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personal finance The redevelopment tangle |
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Insurance riders an add-on protection Riders in insurance policies aim at providing enhanced protection to cover risks that are beyond the scope of the basic insurance plan, resulting in a more comprehensive protection. These add-ons are crucial in situations where the main life insurance policy may not cover a particular risk Rajiv Jamkhedkar Riders are an add-on to the base insurance policy and cover circumstances not covered under the basic policy. Riders are special policy provisions that can be added to a policy to expand the benefits, otherwise payable. Apart from the basic life cover, most of the insurers offer additional riders that cover various contingencies like accidental death, disability, critical illnesses, etc. Riders aim at providing enhanced protection to cover risks that are beyond the scope of the basic insurance plan, resulting in a more comprehensive protection. These add-ons are crucial in situations where the main life insurance policy may not cover a particular risk. Riders can be attached at fairly nominal costs, with the increase in premium depending upon the riders that are selected. Why does one need riders?
Situations like a severe accident may result in absence from work, leading to loss of income, which is not covered under the basic life cover. An accident rider covering disability would help the insured by compensating monetarily during this period. Likewise, if the insured is diagnosed with a critical illness, not covered by the basic cover, a critical illness rider would provide a lump sum upon diagnosis of such an illness. It can thus take care of the coping costs. Opting for riders makes one eligible for tax deductions. For instance, an accidental death rider provides tax deductions under section 80 C and can be claimed on premiums paid; for critical illness, the relevant section of the Income Tax Act, 1961 is 80D. What are the different types of riders?
How to choose a rider?
To identify the rider best suited, consider factors such as age, regular mode of commuting to work and history of illnesses in the family. Below mentioned points help in opting for a rider:
During a claim, if the insurer detects suppression of any facts that had influenced the insurer in underwriting the application, the insurer may repudiate the benefit and cancel the existing base policy. With a marginal increase in
the premium rate it is sensible to opt for riders for an added protection against any unforeseen or unfortunate circumstance. It helps to face the situation and get life back to normal.
ADDITIONAL BENEFITS Riders are special policy provisions that can be added to a policy to expand benefits, otherwise payable. Apart from the basic life cover, most insurers offer additional riders for contingencies. The author is managing director & CEO of Aegon Religare Life Insurance. The views expressed in this article are his own |
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The redevelopment tangle My friend Rajesh Kumar had bought an apartment in Bombay five years ago in an old residential building and the society had decided to get it redeveloped through a reputed developer. As expected my friend was quite excited, particularly on the offer spelled out by the builder. The developer was not only going to give them brand new flats with all modern amenities but also the carpet area of the flat was going to be nearly double the existing carpet area. To top it all the developer would also pay a lump sum amount to partially compensate for the increased outgoings once the new buildings were ready. My friend was sounding as if he had just won the national lottery. After that whenever we met we used to discuss the progress of redevelopment in his society. With subsequent meetings I realized that the going was slow on my friend's property as the agreement and the permissions were slow in coming in. Then one day all the permissions came in and the redevelopment looked like it was going to go ahead. That's when Rajesh received a shock from his society. He was asked to produce a "no objection certificate" (NOC) from the bank from whom he had taken a loan to buy the flat. He was still repaying the loan amount. When he approached the bank it flatly refused to give the NOC. In fact it went ahead and told him that he cannot now repay the loan in installments but has to fully pay the loan amount in one shot immediately. But the lump sum payment receivable from the developer was not enough to cover the loan amount of my friend. That is when he approached me for assistance. I spoke to the bank that had agreed to fund the developer for that specific project and, as a "very special case", it agreed to take over his existing loan as well as to provide the NOC to the society and the developer for the redevelopment. This incidence really set me thinking. In this case a special solution had been found but what happens in a score of other cases. I know of another case where a large education loan was outstanding against the security of the home that was going in for redevelopment. Here again the consumer had to really run around with the concerned bank to get the NOC which was issued as a very special case. People think redevelopment is a gold mine, which it is in many cases. But what most people forget is the long wait between the times the redevelopment decision is taken and the actual new building is finally delivered (10 years in many cases). There are significant delays and many times the things look stalemated as various parties approach court. So when you invest in a redevelopment property, be prepared for a long and bumpy ride and sometime a never ending ride. Why are the banks not willing to continue their loan (or to provide a fresh loan) for a property that is going under redevelopment? Well clearly the long drawn process and the innumerable permissions required and frequent regulatory changes ensure that many redevelopment projects hang fire for much longer periods than originally planned. If the property remains under construction for a long period of time then the chances that the borrower will default with the lender increases significantly. This is similar to the risk that the banks face when they finance an under construction property but at least in those cases all the permissions are available before the bank agrees to finance the property. In redevelopment cases all the permissions are rarely in place. At the same time investors who have invested in properties that have gone in for redevelopment have benefited tremendously from the appreciation once all approvals are in place and construction reaches an advanced phase. So far this benefit has been reaped mostly by very high net worth individuals who managed to buy such properties with their own funds. However given that in cities like Mumbai redevelopment is the only way for large construction projects to happen a few banks are now beginning to develop expertise to finance the developers for such projects and by extension to the buyers in such projects. However this is still a specialized market and you will need to trawl the market place to look for lenders who will finance consumers to buy houses in redevelopment projects especially if those are in the early stages. They would also be very choosy and finance only those consumers who have a high credit score and sufficient income to justify the loan. So, best of luck with finding a loan if you are looking to buy a home in a building that is going in for redevelopment! The author is CEO of Apnapaisa.com. The views expressed in this article are his own
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Riders are an add-on to the base insurance policy and cover circumstances not covered under the basic policy. Riders are special policy provisions that can be added to a policy to expand the benefits, otherwise payable. Apart from the basic life cover, most of the insurers offer additional riders that cover various contingencies like accidental death, disability, critical illnesses, etc. Riders aim at providing enhanced protection to cover risks that are beyond the scope of the basic insurance plan, resulting in a more comprehensive protection.
PN: The rates given above are for the initial period only. For the subsequent period, the interest rates vary from bank to bank.
