The Tribune, Chandigarh, India

PERSONAL FINANCE
Significance of nomination in life insurance cover
P. Ravi Kutumbarao

For all the premiums one pays throughout the term of a life insurance policy, the most crucial responsibility is to ensure who will be the beneficiary of the monetary relief upon the death of the policyholder.

Considering that the purpose of life insurance is primarily to provide the benefit to the family of the policyholder after his death, it is crucial that the details regarding the nominee are clearly stated in the proposal form.

Nomination facility

Serving as an instruction for the insurer, a nomination simply clarifies who the claim amount should be paid to, in the unfortunate event of the policyholder's death. In select cases, there may be a possibility that in the absence of a nomination, the policyholder's family members have to go through a lot of hassles. Usually, the insurer would call for a succession certificate or titleholder from the claimant, which is issued by the court of law. In most cases, getting this certificate is a tedious procedure, which can be avoided simply by taking care of it during the proposal stage.

Eligibility for nomination

In the simplest of terms, a nominee is the person proposed by the policyholder for receiving the claim amount of the life insurance policy, upon his/her death. It is important that the nominee should have an insurable interest in the life of the insured. Thus, insurers insist on full details of the nominee and relationship with the policyholder, which needs to be mentioned clearly in the proposal form.

An important rule of nomination is that your nominee has to be a legal heir, or the nomination will not be valid. This implies that the proceeds from the insurance policy do not belong to the nominee, and he/she is only a custodian of the same. The family members who are eligible for nomination, as per Indian Personal Law are one's parents, spouse, and children. While filling in the nomination, you must give specific names and particulars of your wife/children/parents and refrain from mentioning them only as a category.

In case the nominee is a minor, the insured is required to appoint a custodian to whom the claim amount would be given till the appointed nominee turns 18. You would need to mention your child's date of birth; the name of his/her natural guardian and the nature of the relationship with the guardian will also have to be specified.

Will and nomination

In some cases, there can be a variance between the nomination and will. In case you have a will in which you have specified the beneficiary of your insurance proceeds, the will takes precedence over any nomination that might have been made. A nomination is not a mode of making an inheritance.

For better understanding, a nomination is like telling the company "When I die, please call person X and tell him to collect the policy money from you". Creating a will, on the other hand, is saying that "This asset should finally go to person Y". Here person X and Y can be same or different, as you choose.

Things to keep in mind

* Inform the nominee or any other member of your family about the policy and the nomination so that they can make the best use of the sum assured in your absence.

* In the unfortunate event of the nominee's death during the term of the policy, it is important that a new nominee is appointed.

This needs to be done by informing the insurer of the alternate/new nominee.

* A situation of multiple nominees is normally a complicated one, and could end up as a legal dispute too. Since the insurer would prefer to hand over the entire claim amount to only one of the nominees on getting consent from other nominees for doing so, the dispute could come in terms of submission of such consent among the various nominees.

*n In case there is more than one legal heir, the insurer will call for a joint discharge statement, waiver of legal evidence and an indemnity bond. These documents safeguard the insurer's interest, in case of any dispute on settlement of the claim.

The author is Head - Technical, Bajaj Allianz Life Insurance. The views expressed in this article are his own

Removal of pre-payment penalty not enough for borrowers
Harsh Roongta

The RBI has recently "suggested" that the zero pre-prepayment charges regime for floating rate home loans should be extended on all kinds of floating rate loans (car, loan against property, business loans and SME loans, etc.).

This is a welcome step since Indian borrowers have been charged higher rates through a uniquely Indian form of floating rates by all lenders (whether public or private sector). These floating rates promptly rise when market interest rates rise but refuse to float downwards when market interest rates drop.

Prepayment penalty is a financial penalty that discourages consumers from shifting their loan to another lender who would charge less.

There is no earthly reason why this financial penalty should be allowed to be levied for other kind of loans where borrowers suffer the same discrimination as home loan borrowers.

By disallowing a penalty to be levied when consumers switch their loans to another lender, a financial barrier is removed that makes it easier for the consumer to switch loans and keep the practice of discriminatory rates between new and old borrowers in check. But lenders are adept at creating non-financial barriers as well.

Ask any borrower who has tried to switch his home loan from one lender to another. The new lender has to make payment to the existing lender without having the security of the property papers in their hands. The existing lender releases the property documents a few days after the full payment is received by them and the new lender is essentially lending on an unsecured basis till that time.

The new lender naturally seeks confirmation from the existing lender about the documents that are kept as security with the old lender and a confirmation that the will be handed over directly to them (the new lender) once they make the pre-decided payment. The existing lender is most uncooperative since they are losing a good consumer and the whole process is more painful than getting a teeth extracted without anaesthesia.

Only a very determined consumer is able to cross this non-financial barrier which is a big reason why transfer of home loans is still not as wide spread as they should be, given the high level of discrimination faced by existing borrowers.

The RBI should ensure that there is an industry wide mechanism that standardises the documents and processes for transfer of documents directly between lenders and lays down pre-defined time limit for such transfer cases. This mechanism should be uniform and extended to all banks, NBFCs and housing finance companies for it to be really useful.

Without a push from the regulator, the lenders are unlikely to come out with such a scheme. This single step will ensure that consumers don't have to run from pillar to post to get a fair deal, coupled with the removal of penalty on shifting of loans, it will be a formidable check on the lenders preventing them from overcharging existing borrowers. Incidentally such a scheme not just helps borrowers looking to shift their loans to another lender, it also helps buyers who are buying premises (or any other assets) which have been mortgaged/hypothecated with a lender since they can use the same mechanism.

The author is CEO, Apnapaisa. The views expressed in this article are his own

tax advice
S.C Vasudeva
No tax on income up to Rs 5 lakh for super senior citizens

The income tax exemption limit for ordinary and senior citizens has been raised by Rs 50,000. There is no mention of any limit for super senior citizens (80 years & above) in the Budget proposals. Previously, this limit stood at Rs 5 lakh. What is its latest position now? —GS Toor

* The basic exemption limit for persons who have attained the age of 80 years remains the same i.e. Rs 5 lakh. No change in respect of this exemption limit has been brought about by the Finance Act (2) 2014.

I turned 80 on May 20, 2013. Please advise as to whether I can avail the exemption of Rs 5 lakh on income tax permissible to super senior citizens in the financial year 2013-14 (Assessment Year 2014-15). — Surjit Singh

* Yes, you can avail the basic exemption of Rs 5 lakh in respect of income tax payable for the assessment year 2014-15 (financial year 2013-14) as you have attained the age of 80 years in the relevant financial year. You can, therefore, file the return of income accordingly and pay the tax on the said basis.

I am 72 years old pensioner. Can I invest in my son's (adult) and granddaughter's (minor) PPF accounts to get rebate u/s 80C and to what extent? —SK Gupta

* According to clause 3 of the Public Provident Fund Schemes, 1968, an individual on his own behalf or on behalf of a minor of whom he is the guardian can subscribe to the Public Provident Fund up to Rs 1,00,000. This limit has been increased to Rs 1.50 lakh and would be applicable for the financial year 2014-15. This is on the basis of announcement made by the Finance Minister in his Budget speech on July 10, 2014. You may not be able to get the deduction in respect of the amount deposited in the PPF account for the deposit made in the name of your son or in the name of your granddaughter. It may, however, be possible for your son or the guardian of your granddaughter to claim the deduction under Section 80C of the Act of the amounts so deposited.

Please clarify the following points:

a) It has been made mandatory to file the income tax return electronically if the income exceeds Rs 5 lakh. Please clarify whether the income of Rs 5 lakh should be net taxable income after deduction under chapter VI A or gross income before deductions. Please also let me know whether I am required to file return through e-filing or principle paper return.

b) Whether the rebate u/s 87A of Rs 2,000 is to be deducted before adding education cess or after adding education cess. What will be my tax liability if my income is less than Rs 5 lakh after deduction allowed under chapter VI? I have calculated my tax liability as per following method. My details are as under:

My total income Rs 5,90,600

Deduction Rs 1,20,000

Net income Rs 4,70,600

Tax: Rs 27,060

Rebate u/s 87A Rs 2,000

Net tax payable Rs 25,060

Education cess Rs 758

Total tax payable Rs 25,812

Is it correct?— KL Batra

a) The limit of Rs 5 lakh has to be considered after allowing deduction under Chapter VI A of the Act.

b) The rebate under Section 87A of the Income-tax Act, 1961 (The Act) is allowed before the education cess is computed on the amount of tax payable. The method of calculation given by you in the query is correct.