B U S I N E S S

personal finance
Selling ethically or selling the ethics?
Growing up, we all must have heard the tale of a goose that laid golden eggs. While the caretaker was required to care for, feed and nurture the goose everyday; the goose delivered only one golden egg per day. Patience and greed hardly stay longer in one room. So the caretaker decided to slaughter the goose thinking the goose would have hundreds of golden eggs inside her. The result: the caretaker remained a pauper by choosing immediate nirvana over long-term wealth. Indeed a childhood moral tale has its limitations; but as one replaces the goose with the affordability and the needs of a customer and the greedy caretaker to the insurance agent, a larger question of ethics emerges.

Online term plan – New beginning
It’s rightly said “It’s never too late to start a new beginning”. Not that LIC, one of the largest players in life insurance business, has launched online term plan which will not only increase awareness but also increase the competition in the market. LIC move also will force other players, who still have not launched it, to launch online term plan soon. Even though premium of LIC online term plan is higher as compared to its peers, it will help people to understand the need of life insurance and also reveal the facts that how the investment products are bundled. This will help them to separate their insurance and investment need in future.

tax advice
Tax relief limit for super senior citizens is Rs 5 lakh
My query is as follows: If a senior citizen whose date of birth is 01/04/1934 & has an annual income from all sources above Rs 2.5 lakh & below Rs 5 lakh for the financial year 2013-14, would he also be required to pay income tax & fill income tax return since he attains the age of 80 years on 31/03/2014 i.e. on last day of FY 13-14. — Vijay Kashyap

personal finance
Selling ethically or selling the ethics?
Ajay Bimbhet

Growing up, we all must have heard the tale of a goose that laid golden eggs. While the caretaker was required to care for, feed and nurture the goose everyday; the goose delivered only one golden egg per day. Patience and greed hardly stay longer in one room. So the caretaker decided to slaughter the goose thinking the goose would have hundreds of golden eggs inside her. The result: the caretaker remained a pauper by choosing immediate nirvana over long-term wealth. Indeed a childhood moral tale has its limitations; but as one replaces the goose with the affordability and the needs of a customer and the greedy caretaker to the insurance agent, a larger question of ethics emerges.

A subject matter of solicitation, the regulations requires Insurance to be requested or asked by the customer and cannot or precisely should not be sold to him/her. However, it would be foolhardy to believe that the same exists in India - primarily because of the lack of awareness of the larger population and a dismissive attitude about the probability of risk affecting them in the future. Therefore, insurance in the country continues to be "sold through education" across large parts of the country. While the customers are increasingly becoming vary of "ignorance is bliss" mindset; the companies are driving amidst higher competition to educate and empower customers using vast variety of insurance products.

Amidst this, a large role in inspiring the decisions of the customers is that of an agent. Insurance agents work on the commission basis - therefore it is in their interests if the policies are sold across the spectrum. However, the corporates too play a vital role in sensitising the agents through proactive customer education, frequent agent engagements and training programmes to ensure that one, the policy is not sold to people unnecessarily; and two the features of the product should add value and satiate the requirements of the customers.

Therefore, stressing on the merits of ethical selling which for all practical purpose has been a key focus area for all the leading players in the industry.

So what is ethical selling in insurance? The answer to this question has by far baffled the experts. The answer is totally subjective to the environment, customer segment and product landscape. Steve Jobs once said, "A lot of times people don't know what they want until you show it to them". This sums up the dilemma of the insurance companies and the agents alike. For a business that I represent, general insurance sector is still at a very nascent stage in terms of customer recall. Therefore, it is sometimes not easy to differentiate if the realm of ethics has been breached to promote sales of a product; or the fear of being unethical has been a hindrance to growth. Either way, one has to be responsible and patient; and not fall into the greed trap as the caretaker.

In my three decades of career I have always believed in one simple fact - one has to always lead the change - by setting an example. So when it came to us at Royal Sundaram India Insurance Company, we created an ecosystem based on ethics. To achieve this, we have instituted an extensive ongoing training program to instill and reiterate ethical practices for agents.

That said, while humans may be prone to error, technology is more certain. Therefore to ensure that the calculation of premiums for policies is devoid of human error, insurance companies can adopt 'e-motor' technology based interface, which enables agents to calculate the premiums just by filling in the required info of the customers. The premium amount then is derived automatically, thereby ensuring that the amount is charged in commensuration of the risk and is devoid of any judgment errors.

As part of the ethical selling practice, once the premium is decided and policy is sold, insurance companies can follow up by calling up customers and explaining the coverage again so that there is no room for ambiguity. Another element that be brought in is that of pre-sales calls, so that the purchase of an insurance policy is an informed one.

It is important that insurance companies must engage with their present and potential customers, educate them about the sector and the gamut of plans available as per their requirement, and take feedback across their geographies of presence. The "volume of business" should not be the sole criteria for judging the performance. In doing so, companies will have the opportunity to institute, revisit and improve relevant processes, even as the scale of operation grows.

We believe that any product/solution created for the welfare of the public at large always finds its feet. The process albeit long can only be supported to an extent and not forced, as we all know every butterfly has to bloom out of the cocoon on its own. Checking the greed and yet expanding one's potential demands patience and determination. And that's what I would say ethical selling would aim at. Any business is about sustained value creation and once that goal is clearly visible, ethics pave the way for persistence towards attaining it. It also attracts like-minded talent and creates an ecosystem of trust, long-term partnership and mutual benefits. As Aristotle once said, "Educating the mind without educating the heart is no education at all". Holds true - every word of it.

The author is managing director, Royal Sundaram Alliance Insurance Company. The views expressed in this article are his own

Online term plan – New beginning
Pankaaj Maalde

It’s rightly said “It’s never too late to start a new beginning”. Not that LIC, one of the largest players in life insurance business, has launched online term plan which will not only increase awareness but also increase the competition in the market. LIC move also will force other players, who still have not launched it, to launch online term plan soon. Even though premium of LIC online term plan is higher as compared to its peers, it will help people to understand the need of life insurance and also reveal the facts that how the investment products are bundled. This will help them to separate their insurance and investment need in future.

Term insurance is the oldest form of life insurance and is the least expensive plan to purchase the death benefit. Under term insurance, there is no maturity value payable at the end of policy term but only death claim i.e. full sum assured is paid to the nominee if person insured dies during the term of the policy. Term insurance is the simplest type of life insurance and easiest to understand. You do not have to calculate the charges and returns in this plan, as you know from the day one that premium paid by you is expenditure. The idea of not getting anything back at the end is still misunderstood by the people. You should be aware that the mortality charge (premium for death claim) is also loaded in the investment products, so there is nothing free as wrongly told by many agents.

Few years back private players launched online term plan which received huge response from the people particularly in big cities. Now with LIC coming in the race the penetration is likely to increase and will go down to smaller cities as well. The major difference between regular term plans offered through agency channel and online plan is that online term plans are available at 40% discount premium compared to regular offline term plans. Why this is so because premium of regular offline term plan include commission payable to agent, cost of marketing and office expenses. Whereas all these expenses are saved in online term plan, making them cheaper from cost point of view as plan is directly bought from the company through its web site.

The costs are lower also because mortality experience in these plans is also likely to be good as the plan is targeted to the well-educated people. Mostly the targeted class is well informed and provides true and correct details of their family and health history. This segment also has access to good health facilities due to affordability factor.

All these facts leads to conclusion that claim ratio will also be reasonable & therefore online term plans are available at very competitive rate.

There is no doubt that term plan is the best option to secure your family in case you die early during your earning phase. But before opting for online term plan, you must note following points which is likely to help finalising the deal.

• You must calculate the exact life insurance need before finalizing the sum assured. The need based approach is always advisable but by thumb rule you should buy life cover equal to minimum 12 times of your annual income.
• Only earning members of the family requires life insurance cover who has dependent. House wives and children’s do not require life insurance as there is no economic loss to the family.
• It is advisable to take term plan till you reach your retirement. Once you stop earning, there is no need of life insurance cover.
• These online term plans are offered in selected cities at present and you have to check before applying.
• Insurance contract works on the principle of utmost good faith. Therefore it is important to disclose all the relevant details correctly while filling application form online including existing insurance plans and health history if any.
• The effective cost becomes major criteria while finalizing online term plan as there is no maturity value in term plans. Since you buy term insurance plan for peace of mind, you can consider buying from brand you trust even the plans is slightly expensive compared to the cheapest plan available in the market.
• You should also find out the claim ratios of the insurance cos. before buying term plan. According to us claim ratio is less important for buying insurance plan. Once you disclose all the facts correctly no company can reject your claim. Still if you are terribly worried about the claim ratio of particular company than you can consider shifting to brand you trust or that has lower death claim rejection ratio.
• You should also read carefully the exclusions mentioned in the policy document. Normally suicide within one year period is not covered.
• You make sure that your spouse and adult children’s also know about your insurance plans and where the documents are kept.
• Don’t opt for riders like waiver of premium in case of total permanent disability or diagnosing critical illness covered. This will only stop your premium but you require huge sum in case of such disability. Buy separate benefit plans which are income replacement plans and pays the lump sum in case of disability either by accident or any critical illness.

tax advice
Tax relief limit for super senior citizens is Rs 5 lakh
SC Vasudeva

My query is as follows: If a senior citizen whose date of birth is 01/04/1934 & has an annual income from all sources above Rs 2.5 lakh & below Rs 5 lakh for the financial year 2013-14, would he also be required to pay income tax & fill income tax return since he attains the age of 80 years on 31/03/2014 i.e. on last day of FY 13-14. —Vijay Kashyap

You have attained the age of 80 years as on 31.03.2014 and therefore, you are not liable to pay income tax on your income upto Rs. 5 lakhs. You are not required to file return of income provided you are not claiming any deduction specified in Chapter VI-A of the Income-tax Act, 1961(The Act). (e.g. Life Insurance payment, deposit under Public Provident Fund Scheme, repayment of principal amount in respect of loan raised for construction / purchase of a house, etc.). In such a case you may not be liable to pay tax but you will have to file your tax return in accordance with fifth proviso to section 139 f the Act.

I am a fresh graduate about to join a company which will be paying me a salary of Rs 50,000 per month. Kindly tell me how much income tax I am liable to pay every month. As I don't know much about our taxation system, kindly advise me on tax saving schemes. — Agam Kalra

On the basis of the facts given in the query, your total income for the financial year would be Rs. 6 lakhs. You would be liable to pay tax of Rs. 45,000 and education cess of Rs. 1,350 thereon, i.e. total tax of Rs. 46,350. You can save the amount of aforesaid tax by depositing amount in saving schemes specified in section 80C of the Act and claiming deduction to the extent of Rs. 1.50 lakhs from the total income. For example if a sum of Rs. 1.50 lakhs is deposited in Public Provident Fund before 31st March, 2015, your taxable income would reduce to Rs. 4,50,000 on which a total tax of Rs. 20,600 (inclusive of education cess) would be payable. You can also contribute upto Rs. 15,000 for medical insurance policy (to cover medical expenses of yourself) which would also be deductible from your total income. This would further reduce your taxable income by the said amount. In case you are paying house rent, you can request your employer to apportion a part of your salary as house rent allowance. You will be entitled to claim an exemption in respect of house rent allowance to the extent of the following:-

a) The actual amount of such allowance received for the relevant period

b) The amount by which the expenditure actually incurred by you towards payment of rent in respect of residential accommodation occupied exceeds one-tenth of the amount of salary due to you for the relevant period

c) An amount equal to –

(i) Where such accommodation is situate at Bombay, Calcutta, Delhi or Madras one-half of the amount of salary due to you for the relevant period

(ii) Where such accommodation is situate at any other place, two-fifths of the amount of salary due to you for the relevant period, whichever is the least of (a), (b) and (c).

It may be added that the tax calculation referred to hereinabove are in respect of financial year 2014-15.

My total income on AY 20012-13 was Rs 5.4 lakh and Rs 1 lakh was saving rd 28400 was hba interest which was not allowed by ITO. I made a representation to ITO Jalandhar on March 20, but have no response but Rs 2,237 was recovered. Advise. — Nasib Chand

It would be advisable to meet the concerned officer personally and request him to decide your application for rectification. In case he has not received the same, you may file another application under section 154 of the Act requesting the assessing officer to rectify his order and grant the due relief. In case he does not accept your petition under the aforesaid section, you have a right to appeal against the said order before the Commissioner of Income-tax (Appeal). You should be able to get due relief provided you have the necessary evidence in support of deposit of Rs. one lakh under savings scheme and Rs. 28,400 towards the payment of interest on the amount borrowed for construction of the house.