The Tribune, Chandigarh, India

Buying a life insurance policy? Make sure it’s a right one
Purchasing is about making an ‘informed decision’ of choosing a ‘right’ product
Munish Sharda

The insurance landscape in India has undergone significant changes during the last decade and we often come across common complaints from customers such as "I am conned by my agent/broker or misinformed about my life insurance policy."

Who should be blamed if a life insurance policy does not work for you? Is it the agent's fault to sell you a policy that did not meet your needs or should the customer be blamed for buying a product without understanding or reading its terms and conditions?

Generally, a customer is concerned about whether it is a single premium policy or there is a guaranteed return or does it come with an investment risk.

Being in the life insurance industry for almost two decades, I believe while selling is an act of persuasion, buying is about making an "informed decision" of choosing a product that meets one's requirements. The buying of a life insurance policy to please our relatives and friends or to save taxes or to blindly follow the agent's advices is called "mis-buying".

There is a possibility of mis-buying a life insurance policy if the customer does not pay attention to its details. One can argue that mis-buying is a result of mis-selling, but if the investor evaluates the options thoroughly and goes through fine prints, it is nearly impossible to buy the wrong product.

Here are 10 steps that an investor can take to ensure that you don't fall into the 'mis-buying' trap.

1 Check your adviser's credentials

You must check if the person assisting you is professionally certified to give you financial advice by checking his/her identification, licence and the insurance company or a broker with which he or she is associated.

2 Analyse your financial goals first

Talk to your agent and make sure that he/she gauges your life insurance needs by carefully assessing the gap between your assets and liabilities, your annual income, your standard of living, your spending habits and your long-term objectives and goals.

3 Understand your risk appetite

The agent should do a risk-profiling exercise to understand and suggest what kind of a plan suits your needs — a traditional insurance plan or a unit-linked insurance plan. In case, you are offered a ULIP, the agent should advise you on what kind of an investment fund suits your profile.

4 Search policy that suits your needs

With the help of your agent, select the best insurance policy based on your needs, future plans, standard of living, income and liabilities, and expected benefits for yourself and your dependents, etc. Do ask your agent for a benefit illustration. In case of doubt, don't make a hasty purchase; instead you can research and compare similar insurance products on various websites and take the final decision only once you are convinced about the product.

5 Make an ‘informed’ decision

Ask your agent important questions such as

What should I have to pay for insurance?
How long will I have to pay?
What are the inclusions and exclusions in the policy?
What riders can I add to my policy?
What are premium payment options and modes?

In case, you are not convinced with your agent's advice, contact the insurance company to verify facts to gain better understanding.

6 Fill proposal form yourself

Don't trust your agent with the job of filling the proposal form. The proposal form is the basis of a contract with the insurance company and anything incorrect in it may nullify your benefits. Make sure you provide all required details. It is important to disclose all information. Do not withhold or provide wrong information regarding your health, financial condition, lifestyle, occupation and other insurance policies as this can lead to the cancellation of the contract in future and non-payment of claims. Provide your agent all documents that are required to purchase a policy.

7 Get policy's hard copy

It is up to you to make sure that the policy is delivered to you within the period specified by the agent. Call up the agent or the insurance company if you have not received your policy on time.

8 Verify policy's details

Once you get the policy, verify its details and make sure that you have understood all terms and conditions as well as the charges listed in the policy during the stipulated 'free-look period'. If you have any doubts or want to withdraw your policy, you should contact the agent or the insurance company.

9 Inform your nominee

It's good that you have taken an informed decision to buy a policy, but it is even more important to let your family know the details of the policy.

10 Pay your premiums on time

Don't buy life insurance unless you intend to stick to the plan. It may turn out to be more expensive, if you quit during the early years of the policy. You should also keep in mind not to drop one policy to buy another one without a thorough study and comparison. Replacing insurance policies can be a costly affair.

The author is MD & CEO, Future Generali India Life Insurance. The views expressed in this article are his own.

tax advice
Accrued interest on NSCs qualifies for tax rebate under Section 80C
sc vasudeva

My gross income, including accrued interest of National Savings Certificates (NSCs) and after tax rebate under Section 80C, is Rs 1,00,000. Can I claim a rebate on accrued interest of NSCs under Section 10(15)? If yes, what will be its limit? — Bindya Devi

Accrued interest on NSCs is covered within the deductions permissible under Section 80C of the Act. The specified limit of admissible deductions under the aforesaid section is Rs 1.5 lakh. Interest on NSCs is taxable and the same is not covered within the provisions of Section 10(15) of the Act as NSCs being issued at present have not been notified under Section 10(15) of the Act. In view of the above, exemption in respect of accrued interest on NSCs cannot be claimed under Section 10(15) of the Act.

My NRI brother, a PR holder of Australia, has received Rs 60,000 as annual rent from a unit in India. Is he liable to pay TDS under Section 195 @30.9%? — Ashish Goyal

Your brother will have to approach the tax authorities under Section 195(3) of the Income Tax Act, 1961 (The Act) by making an application in the prescribed form to the Assessing Officer for the grant of a certificate authorising your brother to receive the rent without deduction of tax and if such certificate is granted, the person responsible for paying the amount of rent shall make the payment of rent without deducting the tax at source till the time the certificate is in force. In case no such certificate is applied for and issued by the department, tax at source at the prescribed rate will have to be deducted from the rent.

I have taken a Jeevan Suraksha Policy of LIC on April 1, 2000, for 15 years. The sum insured is Rs 1,50,000 with a yearly premium of Rs 10,115. The policy is due in April, 2015. There are two options -

A) 25% commercial value of policy sum assured i.e. Rs 3,18,750 is Rs 79,688. Monthly premium is of Rs 2,071.

B) Total amount Rs 3,18,750 is to be taken.

I want to take Rs 3,18,750. I am a bank employee in the 20% rate tax slab. Is the amount received taxable? — Yash Paul Sharma

The amount of Rs 3,18,750 received on the expiry of the insurance policy would be exempt under Section 10(10D) of the Act as yearly premium paid by you was not in excess of 10% of the sum assured. The provisions of Section 10(23AAB) of the Act are applicable where any income of a fund set up by LIC on or after August 1, 1996, or any other insurer, is received under a pension scheme. Since you would be receiving the capital sum due under the insurance policy, the provisions of Section 10(10D) of the Act would be applicable and the capital sum received on the due date of the expiry of the policy shall be exempt in accordance with the provisions of Section 10(10D) of the Act.

Be cautious while choosing your home loan
Nikolai Kirtikar

In the current competitive market scenario, home loan lenders are offering attractive schemes to prospective loan borrowers. For taking a home loan, which is one of the most expensive debts of a lifetime for many, it is advisable to exercise caution in selecting the best product that suits your requirements and at a same time, reduces the interest burden.

Some strategies have been highlighted here that can help you in reducing the interest burden as well as paving the way for early closure of a loan.

Selecting the best option

Whether you are applying for a home loan directly or through a price comparison engine, it makes sense to first compare the home loan products offered by various lenders. A home loan with a lower percentage can make a huge difference to your savings in the long run.

Example: An EMI for a home loan of Rs 30 lakh for 20 years @ 10.75% interest will be Rs 30,456 and @10.25%, the EMI will be Rs 29,449. A small change of 0.5% will fetch you a savings of Rs 2,41,680 over 20 years.

Along with the competitive rates, you should also consider the loan that suits you the best.

A floating rate home loan gives you the flexibility of low EMIs by opting for a longer tenure and at the same time you can prepay the loan without any penalty whenever you have surplus funds as a pre-payment penalty is waived off on all home loans given under floating rate whether by a bank or a housing finance company. There are no additional costs involved if you opt for a longer tenure.

As the rate of interest is linked to either the base rate system followed by banks or the PLR system followed by housing finance companies, with any changes in the base rate or PLR, the rate of interest on home loan also undergoes a change that can be either upward or downward.

Fixed or dual rate loan may give you a security of knowing that the EMI amount will not vary with the changes in the economy. Though it may be ideal for first-time homebuyers, it can be quite expensive to get out of it. If you choose the wrong time for fixed rate, you can actually end up paying more interest than you would otherwise had paid on floating rate.

A point to note is that what may sound ideal for one borrower may not be right for another. So you have to be realistic on what you needs.

Balance transfer for a better deal

You should periodically keep comparing the interest rates prevailing in the market for new customers by checking on price and feature comparison engines.

If the rate of interest offered to you is higher as compared to the prevailing market rate, you can transfer your existing loan to any other lender, in case they offer you a better deal in terms of interest rate.

While transferring your loan, you should consider two major charges. The first is pre-payment charges, which are at present payable on fixed-rate loans and on dual-rate loans only when they are in the fixed stage. And second one is processing fees, which you will have to pay to the lender where you will transfer your loan. This will be in the range of 0 - 0.5% of the loan amount. Some of the lenders have waiver offers on processing fee periodically for certain period or capping it at a fixed sum irrespective of loan value. These two costs vis-à-vis savings in the interest over the balance loan tenure will help you decide to switch your loan or not. Like we have seen in the example, even a seemingly small change of 0.5% can make a huge difference to your savings.

You should also check with existing lender itself whether they are willing to drop the rate for you by paying a small fee, which is quite possible.

This is the only way you can ensure that the lender is passing the benefit of the rate cut promptly to you.

Resist enticing offers

Some deals may look lucrative during the initial period of a loan, but it is essential to work out the total cost of the loan for the entire tenure rather than getting carried away by the initial rate of interest.

The author is Product Manager, Apnapaisa.com. The views expressed in this article are his own.