financial impact if a retired person dies at the age of 65 whose kids are settled with their own families. At this age, he would have achieved all he could achieve in life. Though the social vacuum cannot be compensated, financially the family is not affected.

On the contrary, just imagine what would happen to the family if a young person aged 32, dies due to unforeseen circumstance leaving behind a family of two very young kids and wife.

Now, here we would like to explain an equation which would clarify the actual need for insurance. Calculate the value of your Disposable Assets and your liabilities. Disposable assets are those assets which are not for your personal use and which can be converted into cash as they are treated as an investment by you. Your own house in which your family and you reside is an Asset but not disposable asset. Liabilities would not only include financial liabilities like home loan etc. but also social liabilities as daughter’s marriage, kids higher education, aging parents etc. Now you need insurance if “Liabilities are more than disposable assets” and one does not need insurance if “Disposable Assets are more than Liabilities”.

So when you are young, your liabilities are more or less known to you and you have yet not created disposable assets for you and your family. So one must take insurance when he is young. But what type of insurance? This is a big question. Manufactures (insurance companies) and distributors (agents) would always sell you what they want to sell. Though it sounds rude and tough on them, that’s the reality.

Which insurance policy to Buy? Term insurance is a pure insurance policy which covers your life risk at the lowest possible cost. The premium collected goes towards Mortality charges and there is no element of investment in this policy. Hence this policy is not only cheap but also helps you to buy large insurance coverage for a small amount. Insurance is a foundation of your Financial edifice. Without a proper foundation, there is always a danger of the superstructure collapsing and the entire family suffering in the bargain. We want to avoid that, don’t we?

Courtesy: tflindia.in

Term Plan – the right way to take Insurance

2011-01-25T22:32:00.000-08:00

To explain the way to buy life insurance, let us first explain the way you buy all the insurance other than LIFE INSURANCE. One of the most common insurance that we buy is vehicle insurance. Now what is the purpose of buying a Vehicle insurance.

We buy insurance so that in case anything goes wrong with the vehicle, the loss will be compensated by the Insurance company

We buy insurance so that in case anything goes wrong with the vehicle, the loss will be compensated by the Insurance company

The premium that we pay is treated as an Expenses and not investment. We don’t get anything in return if nothing goes wrong with the vehicle. The cost of insurance is anywhere between 3-5% of the present cost of vehicle . For example, if the IDV ( INSURED VALUE is Rs. 1 Lac, the insurance is anywhere between Rs. 3000 to 5000 for a year).

The premium rate are higher for the old vehicle then the new one.

Now such concept is applicable with most of the Insurance Policy like Mediclaim, Accidental, Fire Policy, Householder’ etc that we buy BUT NOT FOR LIFE INSURANCE.

What happens when you think for life Insurance. We believe that this is mostly misunderstood by most of the Indians. To give you an idea, there are less than 5 % people in India who have any sort of life Insurance Policy. (Read: Thank god you were not there!!)To add to the misery, on an average, the people who are insured have a cover of less than Rs. 90000/-. Now in case, the insured dies, the family get Rs. 90000/-. Is something going wrong?

LIFE INSURANCE is the most critical part of our financial planning.

It is to be bought keeping in mind that if you are not around, who will fulfill all your dreams; the expenses of your family will carry on but who will support them. But unfortunately, most of us think that Life Insurance is for Future. When the policy is matured, the insured get some amount which is called maturity benefit. (Read: What is Insurance – Investment or Expense)

We do not give importance to what is the amount of cover we have. The agent tries to impress you on what will be the returns rather than what will be the coverage.

Life insurance is for present

In actual sense, Life Insurance is for present.. it covers the present risk of one living too short and that could make family suffer drastically So insurance gives the family of the bread earner the financial support if the bread earned is no more.

Bottom line is Investment is for future and not life insurance. Never mix these two and buy a single product.

So what should one do..

TERM INSURANCE

Term policy is insurance at its purest and simplest form. You pay premiums because there is a guarantee that if something happens to you, your family will be paid out the pre-decided amount, hence you have the peace of mind that even if you are not there, those loved ones you leave behind will not have to bear a financial loss.Term Insurance is protection against risk of life.

There is no element of investment involved in Term Insurance. If any thing goes wrong the insured family gets the sum assured and if nothing goes wrong, the amount is treated as an expense. Since there is no value of your financial investment or a savings element involved, the premium accounts only for the risk cover costs (mortality costs) and hence is very low compared to other insurance products. No other insurance policy will offer you as much value for money as this. To cover your vehicle, you pay around 3% of the present cost of vehicle, but to yourself at the age of 30 for say 10 lacs & term 25 years, you need to pay not more than Rs.2500/- which is 0.25% of the SUM ASSURED. Now, do you think it is costly?

Term Insurance is the cheapest policy available and hence hardly talked about by agents and even insurance companies never promote such cheap and low cost product. Do you think, the Seller and the manufacturer will be interested in selling you the BEST product which is actually very cost effective and does not give them the profit that they desire?

IMPORTANT Point to NOTE

Claim settlement normally stuck when you or your agent have filled wrong information or hided things. We normally suggest that one should divide their sum assured in 2 policies from different insurers. It’s having 2 benefits – first it gives flexibility if you want to reduce your sum assured in future due to any reason & second which is bigger benefit in case one of your claims is denied your representatives can reach ombudsman & show that other insurance company has cleared the claims on same grounds.

Courtesy: tflindia.in

Hidden Charges in Buying or Selling a House

2011-01-25T21:46:00.000-08:00

In India, it is widely said that marriage and home are made in heaven. This is just due the fact that with the financing, luck also is an important factor. Here we leave the luck part to the astrologers and focus on the financing aspect. Transacting in residential property, whether you are selling it or buying a new one, there are lot of things that need to be taken care for. Normally it happens that we dispose off the old property and buy a new one. During such events there are lots of hidden and unexpected costs that one should be ready to meet.

Let’s discuss charges and expenses of buying or selling a house:

Capital gain tax on selling property: When you sell a property, you should be aware of the tax implications. Selling a property involves Capital Gain Tax. If a property is bought and sold in within 3 years, the gain will be Short-term capital gain. This will be includes as normal income in your gross total income of that year. If the holding period exceeds 3 years, the gain is termed as Long-term capital gain. The tax rate is flat 20% with benefit of indexation. Also you can invest the gain amount in specially issued capital gain bonds subject to a limit of Rs 50 lakh per year. But investing in bond will have a lock-in period of 3 years. Also if you buy a house within two years or construct a house within three years of selling the previous house you can save this long-term capital gain. But, it is misconception that they can save long term capital gain, by investing in a land. Consult your tax planner for more information. The idea is if you are selling a property to finance a new one, you should be aware that these will be the cost that will go towards taxation.
Transaction Cost: Whether you buy a new property or sell an older one, the transaction costs are normally heavy. Sometimes the opposite party also insists that you pay for all the transaction cost. These cost involved are stamp duty, appraisal fees, reality valuator’s fees, laboratory fees for checking the construction quality, fees to the lawyer’s etc.
Statutory Dues: Lot of charges which are collected by the authorities is also required to be financed. These include regularization charges, land usage conversion charges, transfer charges, development charges, map charges or documentation verification charges.
Middleman’s commission: Normally as per the prevailing trend, for residential property the rate is 2% of the transaction. But this can be negotiated also, and specially when you are buying and selling the property from the same broker. Do not go by the market terms and conditions. Although it is advisable to fix the middleman’s remuneration before the transaction so that he is positively involved.
Charges associated with the previous property: You must have seen that a vegetable seller sprinkles water on vegetables he is selling after every 5-10 minutes.Basically in order to sell you have to provide a decent quality property also. If it a residential flat or a house you need to get it painted and repaired. This activity will get you better rates and the proceeds can be used to buy the new property. Also sometime the buyer may insist that you improve or modify a certain part of the property. That will involve cost and if not planned properly will lead to cash crunch.
Foreclosure Charges: If the previous property is on loan, you need to close the loan before you transfer the property. This foreclosure charges can be in range of 1% to 4% of the balance principal amount of the loan. This amount is to be arranged before as the loan company will issue a no-lien certificate only when you have cleared all dues.
Home Insurance: This is something very important. When you are buying a new property to shift, you also need to get the Home Insurance done. The cost will depend on the size, location, value of household articles and the cost of the property.
Mortgage Cover: If the new property is bought on a loan, one should also get an additional life insurance cover. Lot of times the loaner insists that with the loan you a take an insurance policy and the premiums will also be added to the loan amount. Beware of such acts and prefer a Term Insurance instead of the normal mortgage cover as in term insurance your cover remains same throughout the loan repayment period, where as in mortgage insurance the cover get reduced as you repay the loan through your EMIs.
New Loan: The new loan will be on new prevailing interest rates. There may be chances that your older loan may be on less interest and now the expenses would be more. Also, all loan companies charge a flat fee for processing and the documentation. Also some companies insist you to pay an advanced EMI. One should be ready with these expenses.
Parking and other expenses: If the new property is a flat, you need to pay a lumpsum for life or annual parking fees for parking your vehicles. The fees are decided by the building maintenance and are based on the category of the parking whether you opt for a covered or an uncovered parking. Also you need to shell out more if you are taking a servants room or accommodation.
Utilities: When you are shifting to a new residence, you may also be required to take new utility connections like, electricity, telephone, cooking gas etc. if you combine them, there will lot of money that you will have to arrange as all these utilities providers will charge security deposit for the new connections.
Moving Expenses: Finally you have completed all formalities and ready to shift to your new home, but you should be ready with expenses pertaining to new furniture, curtains, electronic goods etc. It is human tendency that we will not stop ourselves to spend when we are doing something auspicious. But these small expenses make a larger sum and burn holes in the household budgets.

Acquiring a property is a very important thing like marriages. And same as it happens in marriages one may be required to pay for something which is unexpected or hidden. Remember acquiring a property is also a celebration time. Check for all the above mentioned points before you transact. After all no one would like spoil the party just because he ran short of cash or was not anticipating the hidden surprises.

This article is written by guest author Madhupam Krishna. A Post Graduate in Finance, currently he heads sales function for Rajasthan for Principal PNB Mutual Fund. This article also got published in Business Bhaskar.

Disclaimer: This post represents the opinion of its author only, and does not in any way reflect the opinions of the author’s employer, The Financial Literates or the other authors who write content for this Website.

Courtesy: tlfindia.in

Can a holiday package be claimed for LTA exemption?

2011-01-25T20:54:00.000-08:00

I got this question in a comment the other day, and I phoned up my CA friend to ask about this.

He told me that a holiday package can be claimed for LTA exemption, but the only thing to keep in mind is that LTA exemption is for spouse, dependent children, dependent brothers or sisters only, so if you have taken a holiday with your extended family or children who are no longer dependent on you, then you can’t claim LTA exemption on that part of the expense.

Another thing is that since LTA exemption can be claimed only for travel – if your holiday package included hotel and sightseeing (which it normally does) – you won’t be able to take an exemption for that.

The following points need to be kept in mind while taking the LTA or producing bills for it to get LTA Exemption:

Can We Claim LTA Every Year?

One of the most common questions about LTA is whether it can be claimed every year or not? The answer is Yes – you can claim LTA every year, but you will not be able to claim LTA exemption ever year.

Other Points About Tax On LTA

If you do not wish to claim LTA in one particular year you can have your employer carry forward your LTA for the next year.
For getting LTA tax exempt you will have to produce bills, but you can’t get your LTA exempt every year. A supreme court judgment said that it’s no longer mandatory for employers to collect travel bills.
You can get your LTA exempt twice in a block of four years. Right now the block that is relevant is 2010 – 13. This block is decided by the Government so does not have a bearing on when you start your job and also these blocks are calendar years and not financial years.
The bills can be air, rail or even a private rental company however the exemption is only for domestic travel so an international ticket won’t do.
The bills have to be for a journey that has been undertaken when you are on leave and should be for you and your family that is spouse, children and dependant parents, brothers and sisters. Your family can’t claim the exemption if you have not accompanied them.
If you and your wife both get LTA – both of you can’t claim exemption for the same travel but you can avail exemption independently for different travels. So effectively between the two of you, you can claim exemptions four times in four years.
If for some reason you fail to claim LTA exemption in the bucket of four years – you still have the option to claim exemption in the first year of the next block.
Only travel bills can be used for LTA exemption, so a hotel bill can’t be produced for claiming LTA exemption even though you might have stayed in the hotel during your leave.
The maximum LTA for the purposes of LTA tax exemption is Rs.20,000 so normally most organizations design the salary structure in such a manner that they don’t give the employees more than Rs. 20000 as LTA.
In terms of proof for air travel – although there is no fixed rule as such, it might be a good idea to preserve the boarding pass along with the ticket to make sure there are no problems in claiming LTA exemption later on.
LTA can only be claimed for the shortest distance between two places. So if you are planning to travel from Goa to Mumbai then you will be allowed exemption on tickets from Goa to Mumbai and back. You will not be allowed to produce tickets that are via some other place like Mumbai to Hyderabad and then from Hyderabad to Goa and so forth.
LTA can only be claimed on tickets or rented private vehicles, you cannot show petrol or diesel vehicles for your own vehicles and then claim exemption on it.

The above are just some of the points that need to be kept in mind while discussing LTA exemptions.

I never liked tax, and have never been good with it, so there are many chances of a mistake, so please correct me if you see anything wrong.

Let me give you an example of why I don’t like tax. Here is this thing from the Income Tax Act that tells you how many children you can claim exemption for:

HAS ANY CHANGE BEEN MADE IN RULES FOR EXEMPTION OF L.T.C. TO DENY THIS BENEFIT TO LARGE FAMILIES?
Yes. Exemption of L.T.C. shall not be available to more than two surviving children of an individual after 1 st October 1998. However, this shall not apply in respect of children born before 1.10.98 and also in case of multiple births after one child. If an employee has before 1.10.98 even five children or more, exemption would still be available to all children. However, if an employee begets a third child after 1.10.1998, the L.T.C. for the third child will not be exempt.

You can thank them for not suggesting adoption!

Courtesy: OneMint

ULIPs or Term Insurance? Find out!

2011-01-24T20:12:00.000-08:00

ULIPs are similar to mutual funds except that they provide life cover, tax benefits and need to be kept for long term. On the other hand, term insurance is actually insurance where your dependents get sum insured in case you die, but nothing if you outlive the insurance term. Both term plan and ULIP do have their benefits and drawbacks. Read on to know more.

Looking for a suitable insurance to meet your insurance cover? Confused by the differing opinions of financial advisors whether ULIPs are better than term insurance or vice versa? Want to know how to choose between the two? Then read on to know how to go about it in order to get the best insurance for your needs.

Features of term insurance vis-à-vis ULIP

	Term Insurance	ULIP
Investment component	Nil	Present
Maturity Value	Nil	Value of the corpus invested in different assets like stocks, bonds and cash
Charges	Not declared by the insurer	Declared by the insurer
Insurance term	Short term	Long term, with the compulsion to pay premium for at least 3 years
Premium	Decided on the basis of age and health condition	Decided on the basis of your payment capacity
Insurance cover	Very high	Nominal
Suitable for	Those having dependents or have liabilities like home loan	Those looking to avail of investments along with life cover and tax benefits
Performance issues	Not Applicable	Need to be considered as the charges, and performance of funds of different insurers varies significantly.
Premium charged	Lowest	Highest as part of the premium goes towards investment

So from above, you can safely conclude that ULIPs are similar to mutual funds except that they provide life cover, tax benefits and need to be kept for long term. On the other hand, term insurance is actually insurance where your dependents get sum insured in case you die, but nothing if you outlive the insurance term.

Pros and cons of term plan and ULIP

Both term plan and ULIP do have their benefits and drawbacks. Here are some of them.

Term plan:

Pros:

Highest sum assured
Lowest premium charged
Can be stopped at the end of premium term, as the life cover exists only for the year for which premium is paid.
Simple to understand.

Cons:

No maturity value as there is no investment component.
Available only up to 50 years age and the life cover will continue only till 65 years. Also those insurers who offer insurance cover to seniors end up charging very high premium.No provision to increase the premium with the increase in income.

ULIPS:

Pros:

You get returns when the policy matures
Can increase the premium as per increase in your income.
Flexibility of investing across various asset classes, thereby helping you maximize returns.
Long-term investment, helping you inculcate value of savings

Cons:

Very high charges
Nominal insurance cover
Difficult to compare amongst ULIPs from other insurers due to non-standard charges, asset allocation etc.
Inability to pay the premium will lead to lapse in policy. Also despite many insurers telling you that paying premium for 3 years is enough, remember mortality charges will be deducted from the corpus invested. If the value of the corpus is lesser than the mortality charges due to erosion in the value of the underlying asset, your life cover will stop. Your policy will lapse and you will have to take a fresh policy.

How to decide whether to opt for term insurance or ULIP

If you need to decide which one to choose, answer these questions:

Do you have dependents?
Do you have a liability like a home loan?
Are you young and want cheap insurance with high life cover?

If you have answered yes to these questions, then term plan is must for you.

On the other hand if you answer yes to these questions, then opt for ULIP.

Can you afford to pay high premiums till the end of policy term?
Are you looking for an investment option along with insurance and tax benefits?
Are you saving towards a particular goal?

Both term plan and ULIP have their pros and cons. Which one is suitable for you will be decided by your personal circumstances. Always take them into account before choosing the right one for you.

Courtesy: BankBazaar.com

Learn what not to do with your money

2011-01-24T19:15:00.000-08:00

It is almost a truism that most people need basic financial literacy and it’s generally assumed that this literacy must take the form of knowing what to do with money. However , the truth could be exactly the opposite. It would be far more useful for people to instead learn what not to do with their money, and this education is not available anywhere.

Everything that passes for financial literacy involves teaching how the investment world works, what the different types of investments are, who they are useful for, how to fit them into your financial needs and so on and so forth. This is all good stuff and investors most know it, but it’s not where people go seriously wrong.

Where they go wrong is that when someone tries to hawk bad financial products dressed up as good ones they can’t recognise what’s happening. And, if you are in the market for financial products, then sooner rather than later, someone does exactly that.

This doesn’t just apply to outright frauds like the recent Citibank case, but also to products that fall within the borderline of legality. For example, let’s say that you invest in stocks and prefer to choose fundamentally sound companies and stay with them for the long term.

If you do this, then it won’t be long before your broker will try and guide you into some highly leveraged highrisk action in index derivatives. His pitch will basically amount to telling you that you are a complete fool to ignore the massive returns that are to be had for the asking if you follow his advice, except that he won’t mention the risk part till it’s too late.

The canonical example is, of course, that of Ulips versus term insurance. There are hardly any Indians who have enough (or even any) term insurance . This is the basic financial product that everyone must buy in a very large quantity before they do anything else about their finances . And yet, even if you have the financial literacy to try and do so, there is an entire industry out there dedicated to diverting you towards Ulips, because they can make far more money there.

I think the problem is that existing channels of financial education are committed to not being critical of anything. They’d like to be polite and not step on any toes, especially commercially powerful ones. This makes them pretty much useless in this very important way.

For the investor, not doing the wrong things should actually be learnt before doing the right things. Unfortunately , this is something that they’re likely to learn the hard way.

Courtesy: ET Wealth.