SecureNow's articles published in 2014-15

SecureNow’s Articles andWrite-Ups Published in2014-2015SecureNow’s Articles andWrite-Ups Published in2014-2015SecureNow’s Articles andWrite-Ups Published in2014-2015

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SecureNow Insurance Broker Pvt. Ltd.SecureNow is a full-service insurance broker operating in the large, underpenetrated and attractive insurance

market in India. The company is based in Delhi with branches in Bengaluru and Gurgaon.

Our team

Kapil Mehta is the Executive Director of SecureNow Insurance Broker Pvt. Ltd. Previously, he was the ManagingDirector and CEO of Prudential Financial’s life insurance company in India. Earlier, Kapil has worked at Max NewYork Life Insurance, McKinsey & Company and Unilever. Kapil is an alumnus of IIM Ahmedabad and IIT Delhi. Hehas received several selective awards and scholarships. He is a charter member of The Indus Entrepreneurs (TiE)

Abhishek Bondia is the Principal Officer and Director at SecureNow Insurance Broker Pvt. Ltd. Prior to this he hasworked at McKinsey & Company. At McKinsey, Abhishek was deeply involved with the insurance practice. He is aCFA, rank-holder Chartered Accountant, and an alumnus of the Shri Ram College of Commerce, Delhi

Our clients

We have over 250 corporate clients across the country and growing rapidly. Our client base is highly diversified.We serve large multinational clients, domestic market leaders and SMEs. The sectors we have covered includemanufacturing, services, research and NGOs.

Insurances offered

We provide all insurances, both in general and life insurance. We can procure insurances from any insurer and willtypically select what is best for the customer. Some of the insurances that we routinely provide are:

Employee Benefits: Group Medical Insurance, Group Personal Accident, Group term life

Property Insurance: Fire and Allied Perils, Marine, Contractor’s All Risk, Burglary & Theft

Liability Insurance: Professional Indemnity, Director’s & Officer’s Liability, Workmen’s compensation,Comprehensive General Liability

Specialized covers: Film Production Insurance, Shopkeepers insurance, Jeweller’s block and Medical Establishment’sinsurance

Business Risks: Credit Insurance, Keyman insurance

Our distinctive approach

We recommend product specifications, provide market benchmarks and procure insurances for companies. As abroker we can operate in all segments of the market and with any insurer. Given our knowledge of the sector andrelationships with insurers we consistently reduce costs by 20% or more, often with better benefits. Mostimportantly we make sure admissible claims get paid promptly.

There are three advantages to working with SecureNow. First, we understand the requirements of corporates andhave several pre-developed products for them. Second, we get privileged terms from insurers because of our scaleand negotiating capability. Finally, we support companies in the claim process.For more details on the company please visit our website www.securenow.in

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Table of ContentsGrowth (and its challenges) at SecureNow................................................................................................... 4

Insurance in India – An Infant finds its Legs.................................................................................................. 5

Making insurance a development tool ......................................................................................................... 6

Insurance amendment bill: necessary but not sufficient .............................................................................9

Presenting Insurance Facts Effectively........................................................................................................12

The difficulty in rating health insurance products......................................................................................15

Welcome steps towards protection of insurance buyers...........................................................................18

What consumers can learn from penalties on insurers..............................................................................21

How much sum assured, and other common questions ............................................................................24

Five stories that make you cry, in anger and frustration............................................................................26

Investment products came first, and then protection................................................................................28

Please don’t die till I get you a life insurance cover....................................................................................31

Fuzzy logic in health cover contracts ..........................................................................................................33

Face-off in insurance distribution ...............................................................................................................35

How we rated health insurance..................................................................................................................37

Questions and Answers: Life.......................................................................................................................39

Questions and Answers: Non-Life.............................................................................................................105

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Growth (and its challenges) at SecureNowPublished in IBEF on 18th December, 2014, Written by Kapil Mehta

We founded SecureNow, an insurance broking firm, selling insurances to companies three years ago. Inour first year we sold insurance worth Rs 1 crore, in the second year we touched Rs 5 crore and Rs 15crore in the third year. This scorching growth is excellent but creates its challenges.

First, we need to find high calibre people to shoulder large responsibilities and grow with us. This iseasier said than done. We meet 50 people before one person makes the cut. Such intensive screening isrequired for the first 30 employees because they form the bedrock of SecureNow.

Second, we have had to organise ourselves in a scalable manner. Early on everybody did everything.Now we have specialized. Separate teams are responsible for client engagement, underwriting andservicing.

Finally, importantly we have effectively used technology. This is not just about online presence but alsohow we transact and place business on a daily basis. SecureNow has developed an in-house portal forclients and insurers who do business with us. This provides an integrated view of insurances to clientsand forces insurers to negotiate competitively.

We have a long way to go. The market size of corporate insurance is about US$ 15 billion. Less than US$2 billion is sold through brokers. I predict that over the next 5 years there will be at least 5 insurancebrokerages with premiums over half a billion US dollars. We want to be leading that list. We need to alsoexpand the market by getting many more SMEs insured. Our diversified client acquisition approachcreates a steady client pipeline.

This is an excellent time to build a business in India. A sense of optimism and confidence hangs in theair. So many experienced executives are venturing out on their own. It’s exciting to be part of thetransformation that is steadily and surely taking place.

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Insurance in India – An Infant finds its LegsPublished in IBEF on 2nd March, 2014, Written by Kapil Mehta

Insurance in India is one of the last untapped bastions of financial services anywhere in the world. Thereis an attractive window of opportunity for companies to enter this market now to build their businesses.The market is large, over US$ 30 billion of new business at last count, growing steadily at about 8% overthe past five years and underpenetrated. A deeper look into insurance is fascinating because it revealsthe priceless diamonds within the already valuable rubies! Consider the P&C or general insurance space.This is a sizeable US$ 12 billion market that has grown at over 20% over the past 5 years and wherepenetration is one-fourth the world average. Within the general insurance segment, health insurance isbustling. It is about US$ 2 billion in premium and growing at 40% each year. Penetration is negligible.

I see five stand-out insurance opportunities. First, distribution across the industry is poor. High-costagency and bancassurance are the norm. As regulations systematically reduce margins, there is animmediate need for efficient distribution. Customers are dissatisfied with the sales process. The marketis ready for high-quality brokerages and other informed intermediaries. I am convinced that the generalagency concept will dramatically change the distribution landscape. Here, high performing agentscollaborate for better leverage with insurers. In several markets the general agency has pulled the rugout of traditional agency.

Second, the P&C segment is completely under-penetrated. The sector’s penetration in India is 0.7 percent of GDP compared to the world average of 2.8 per cent. There is room for several more insurers andintermediaries. Within P&C the two most attractive segments are health and liability.

Third, the internet presents fascinating openings. Comparisons sites that are the norm in the UK aresmall here. The use of telematics in motor insurance is a far-way concept. Using photographs to cost-effectively assess motor damage without a surveyor is an emerging concept. Insurers have a long way togo – they are still debating whether agents should be allowed to communicate company information onsocial media.

Fourth, Renewals present exciting possibilities. Life insurance is grappling with poor persistency. There isan opportunity to support insurers in renewals.

Finally, there is a large business to be built in selling term insurance. This is the most economical form oflife insurance. However, agents are not motivated to sell this low-value product. In the US there areseveral sizeable agencies selling pure term insurance. These companies, such as SelectQuote, have abusiness model that is purely customer-pull based. Investors can build similar models and brands inIndia.

The insurance sector in India is young – an infant finding its legs, a tiger-cub straining to be releasedfrom its leash. The sector opened up 13-years ago. Contrast that with the US and Europe where 100-year old institutions are the norm. An excellent way to participate in ‘Brand India’ is to enter this excitinginsurance marketplace today.

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Making insurance a development toolPublished in Mint on 28th February 2015, Written by Kapil Mehta

For insurance, the past few years have been gloomy. Between 2011 and 2014, life insurance fundsreduced from Rs.2,10,100 crore to Rs.1,99,600 crore. Life funds as a proportion of household financialsavings reduced from 20% to 17%. Penetration fell from 4.6% of gross domestic product (GDP) in 2009to 3.1% in 2013 . Reduction in distribution commissions due to regulation is one major reason for thisslowdown. The fact that markets have been in the doldrums for much of the past five years has nothelped.

The general insurance sector has its own unique problems, primarily profitability. The entire industryhad an underwriting loss of over 10% of premiums in 2014 . That is over Rs.7,000 crore. Underwritingloss is premiums less reinsurance costs, claims and expenses, and is an indicator of the industry’s health.

General insurers managed to deliver profits because investment income is high. Investment income isearned on reserves and the fact that premium is collected upfront but claims paid out later. Over thenext few years, as interest rates reduce, the general insurance sector’s vulnerability will show. That’swhy improving profitability is such a priority.

Even the promising health insurance industry stumbled. The number of people covered by healthinsurance reduced from 253 million in 2011 to 216 million in 2014 . Premium growth at 13% was thelowest in the past three years. Intense competition causing low prices has been the sector’sshortcoming.

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The past six months, however, have been a bright spot. First, the insurance ordinance was issued andthen backed up by the Foreign Investment rules to increase foreign direct investment (FDI). This madeforeign insurers sit up and look at India as a market again. Second, the insurance regulator announcedmeasures that would make general insurance pricing rational. Finally, the economy is buildingmomentum, which has a direct impact on insurance.

From an industry and customer perspective, this budget is thoughtful and positive. The assertion thatthe insurance ordinance will be brought to Parliament in this session reassures potential investors. Forthe first time, insurance has been viewed as a policy tool for development rather than just one of themany personal tax exemptions. There are four heartening insurance-related announcements in thebudget.

A move towards universal social security

This is how civilized nations treat their citizens. What is commendable is that the first step proposed iscommercially transparent and mostly non-subsidized. The underlying approach is to use the 125 millionJan Dhan Yojana accounts as a distribution platform for financial inclusion rather than for providingsubsidy. Both the Pradhan Mantri Suraksha Bima Yojna, which proposes accidental death cover of Rs.2lakh for Rs.12 per year and the Pradhan Mantri Jeevan Jyoti Bima Yojna, which provides term insuranceof Rs.2 lakh for Rs.330 per year are commercially viable. The source of funds for subsidy to vulnerablegroups is clearly identified as the large unclaimed amounts in many Public Provident Fund (PPF) andEmployees’ Provident Fund (EPF) accounts. There are two anomalies in this social security plan that thegovernment should correct.

One, Atal Pension Yojana, the pension plan appears to be of guaranteed benefits. We should not walkthis path. Most countries have moved to defined contribution plans where benefits are properly fundedby money collected.

Two, there is a risk-coverage overlap because term insurance encompasses death by accident. Thismakes the accidental death insurance redundant.

Emphasis has been paid to health insurance

The government has used every tool in its arsenal here. Buyers of Employees’ State Insurance will nowbe able to buy health insurance approved by Insurance Regulatory and Development Authority of India(Irdai) instead. This has many benefits because the Irdai approved health insurance products provideaccess to a much larger set of hospitals with fewer restrictions.

Apart from this, tax deduction for health insurance has been increased from Rs.15,000 to Rs.25,000. Forsenior citizens, this has gone up from Rs.20,000 to Rs.30,000. People who are older than 80 years cannow claim deduction on actual expenses. For good measure, even the Upanishad mantra that thefinance minister recited asked for freedom from illness.

Recognition of pension as an emerging need

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The National Pension System (NPS) is now an alternative to the EPF. The tax deduction limit for pensionschemes under section 80CCC has been increased from Rs.1 lakh to Rs.1.5 lakh. The limit under section80CCD has been effectively increased from Rs.1 lakh to Rs.2 lakh for contribution to the NPS. Service taxexemption has been given for the Varishtha Pension Bima Yojna. The Atal Pension Yojna has beenproposed for Jan Dhan account holders.

An intention to set up a financial redressal agency

This organization should be modelled along the lines of the UK Financial Conduct Authority. As financialsectors, including insurance, grow, it is essential to build such capacity. Consumers will materiallybenefit when this agency is set up. The disappointments, admittedly minor, were that categories such ashome insurance were not encouraged and service tax was increased to 14%. The budget is a purposefulstep forward by a government that knows its mind and is confident of execution. That’s what we needmost today.

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Insurance amendment bill: necessary but not sufficientPublished in Mint on 11th March 2015, Written by Kapil Mehta

If all goes as planned, the Insurance Laws (Amendment) Bill, 2015, which has been approved by the LokSabha, will become law over the next few weeks. The first version of this bill was introduced in the RajyaSabha seven long years ago. The most contentious proposal has been to increase foreign ownershiplimits from 26% to 49%.

I vividly recall an event in 2007 when insurers tried to convince, unsuccessfully, the coalition party of thetime to press forward on the new insurance and pension bills. Every suggestion was shot down because“foreign ownership would result in capital being surreptitiously taken out” and “privatization was bad”.Insurers’ arguments that, from a legal and operating standpoint, there was little difference between26% and 49% ownership fell on deaf ears. The beneficiaries of low foreign direct investment (FDI) capshave been Indian companies, which will earn high returns from foreign partners. This could hardly havebeen the desired outcome that Left parties, which resisted the change, would have wanted.

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The industry has not exactly prospered over the past seven years that the bill was delayed. The tableshows some performance metrics during this time.

I am not making the case that this poor performance is caused entirely by the delay in passing the bill.Regulations and markets have had a big role but the FDI restriction has not helped. In any case this issueshould get resolved soon when the new bill is approved by the Rajya Sabha or a joint sitting ofParliament. We now need to peer into the future and consider the consequences of this new legislation.

Foreign investment will increase substantially. This will take place over 3-5 years. Many Indian insurersare now valuable and foreign partners will be happy to increase ownership. Several overseas insurershave maintained representative offices in India for over a decade. Perhaps they will consider runningfull-fledged operations.

The relationship between the regulator, Insurance Regulatory and Development Authority of India(Irdai), and insurers will be more confrontational. Irdai will have considerably more power to penalize—up to Rs.1 crore per incident in many cases. But insurers will be able to appeal to the SecuritiesAppellate Tribunal (SAT) if they disagree with the regulator.

This is only fair and creates a good system of checks and balances. But it will take time for insurers togain enough confidence to challenge Irdai. There is little precedence and it may take a few years toarrive at a good working balance.

The decisions that Irdai will be allowed to take are many more. Several matters that were previously inthe Insurance Act will now be regulated. This means Irdai can pass regulations without seeking approvalin Parliament or changes in law. Consequently, future political logjams or a parliamentary de-prioritization of insurance will not hold up regulatory decisions. Irdai will be able to take decisions ontype of share issuance, financing instruments and setting management expense levels for insurers.

Distribution will face some heat. Insurers will be stricter because the liability for misconduct of agents orselling through unauthorized entities is squarely on insurers. The fine could be up to Rs.1 crore. Rebates,which are common, will be liable for fines up to Rs.10 lakh, up from Rs.500. I would be delighted to seerebating disappear. It eats into the already meagre agent earnings. Given the extent of mis-selling andrebating prevalent, these fines could be substantial.

Multi-level marketing (MLM) distribution has been prohibited. That’s easier said than done. It’s difficultto differentiate an MLM from a legitimate distribution channel. An MLM is one where the earning of anintermediary through recruiting people is more than by actually selling a product. It requires deepanalysis of the distribution channel’s incentive structure to make a classification. The product being soldalso matters. Selling palm trees in Hawaii is wrong but an approved health supplement may be fine. Theregulator will need to define MLM clearly.

Trading in insurance has been banned. If you are wondering what this is there are situations where aninsured person will assign her life insurance to an unrelated person or stranger in return for money. Onassignment, the responsibility for paying future premiums as well as receiving benefits is transferred to

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the new policy owner. This creates an unpleasant situation where the new owner benefits most if youdie early. I, for one, would not like to be caught alone with a stranger who owns my life insurance.Banning such trading was required.

It’s good that in the new bill an insurance policy cannot be challenged on any ground after three years.Buyers will be reassured that claims will be paid when they die. That should reduce the workload on theoverworked ombudsmen. Today, it takes over a year for the ombudsmen to review grievances. That willcome down. Perhaps when the Financial Redress Agency is created, the ombudsmen will no longer berequired.

Health insurers can now be established with a capital of Rs.50 crore compared with the previous Rs.100crore. This will not encourage more health insurers to set up shop because it takes over Rs.100 crore tobuild a health insurance business in the first place.

When the bill is finally approved, the government can take a well deserved break. But Irdai and theinsurance industry have a full agenda for the coming months.

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Presenting Insurance Facts EffectivelyPublished in Mint on 11th February 2015, Written by Kapil Mehta

The way information is presented has a dramatic effect on decisions. This is certainly true in insurance.The impact is positive if a buyer is guided sensibly, and negative, if salient points are buried deep indocuments and legalese.

A friend manages a trust that has adopted five hundred daily wage earners. These workers spend Rs.300each year to buy insurance for a sum assured of Rs.1 lakh. Unfortunately, a worker died recently due tomedical complications but his death claim was denied. “Could I look into it?” my friend asked. Well, itturns out that the insurance cover was only for accidental death. I couldn’t have guessed that by readingthe website or even the brochure. Only the policy contract spelled this out clearly. This word-craftinghad tragic consequences.

Buyers often postpone an insurance purchase because they have heard some such horror story onclaims.

Regulators and insurers are paying more attention to how insurance facts are presented or “framed”. A2015 World Bank report, Mind, Society and Behaviour, describes a research where customer borrowingscame down substantially when costs were shown in absolute amounts rather than as interest rates.

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Another study, Framing, Probability Distortions and Insurance Decisions, published in the Journal of Riskand Uncertainty, highlighted that people will pay twice as much for insurance if the causes or risks arevividly described. For example, in an overseas travel insurance people will pay more to buy twoinsurances, one covering terrorism and the other accidents unrelated to terrorism, when comparedwith buying a single insurance covering all accidents. The same principle applies to critical illness wherebuyers will pay more when diseases are named in detail. When a few primary diseases are broken upinto a larger number of sub-diseases, the cover looks comprehensive.

Framing information well improves the buying decision and prevents mis-selling. Successfully presentinginformation requires effective benchmarking, highlighting only a few important features and providingrelevant claims information.

Benchmarks must be easy to relate to. Take the case of traditional life insurance endowments that areover 70% of life insurance sold. In these insurances it is mandatory to illustrate maturity values assumingan interest rate earned by the insurer. What buyers do not realize is that their own returns are lowerbecause insurer’s expenses get deducted. It’s better to illustrate actual returns that policyholders canexpect to earn. This means that buyers should know that their earnings will be 2-5% rather than theillustrated 4-8%. The next logical step is to compare life insurance returns to long-term fixed deposits orsimilar products.

The way annual bonuses are expressed, as a percentage of sum assured to be delivered when theinsurance matures, is confusing. Buyers misunderstand this to be an annual interest rate, which it is not.A 10%-bonus may mean an annualized return of 3% or less.

Putting information in a way that buyers easily relate to help them make the right choices.

There is a limit to the information a buyer can absorb. A good insurance salesperson will intuitivelypresent fewer but relevant options to a buyer so that decisions get taken fast. A one-page note is likelyto be read; a 20-page memo never.

So, identifying and effectively highlighting just three or four aspects of the insurance being boughthelps. Several insurances have a key features document as well as detailed policy contracts but they aretoo long and complex. Conveying information succinctly is difficult. In the daily wage earner example,the document should have prominently mentioned that only accidental death was covered. To removeall doubt it should have specified that death due to illness was excluded.

Another case that illustrates how important it is to highlight just a few points relates to a seniorexecutive. His unit-linked insurance plan was cancelled mid-term despite the fact that he had paid all hisannual premiums regularly for five years. On complaining, he was directed to clause 20 in the policycontract that allows cancellation mid-term if the fund value fell below a 110% of the premium.Subsequently, the insurer increased the premium for reinstatement by 50% because, it said, costs hadgone up. We discovered another clause permitting this. All of this was a surprise to the executive.Shouldn’t it have been a key feature that the insurance could lapse even if all premiums have been paid?

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People buy insurance to reduce their risk and expect claims to be paid. This is why sharing risk and claiminformation at purchase is necessary. A health insurance brochure should carry claim approval rates forthat product as well as the top three reasons for rejection; a term plan could have similar information.The personal accident brochure could mention that in India about 5% deaths each year are due toaccidents. Wouldn’t this encourage buyers to purchase a full cover term insurance? A burglary insuranceshould specify that most claims get rejected because the thefts are by an insider, which is not routinelycovered.

Sharing information like this will benefit the industry in the long term. The immediate impact will be forbuyers to question their insurance more and for differences across insurers to stand out. Insurance salesare over $30 billion, or Rs.1.8 trillion. That’s a lot of people buying insurance and we owe them a clearview of what they are buying.

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The difficulty in rating health insurance productsPublished in Mint on 11th January 2015, Written by Kapil Mehta

Two years ago when Mint discussed rating individual health insurance products, I readily agreed. Theidea was compelling. And how difficult could it be to put this together? Well, we underestimated thetask. There are 26 insurers, offering about 50 health insurance products, over 300 product combinationsand at least 10,000 information points to be considered. But if ever there was a task worth doing well,it’s this. Properly done ratings frame choices in a way that significantly improve your decisions. The MintMediclaim Ratings (MMR) is a guide to buying a good health insurance.

The MMR factors in three things that health insurance buyers must consider—price, product featuresand the insurer’s claims payment record. Of the three, collecting claims information is the most difficultand interpreting that properly is harder. Consider the two most commonsensical claims-relatedquestions a buyer of health insurance would ask.

What proportion of claims has been paid for the product I want to buy? Why were the claims rejected?Today, however, these questions cannot be adequately answered with publicly available information.Published claims data combines individual and group insurance; cashless and reimbursement claims;government and non-government schemes. Product-wise claims are not segregated. Averages hide thetrue picture. For example, claim rejection is higher for individuals than for group insurances. So an

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insurer with high proportion of group will appear to have low claim rejection rates whereas theirrejection on individual insurances, that you buy, may be high.

The published data is inconsistent. Most insurers publish quarterly information; and a few annual; insome cases the numbers don’t add up; an insurer states that no claims were repudiated last year whichis not realistic; recent public disclosures are not available in one case; on some websites, pages do notload. We have sifted through this information, a summary of which is provided in the table.

In a similar vein, reasons for claim rejection are not published. A significant component of publisheddata is “claims closed”. In some cases this is as high as 20% of claims decisions taken and refers to claimswhere complete information is not provided for an extended period of time. This is worrying. Whywould so many people make a claim and then not follow through? There will be frauds but there arealso many situations where claimants get worn out.

The solution to these issues is to publish a product-wise breakdown of claims settlement and reasons forrejection. It is a straightforward approach but likely to leave many insurers uncomfortable with theoutcome.

There are two other aspects that we would like to factor in when reliable information is available. First,how effectively do complaints get addressed? And second, how comfortable is an insurer in issuinginsurance to people with poor health?

According to published information for the financial year 2013, 98.64% of life insurance complaints and98.47% of general insurance complaints were resolved. That’s unrealistically high. What does resolutionmean? Was the complaint upheld? Partially upheld? Denied? The Financial Conduct Authority, UKpublishes such information about complaints. It transparently says that only 53% of consumercomplaints were investigated and 42% of these were upheld. We need similar transparency in ourgrievance data.

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The insurer’s ability to issue insurance to most applicants is important. It is not useful to have the best-rated insurance if only Marvel Comics’ superheroes can clear the medical tests. For buyers, it isfrustrating to go through an underwriting process and then not get insurance. We’ll factor “issuability”into the ratings when we are able to get this information.

Public ratings such as MMR nudge the industry forward. Over the past two years, there have beenseveral new launches with customer-friendly features. Previously “C” rated products have started tomove up the rankings and it’s getting harder for “A” rated products to retain their position. That’sexcellent because as the health insurance industry presses forward, buyers benefit.

For the Mint Mediclaim Ratings tables, go to www.livemint.com/mintmediratings-

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Welcome steps towards protection of insurance buyersPublished in Mint on 5th January, 2015, Written by Kapil Mehta

The insurance regulation on protection of policyholder’s interests is the industry’s equivalent of the TenCommandments, a set of principles that insurers must abide by. The original regulation issued in 2002remains in force even today. Much has happened over the past 13 years in terms of products, sellingpractices and operating processes. An updated regulation factoring in all the changes has now beenproposed by the Insurance Regulatory and Development Authority of India (Irda of India) and is open forpublic comment till 19 January.

To understand the changes proposed, one must know the existing regulation. Currently, an insurer hasto disclose and explain all relevant information at the time of sale; provide specific information in aninsurance proposal and policy; establish broad standards of policy servicing and set grievance handlingrules.

The proposed regulations build on existing principles but are far more comprehensive. A good surrogateof the enhancements is the number of pages—38 pages in the proposed regulation compared withseven in the existing law. There are five broad changes that have been proposed.

First, seven policyholder rights have been introduced. These are the rights to professional diligence, fairdisclosure, suitable advice and protection against unfair market conduct that require insurers andadvisers to work honestly, apply standard skill and care with regards to customer interactions andprovide complete information on any transaction. All charges, exclusions and conditions need to be

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properly explained. For instance, a sale without explaining tax provisions or even selling equity-linkedunit-linked insurance plans (Ulips) to a retired person when she needs less volatile insurance would goagainst these rights. The right to protection against unfair contract terms protects customers from animbalance in rights and obligations vis-a-vis the insurer. This is much needed because insurancecontracts are one-sided and mostly non-negotiated. There is little a customer can do to change thecontract, and in most cases, the contract is delivered after the insurance begins. Examples of unfairterms will be provided by the regulator but could include the insurer’s power to cancel insurancewithout justifiable reason or to seek unnecessary warranties from you. The right to protection ofpersonal information will put greater onus on insurers to protect your personal data. Lack of suchprivacy is the main reason why you get calls from multiple insurers when your motor insurance is up forrenewal. Protection from conflict of interest of advisers requires agents and other intermediaries todisclose their compensation. This right will come to the forefront when an adviser pushes you topurchase a traditional life insurance product rather than pure term or encourages you to switchproviders unnecessarily.

Second, disclosures and processes have been thoroughly detailed out. The requirement for a keyfeatures document and prospectus has been incorporated. The language describing mis-selling isunambiguous. Renewal notices, particularly in general and health insurance, are mandatory throughemails or SMS at least 30 days before the due date. Renewal, cancellation and portability conditionshave to be spelled out. Grievance redressal and complaint handling processes have been elaborated. ABoard’s responsibilities in policyholder protection have been listed as well.

Third, insurers will need to specify service standards and turnaround times for activities involvingcustomers. This builds transparency and encourages insurers to compete in setting higher servicebenchmarks. The service standards encompasses activities at the time of sale, after sale, claims andcomplaints. A customer can even legitimately question insurers for delays.

Fourth, some new business areas have been explicitly factored into the regulation. An entire section onmicro insurance and the group business has been added. This is good because group businessconstitutes nearly half the insurance market. Similarly, micro insurance is a priority.

Fifth, the responsibilities of a surveyor have been sharply defined. The surveyor has an important role inclaims settlement. Regulations require an insurer to appoint a surveyor within 48 hours (down from 72hours) of a claim being intimated. Photographs must be taken within 24 hours and a preliminary reportsubmitted within 15 days. Currently, the survey process can be slow and I have seen it taking months. Aproposed feature, which I like, is that a copy of the survey report is to be shared with the insured. Thismakes the process transparent and even forces well-researched and articulated survey findings.

The draft regulations are a good step forward. However, the best regulations can be ineffective if notenforced. How can violation of these regulations be monitored and checked? The Financial ConductAuthority (FCA) in the UK is an example of how that can be achieved. Anyone can report mis-selling,unfair contract terms or perceived violations. The FCA looks into the matter and takes a decision withina specified time. The Irda of India or the insurance councils consisting of insurers should establish such abody. It will provide a much needed complaint point for policyholders and is as important as theregulation itself.

We need a more effective grievance redressal for insurances outside the purview of the ombudsman.Specifically, group insurances or claims of over Rs.20 lakh. A clearer articulation of the cost of closing

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insurance prematurely is required. Most life insurance policyholders I meet do not understand thesurrender costs and long-term commitment that they are making when buying insurance. Newregulations should recognize emails as proof of information exchange rather than just paper. Finally, Iwould like the insurer’s option to cancel insurances mid-term to go. This is an issue, particularly in groupmedical insurances which insurers can cancel if claims are high.

Finally, what struck me most as I compared the 2002 regulations with the current proposal was theextent of change the industry has seen. We’ve come a long way but there is still ground to cover.

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What consumers can learn from penalties on insurersPublished in Mint on 3rd December,2014, Written by Kapil Mehta

Last week, a columnist for this paper wrote about “One tight slap”. Her contention was that noprovocation could justify slapping a child. I couldn’t help chuckle when I read the phrase. While most ofus are peace loving folks, there are situations when we feel piqued. Children recognize these situationsfrom the threat of a “one tight slap”. So how does this relate to insurance?

The insurance regulator exercises authority over the industry in several ways—framing regulations,mandating disclosures, granting approvals, issuing warnings and levying penalties on insurers. Penaltiesare the equivalent of “one tight slap” and unambiguously show what matters most.

Over the past 23 months, since January 2013, the insurance regulator has publicly issued 44 penalties,on average two per month. This does not include scores of warnings and intermediary licencecancellations. The total value of these penalties is about Rs.8.5 crore. About half, coincidentally Rs.420lakh, is for excess payment to intermediaries such as corporate agents and brokers; Rs.105 lakh is forclaims not fairly paid, Rs.90 lakh for not meeting regulatory sales targets, and Rs.66 lakh for sellingproducts inconsistent with approvals. A complete breakdown is shown in the table.

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The big question is what these penalties mean for a consumer.

Take, for instance, the area that received the most penalties: excess payment to intermediaries. Whywould an insurance company want to overpay and risk regulatory ire? Because quality insuranceintermediaries are in short supply. Most intermediaries operate on a small scale and lack infrastructureto build a large business. The few that do are valuable.

How does this overpayment affect you, the insurance consumer? Particularly in life insurance, it resultsin a hard sell with little servicing because commission is highest in the first year and then reducessubstantially.

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You can deal with this by not getting hustled into buying insurance. Ask three questions, particularlybefore buying life insurance: What will my family get if I die? What returns am I likely to earn if I live?And, what will I get back if I surrender my insurance prematurely? This, however, is easier said thandone. I meet so many businesspersons and executives who are successful and intelligent but havehorrible insurance portfolios.

The economics of commission work differently in general and health insurance, where payments areevenly spread over each year. Therefore, for intermediaries, renewing health insurance is more valuablethan acquiring a new client.

For the industry and the regulator, the challenge is to increase quality of distribution. How? Byencouraging more capital, domestic and foreign; creating legal entities such as independent financialagents that allow best performing agents to deal with multiple insurers; and simplifying the licensingprocess.

The second largest penalty area is claims. Recently, at a radio show, several listeners asked me how toget their claims paid. An exasperated radio jockey said the battle between an individual and insurer waslike David versus Goliath. Well, the fact is, David won.

Our instinctive reaction when a claim is denied is to roll up our sleeves and attack the insurer. Insurershit right back. The claims case has to be presented sensibly. Often, it’s the customers who are at fault.How can the insurance company pay if you don’t submit a discharge summary? Or, the original bills? Orhide facts? If you have a genuine issue, then persistently follow through. Escalate the matter within theinsurer, appeal to the ombudsman or inform the insurance regulator. The matter will be addressed.

A friend bought health insurance but did not disclose a prior surgery. When this came to light, asubsequent claim was denied on grounds of non-disclosure. My friend made a compelling case that thesecond claim was unrelated to the previous surgery and got paid.

There is a big opportunity for the industry to step up its claim handling. The industry bodies should setup a neutral, professionally run grievance handling cell rather than depend upon the ombudsman orregulator.

There is another penalized area that I would like to highlight—overcharging of customers. You shouldnot pay a rupee more than the premium mentioned in the insurance policy. I’ve recently faced asituation where a doctor was charged Rs.20,000 for a professional indemnity that cost Rs.5,000. This gotrefunded fast when I pointed out the legal violations.

Finally, a comment on the penalty amount and time taken to levy a penalty. Today, the law limits themaximum penalty that the regulator can levy. Consequently, the benefit of breaking the law can farexceed the financial penalty. This will change when the new Insurance Bill is approved, and penalties willonly increase. In terms of time, on an average, it took a year and four months to fine an insurer. This ispartly because a certain process must be followed by the regulator. However, sometimes, the penaltyand the fined incident are so far apart that the penalty’s effectiveness is diluted. This time should beshortened.

Penalties are a valuable signal that insurers and consumers alike should pay heed to.

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How much sum assured, and other common questionsPublished in Mint on 5th November,2014, Written by Kapil Mehta

I like algorithms. These systematic rules can solve most problems. Google’s PageRank forms the basis ofWeb search; travelling salesman algorithms help schedule flights; poor quality queuing algorithmsexplain why I always have the longest wait at elevators in Gurgaon.

In this column, I share a simple algorithm to buy the right health insurance.

This algorithm is derived from my responses to the hundreds of health insurance queries I get each year.What sum assured to buy? Is family floater better or individual insurance? Is this company better orthat? Should I buy a top-up plan? I used to offer specific, personalized responses to each person but,soon, saw a pattern. Based on what I observed, here are a few steps to follow to buy health insurance.

Decide the target sum assuredThis is easier said than done. An experienced underwriter once explained that one gets to know the sumassured is inadequate only when it runs out. There is, however, an excellent surrogate to set sumassured and that’s the cost of a coronary artery bypass graft (CABG), commonly known as a heart bypasssurgery.

CABG is a common treatment for cardiac disorders, a disease category responsible for the largestnumber of deaths globally. The Public Health Foundation estimates that 8% of hospitalization cases,

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second only to accidents and other injuries, are due to cardiovascular disease. And this is one of themost expensive ailments to treat.

Last year, I saw about a hundred CABG insurance claims. These were generally the most expensiveclaims and cost between Rs.2.5 lakh and Rs.8 lakh. Health cover that you buy today must cater to costsover at least 10 years. At current medical inflation of 15%, a CABG procedure 10 years from now willcost around Rs.10 lakh if you go to a ‘no-frills but reputed’ hospital and Rs.30 lakh in a ‘5-star’ facility.Ask yourself which hospital you are likely to go to and then set your target sum assured.

I have used 10 years as a benchmark rather than a longer period because experience suggests thatmedical advancements are likely to keep costs in check.

You need to decide if this target sum assured should be bought on a family or individual basis. Counter-intuitively, in most cases, I find individual sum assured to be cost-effective. That’s because insurers pricefamily floaters based on the age of the oldest person whereas other family members may be muchyounger. Also, the probability of a claim in a family floater in higher than in individual insurance policies.

Decide product typeThe variety of product structures available is confusing: mediclaim pays for hospitalization; top-up planspay after a certain minimum expense is crossed; critical illness policies have a fixed benefit if you getspecific diseases; personal accident plans cover medical expenses in an injury.

Buying a regular mediclaim should be the first priority. This pays for hospitalization costs. If you don’talready have one, buy any “A” rated product from the Mint Mediclaim Ratings(http://www.livemint.com/mintmediratings). These comprehensive ratings factor in premiums,exclusions, claims track record and product restrictions.

If you do have mediclaim, then continue with that. Regulations require all health insurance products tomeet a minimum standard of cover and life-long renewability; and the longer you hold insurance themore difficult it is for an insurance company to reject claims.

Your current mediclaim cover is likely to be far less than the target sum assured. Bridge the gap with atop-up plan that pays costs above a certain minimum threshold (also called deductible). Buy any top-upplan that has a ‘super top-up’ structure; set deductibles in the top-up insurance equal to your currentinsurance and the sum assured to bridge the gap between your target and current insurance.

So what is the ‘super top-up’ structure? It goes by various trade names—‘super top-up’, ‘enhance’,‘super’—but it is not ‘super’ expensive. In this plan, deductibles can be set off across ailments and notrestricted to one instance of hospitalization.

Buy a critical illness planCritical illness plans serve several objectives: out-of-pocket, non-hospitalization costs and lost incomeget covered. However, its major benefit is that diseases that do not require hospitalization also getinsured, for example, Alzheimer’s, blindness, deafness, paralysis and stroke.

Buy a critical illness plan that covers a large number of diverse diseases, at the very minimum, 20. Setthe sum assured equal to the target sum assured on your regular mediclaim.

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People who ask me about health insurance tend to focus excessively on price. I’m reminded of thegreedy algorithm taught to us in college. In this, short-term objectives are maximized in the hope thatthe final outcome will be best. That’s a fallacy. Getting the lowest price in health insurance is fine, but itis crucial to get the broad health insurance structure in place first. Sum assured and policy type are mostimportant.

Five stories that make you cry, in anger and frustrationPublished in Mint on 8th October, 2014,Written by Kapil Mehta

Insurance inhabits two distinct worlds. In the first world it occupies, it promises concern and care;search for popular insurance advertisements anywhere in the world and you will find beautiful creativesthat bring a tear to your eye. And this promise of security is the perspective I love. However, once youscratch the surface, a second world emerges. One where people have bought the wrong products, feelcheated and struggle to find solutions. This, too, brings tears to the eye, but these are mostly just tearsof frustration.

Last month, there were five different incidents involving close family and friends that brought thissecond, less attractive world, into the forefront.

My wife, a surgeon, has been buying professional indemnity insurance for several years from a firmspecializing in insurance for doctors. It’s a large entity catering to about 30,000 doctors across thecountry. While reviewing her insurance, I was surprised to find that the firm had charged four times theinsurance premium as a fee. The rationale was that premium for three years had been taken upfrontand a service fee roughly equivalent to an annual premium charged. In my view, at least four insurancelaws were violated—the insurance does not have a three-year option so the sale is not valid; premiumshave to be deposited with the insurer within 24 hours, which has not happened; a service fee cannot bebundled with premium; and finally, the company does not appear to be a licenced distributor. I will

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eventually recover the Rs.15,000 but it’s going to be a long process. I wonder if the other 29,999 doctorsare aware that they are overpaying, and if they are, how do they plan on recovering their money?

In another incident, a friend’s equipment worth Rs.50 lakh was burned down. The insurance surveyorsaid the claim is not payable since it was caused by a faulty switchboard. However, he was willing to givea “favourable” report for a fee. Should one escalate the matter with the insurer at the risk of not gettingany money or just pay the bribe?

The third story is about when I went car shopping during the shraadh period. This inauspicious periodhas the best discounts, or so I thought. The dealer’s price list set insurance premium at Rs.45,000. Iknow the fair price of that insurance is Rs.20,000. So, who checks to see if the premium has beeninflated to recover discounts given elsewhere?

The next incident is about relatives who bought fire insurance for their home that was underconstruction. Unfortunately, the agent forgot to mention that a standard warranty in the policy was thatno construction was taking place on the site. Now that’s Rs.20,000 burnt up, literally.

The last story is about a business colleague who had met with an accident. His medical claim of Rs.5 lakhwas declined because the insurer concluded he was drunk when the road accident took place. Now, I’mnot clear as to how that decision was made because the doctor’s note and medico-legal report clearlystates that the patient was sober.

The way forwardHow does one address these issues on a large and sustainable scale? We need institutional solutions;three, in fact—technology, process and self-regulation.

Smart use of technology materially cuts down fraud and customer grievances. For example, insurers inseveral markets use pictures of damaged vehicles to determine repair costs. Due to this, thedependence on an intermediary to make an assessment or negotiate with dealers is reduced. An onlinediscussion board or a Facebook page can quickly identify as well as resolve customer grievances. If thePrime Minister can have a website where people can voice themselves, insurers should consider that aswell.

Processes is an area that general insurers can learn from life insurers. Shouldn’t all retail customers get awelcome call to check if they understand the product they have bought and the premium paid? Whycan’t insurers send an email or SMS explaining policy terms and exclusions to all customers?

Self-regulation when done honestly can make grievance redressal efficient. Today, aggrieved customersapproach the ombudsmen or insurance regulator for resolutions. Both these institutions are short oncapacity. Regulatory processes require a deliberate step-by-step approach before an order is issued. Thisis one of the reasons why the time between identifying an issue and passing a final regulatory order isoften over a year. The waiting period for an ombudsman ruling is also long. Wouldn’t it be moreeffective if the General Insurance Council established a group, staffed by independent experts, to lookinto customer complaints and take speedy decisions to which all members abide? In fact, one does noteven need the Council to do this. An insurance company can simply set up its own independent body tolook into complaints. Steps such as these are in the industry’s own interest and welfare.

Postscript: The distributor who sold the doctor’s professional indemnity called to say they will refundthe excess money charged. That’s a small step forward.

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Investment products came first, and then protectionPublished in Mint on 3rd September, 2014,Written by Kapil Mehta

Eight years ago, I interviewed with a US insurer to build their business in India. Walking into theirheadquarters was an eye opener. Every person I met had spent two to three decades in insurance andwith one company. Insurance is a business that demands a long-term perspective. Decisions taken todaycan impact business decades later as insurances mature. Most respected insurers are 100-year-oldinstitutions. Last month, I reached out to six experienced international executives whom I have met overthe years and asked them to list international events or trends that have shaped insurance. This is anamazing group. Their cumulative experience of over 170 years spans every continent and they havedirectly led insurance businesses in over 40 countries. I have synthesized their responses and inferredlessons for India.

The shift from protection-oriented insurance to investment products has fundamentally altered theindustry. Most insurers began their existence selling protection and savings. That is a much harder sellthan investment. Over the past two decades, insurers have introduced investment products such asvariable universal life, unit-linked insurance plans (Ulips) and variable annuities. This has driven growthbut also profoundly altered the industry. Now, insurers are exposed to investment cycles that previously

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left them unaffected. When markets fall, customers lose money and are dissatisfied because they expectstability from insurers.

Unfortunately, India’s development has been diametrically opposite. We first introduced investmentproducts and are now gradually moving to protection. This makes building capability to sell protectionmuch more difficult. The solution lies in creating large groups that can be provided protection covercost-effectively. The government scheme where Rs.30,000 term cover is given to new account holders isone such example. A trust I know covers over 1,000 of its members with such insurance. Many moregroups are possible if insurers actively seek out these opportunities.

Over the past two decades, direct distribution has sparkled. Estimates suggest that 40% of insurancecontracts are sold directly to customers without an intermediary. Direct distribution has effectivelylowered insurance costs. However, the flipside is that the channel is ineffective for non-commodity,complicated products. High quality tied agents are best for these products but the number of suchagents in many markets is reducing. According to ReMark, a global insurance direct-marketing firm, thishas led to a drop in life insurance penetration among younger customers in several developed markets.If not managed well, direct distribution can result in people buying products without understandingdetailed terms or buying less insurance than they ought to have.

The Internet is the most transformational direct distribution medium. Regulations play a key role in itsdevelopment. New electronic transaction rules introduced across the world during the past two decadeshave spurred insurance e-commerce.

Direct distribution in India is nascent and should be encouraged. Payment processes, physicaldocumentation and signature requirements, verification processes and more need substantial overhauland simplification.

The opening up of Asian markets has fuelled growth for established international insurers. According toreinsurer Swiss Re, 10 years ago, countries belonging to Organisation for Economic Co-operation andDevelopment group accounted for 91% of insurance premiums. Today, this is 81%. China and India arekey to international insurers but both countries have been protectionist in a way that is detrimental tolocal industry development. Therein lies an opportunity. When the Insurance Bill goes throughParliament, there will be renewed interest in India. International insurers are likely to develop directdistribution and protection products.

Internationally, capital requirements are risk-based and increasingly stringent. This is good becausecapital is linked more closely to specific risks, and insurers must have stronger internal processes andwell thought out product design, reinsurance and investment. The downside is that even thoughinsurers do not generate the same systemic risk as banks, they are subject to similar regulatory control.

In India, our solvency requirements are not directly risk-based. We must shift to this risk-basedapproach. In the short term, capital requirements may actually come down but in the long term we willhave a more systematic methodology to determine capital needs.

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Catastrophes are more expensive, severe and common. According to Swiss Re, in 1980, the 10-yearaverage of insured losses was about $10 billion. In 2013, it was $60 billion. Over 80% of these losses arenatural disasters but man-made catastrophes such as terrorism are also on the rise. We do not sensethis impact in India yet because our insurance penetration is very low. In fact, this puts greaterresponsibility on the government to provide cover for large-scale catastrophes.

Longevity in international markets is increasing fast and people have not provided for retirement.Consumers as well as actuaries consistently underestimate longevity. Because people live longer, theincidence of critical illness has gone up. So, retirement and elderly healthcare products are a focusacross the world. In India, lack of retirement planning has been a perennial issue.

I meet so many elderly people who cannot pay for their daily needs and are forced to depend uponothers. Large pension schemes are un-funded. Annuities are conservatively priced and taxed. Retireeshave to use up their capital to survive.

Social media is forcing improvements in customer service. Anybody can post their views on an insurerand be read by thousands. The court of public opinion is uncompromising and forcing better service.This trend is also visible in India. Browse through social media and you will find hundreds of specificcustomer complaints. Often, insurers resolve issues on the social media platform itself. The days ofprohibiting agents from posting about a company have gone. Insurers will need to be active social mediaparticipants to resolve customer issues.

The group that sent me their observations provided valuable insight. India was the last big insurancemarket in the world to open up. History is replete with late bloomers who left a mark. That opportunityis still open for us.

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Please don’t die till I get you a life insurance coverPublished in Mint on 6th August,2014, Written by Kapil Mehta

Term life insurance is a difficult concept. There are no returns if you live but a large payment to thefamily if you die. Term life accounts for less than 10% of sales in India compared with over 35% in theUS. Apart from being an excellent insurance product, term insurance sales are the finest indicator of thelife insurance industry’s maturity. A high proportion of term indicates that the sales force issophisticated enough to explain this difficult concept. If many buyers purchase term insurance, it showsthey understand the value of life insurance.

There are two obstacles to overcome when selling term cover. First, insurers must get better atunderwriting. That’s the process by which an insurer assesses an application, decides whether to issuethe insurance and sets a price. Second, customer and intermediary fraud must reduce.

The rigid underwriting that life insurers follow results in several good applications being declined. A richbusinessman applied for a term cover of Rs.30 crore. The proposal was rejected because he hadtravelled to the Ivory Coast and Ghana last year. For some reason this was considered risky. I argued thecase: It was just a two-day visit; he will never go there again; crossing the road in Delhi is as risky; thesecountries play better football than India. The insurer firmly rejected the case.

A 35-year-old bought term insurance a year ago for a premium of Rs.8 lakh. Earlier this year, the sameinsurer introduced a cheaper term plan that would have cost this gentleman Rs.5 lakh. A neat saving ofRs.3 lakh. The person applied to the insurer to cancel the initial policy and purchase a new one. I washorrified when the insurer refused to accept his application because its information technology systemdid not allow for a term policy to be cancelled. So, it was the old expensive insurance or nothing at all. Iescalated this to the company’s chief executive officer, who allowed the application. In this fracas, theperson is now uninsured because his old insurance has lapsed and the new one is yet to be issued. Ihave requested the person not to die before the new term plan is issued.

An entrepreneur who has set up a successful chain of speciality restaurants was denied a cover of Rs.3crore because his salary was low. But what of the significant business value that the entrepreneur hascreated and owns? A former colleague set up a Rs.100 crore-fund to invest in start-ups. The insurer waswilling to insure the founders of the companies the fund invested into but not the investor.

It takes so much effort to pursue these cases that most buyers give up. Why do insurers shy away fromnon-standard risks? There is a sameness to term insurance underwriting across insurers. If yourapplication is rejected by one insurer, you can be certain that others will have the same response. This isbecause most risk is reinsured with a handful of reinsurers who set prices and drive underwriting.Effectively there are not 24 insurers competing but just five reinsurers. Developed markets are different.Insurers retain more risk and compete on underwriting. An insurer’s preferences are known and drivebusiness. One insurer has lower rates for smokers, another will underwrite hypertensives and yetanother will issue insurance to people in disaster-prone areas. In one case, a US insurer gave preferredrates to cigar smokers because these smokers were wealthy with access to quality healthcare.

Fraud is a big issue. In many cases intermediaries urge the buyer to hide information saying they will“take care” of the claim. This does not work. Claims where material information is not disclosed, are not

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paid. Buyers are also to blame. A senior executive wrote in his application that he does not smoke.Wisely, the insurer did a cotinine test and found nicotine. I asked the buyer why he had lied and was toldthat a couple of cigarettes a day is not considered smoking; at least in Europe. In this case, the insurergracefully agreed to issue the insurance at higher smoker rates.

In 2013, there were 78 death claim related complaints filed with the insurance ombudsmen. Fifty one ofthese were dismissed because the applicant had withheld material facts. It is astonishing that a buyerwill commit fraud and then actually appeal for justice! Fraud reduces over time as insurers emphasiseupfront underwriting rather than claim-stage investigations. Over time, buyers realize that hidingmaterial information harms them because their claims do not get paid.

Insurers must look at their sibling general insurers to see how they have grown health and personalaccident insurance. The key to market development has been a vibrant corporate business; and aflexible underwriting approach that considers inputs from buyers and intermediaries. Life insurersshould inculcate these.

Four years ago, the largest US term insurance distributor visited India to see if he could build a similarpure term business here. I was disappointed to see him conclude that the market was not ready. Thatshould change now. It’s about time we pressed forward on this important life insurance product.

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Fuzzy logic in health cover contractsPublished in Mint on 23rd June,2014, Written by Kapil Mehta

Insurance contracts are one-sided. You see it after paying and completing your medical tests. There islittle you can do to change the contract. Last year, the Insurance Regulatory and Development Authority(Irda) standardized definitions for several diseases and terms in health insurance contracts. This was agood step but much work remains, particularly in critical illness and personal accident plans that aresubjective.

Take this critical illness exclusion from the contract that a leading insurer has on its website. “Criticalillness symptom/s (and/or the treatment) of which were present in the insured person at any timebefore inception of this policy or on the date on which cover here under was granted to such insuredperson, or which manifests itself within a period of three calendar months from such date, whether ornot the insured or the insured person has knowledge that the symptoms or treatment were related tosuch critical illness.”

That’s scary. I assessed this paragraph for readability in the lovely Hemingway App and learnt that apost-graduate degree is necessary to understand this clause. Hemingway would have preferred “We willnot pay a claim if the disease began before you bought this insurance. Whether you knew it or not.” The

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app confirms that this new sentence can be understood by a child in grade 3. The original clause isunreadable but even understanding it does not simplify the problem. Why should a claim be denied ifthe insured did not know she suffered from a disease? The standard definition prescribed by theregulator is simpler but leaves scope for claim denial even if the insured was not aware of the disease.Consider a person who has suffered from migraine for several years and, after buying insurance, isdiagnosed with brain tumour. Under the current contract definition, this claim can be denied. Contrastthis with the Australian Insurance Contracts Act, 1984 that prohibits insurers from limiting their liabilityin situations where a consumer had symptoms but was not aware that she suffered from the disease.The Australian Act is well drafted, consumer-friendly and a good reference point for our own law.

Another stand-alone health insurer’s contract states that claims can be rejected for “failure to seek orfollow medical advice”. Who decides if the patient should have sought medical advice earlier? Think of apatient whose claim is denied based on this clause—she is now critically ill and penalized for notreaching out to a doctor in time? That’s unfair.

Some health insurance contracts exclude “medical expenses where inpatient care is not warranted”.Does the insurer or the doctor decide this? I experienced this clause first hand. In January this year, mydaughter was diagnosed with tapeworm in her brain. The paediatric neurosurgeon recommended sheget hospitalized for two days to initiate treatment. The oral medicine to kill the tapeworms sometimescauses a seizure and hospitalization allows immediate action. My health insurer pre-approved thishospitalization but when the time to pay came, it backed out because, in its view, hospitalization wasnot required. Later, in a chance meeting with senior executives of that insurer, I asked the rhetoricalquestion—what would their chief executive officer have done if his own child was involved? Would hediffer with the surgeon’s recommendation and keep his child at home? The claim was paid because I hadprivileged access. Most don’t. Another insurer excludes occupational diseases. What’s that? Is heartattack an occupational disease? Perhaps there was too much work pressure? Insurers exclude injury in awar, whether declared or not; civil commotion; unrest. How does that work? The gem is an exclusion forcritical diseases that reads “loss caused directly or indirectly, wholly or partly by infections or any otherkind of disease”. So what’s covered? Several health insurances come bundled with personal accidentcover. These claims are excluded if there is “any change of profession after inception of policy whichresults in the enhancement of our risk”. The UK Financial Conduct Authority and financial ombudsmanwould not allow this because it changes the terms after insurance has been bought. Customers cannotanticipate career changes or assess which changes are relevant to report. I don’t want to highlight onlythe negative points. There are several good clauses in our contracts, particularly in mediclaim and terminsurance. Unlike some other markets, our contracts do not allow insurers to penalize consumers forsmall mis-declarations or inadvertent mistakes. Disease and accident definitions are clear. Suicide in thefirst year is the only exclusion allowed in term insurance. Our ombudsmen are strongly pro-customer.However, we do need comprehensive insurance contract guidelines and a mechanism for monitoringdeviations. The Australian, the UK and South African markets have excellent examples of contractprinciples that are directly applicable to us. The UK financial ombudsman and Financial ConductAuthority provide an online option to report unfair contract terms. Read more about this athttp://goo.gl/utgCTe, http://goo.gl/lM3Ntr and http://goo.gl/oaIxTa. Insurers have an excellentopportunity. Those that make contracts more readable and go beyond the regulator’s prescribedminimum standards will be highly respected. Note: Some clauses have been paraphrased for brevity.

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Face-off in insurance distributionPublished in Mint on 8th May,2014, Written by Kapil Mehta

The business world is replete with ferocious two-sided battles—iOS versus Android, Linux versusWindows, Big versus Small retail, budget versus full-service airlines, and so on. These battles are foughtglobally and across industries, but have two things in common: at stake is the fundamental principle ofhow much consumer choice to provide; and the winner will be very rich.

Unknown to many, a similar stormy war is being waged in the insurance world since the early 1970s.This is the fight for dominance between tied and independent distribution.

So what is this war about? Tied distribution refers to insurance sales through a distributor who ownsallegiance to the insurer. This distributor sells only one insurer’s products. The insurer recruits, trainsand manages the distributor. Tied distribution can be through individuals, companies, banks or insurer’semployees. In 2013, there were 2.1 million life insurance agents in India and 739 corporate agents. Astaggering 98.8% of life insurance and 81% of general insurance was distributed through these kinds oftied distribution channels. The advantage of tied distribution is that insurers have the capital to makelarge investments. This rapidly expands distribution reach. The primary issue is that products can getincorrectly placed: A traditional endowment is sold where a unit-linked insurance plan (Ulip) would havegiven better returns; a regular-pay product is recommended where a single-premium would have beenmore cost-effective.

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Independent distribution refers to sales where the distributor can work with multiple insurers. Thedistributor’s loyalty is to customers. Historically, brokers have been the only independent distributors.Instinctively, the regulator and government are expanding independent distribution. Web aggregatorshave been formalized; banks are being encouraged to turn brokers instead of being agents; and, moreimportantly, a new distribution entity called the insurance marketing firm has been proposed.

The advantage of independent distribution is that consumers take centre-stage. They can be offeredmore choice and better options. The issue is high cost of entry and a dearth of talent with the capabilityto handle multiple products. Consequently, independent distribution expands slowly.

It is in this context that the proposal for an insurance marketing firm is significant. As envisioned, thesefirms will distribute products of multiple insurers and will operate in a small geographic area. Entry costhas been brought down by reducing the capital and infrastructure requirements. Effectively, these firmswill operate like limited-scale brokers. This is an important decision and signals the beginning of theface-off in India.

The tied versus independent distributor face-off was first fought 40 years ago in the US. Within just adecade, the independents had won. Insurers shut tied distribution because the costs of recruiting,training and retaining were just too high. The best performing agents set up independent generalagencies that grew rapidly and completely changed the distribution landscape. These general agentswould work with multiple insurers and sometimes across financial services products. According to a WallStreet Journal report, the number of tied life agents fell to a third between the 1970s and 2010. The UKmarket is predominantly independent and most distribution is through Independent Financial Analystsand brokers. But then you have Japan where tied distribution is still the norm. These are three of thelargest insurance markets of the world.

In India, tied distributors, particularly of the private sector, are in bad shape. The number of lifeinsurance agents has been reducing, about one-third of agents leave the profession each year. Averageagent earnings are less than Rs.5,000 a month. How can you build a healthy practice and provide qualityadvice with that level of productivity?

Over the next few years, I expect considerable development in independent distribution. If theinsurance marketing firm proposal goes through, several successful agents will shift sides from the tiedto the independent model. Individuals or small firms with an existing client base will look to set up suchfirms and expand their service offering. Over 15 of the world’s top 20 insurers operate in India but justthree of the top 20 brokers have a deep, meaningful presence here. That will change.

Internationally, independent distributors are comparable in size to insurers. It is just a question of timebefore they sense the opportunity ahead. Given the rapid pace at which regulations are beingdeveloped, the regulator will have to ensure that distributing entities have a level playing field in termsof compensation and selling boundaries. Currently, there is a disparity as insurers can pay the insurancemarketing firm more than what brokers or tied agents get. I want independent distributors to thrive.These entities foster product innovation, client service and market development. A non-performinginsurer will get replaced by another; an unsettled claim will get rapidly escalated; distributors will buildfull-time careers in insurance and customers will find a voice—this is the essence of independentdistribution.

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How we rated health insurancePublished in Mint on 17th Jan,2014, Written by Kapil Mehta

In July 2013, after Mint had published the first health insurance rating, I received a call from an angrypublic relations executive of an insurer. “Why have you rated our product low?” he demanded. I pointedhim to the rating criteria that were published, asked him to go through those and then get back withspecific issues. There was no return call. That’s the power of fact-based assessment.

We objectively rate products by scoring them on eight clearly defined criteria. Criteria weights arethoughtfully set. The highest scorers get an A rating and the worst C. Buying an A rated product is a safeand good choice, though in some specific cases, B and C rated products may also be acceptable.

After the previous ratings were published, many readers and insurers wrote in. That’s good. Healthinsurance should be a centre stage topic. In the US, the Democrats’ biggest thrust has been to removerestrictions on pre-existing diseases, create a health insurance marketplace and mandate companies toprovide health insurance. In India, we are still in the nascent stages of consumer education on thesefeatures.

In this ratings sequel, Mint and SecureNow have made four changes. First, we dropped the criterion oflifelong renewability because a new regulatory guideline, which became effective in October last year,requires all products to offer lifelong renewability. That guideline had several other positive changes—all policies must now be available to people aged 65 and below, insurers cannot increase renewal

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premiums based just on an individual’s claim experience, and disease definitions have beenstandardized. These improvements are one reason why we have several more A-rated products in therevised ratings.

Second, we have updated the information on claim repudiation and increased its negative weightagefrom 15% to 20%. The best designed insurance is meaningless if a rightful claim is not paid. An insurersent over 15 emails asking for more information when the claimant kept saying he had none; the claimwas promptly paid when the matter escalated. One lady’s hospitalization claim for suspected cardiacarrest was not paid because the insurer felt hospitalization was unwarranted. Why would the personspend two days in an intensive care unit if the doctors did not feel the need? An internal cyst removalclaim was denied because the third-party administrator surmised that the cyst had begun growingbefore the insurance was purchased—shouldn’t the person be aware of a health issue for it to beclassified as pre-existing? A claimant was accused of not declaring her past history of “LMP”. We had topoint out that LMP stands for last menstrual period, which is not a disease.

Of course, insurers are not solely responsible for this sorry state. Consumers regularly hide informationor fake claims.

In this rating exercise, I would have liked to give an even higher weightage to claim payment.

But the data available is inadequate. What a buyer needs to know is the proportion of individual(excluding group) claims settled in a cashless manner, the rejection rate for reimbursement claims andthe reason for rejections. These factors have a deep impact on product selection. Unfortunately, suchinformation is not publicly available today. I urge the regulator to make this disclosure mandatory.

Third, we increased the negative weights for disease sub-limits, room rent caps, disease waiting periodsand co-pay option from about 17.5% to 30%. These caveats and conditions make for poor healthinsurance. A friend was hospitalized for a procedure that cost Rs.70,000 but was paid only Rs.10,000 bythe insurer because his policy had every possible cap and sub-limit.

Fourth, we fine-tuned the methodology: criteria were made consistent across ages; some new productswere introduced and some discontinued; for the 65 years age group, we considered a family of twoinstead of four. We continue to keep maternity benefits outside our criteria because it is not relevant tothe age group selected. Over time we may include some more parameters, such as the quality of outpatient department coverage and value-added services offered.

There is a fifth change we wish we could have made—“issuability” of insurance—but did not have theinformation to. Some insurers have beautifully designed products but will issue the insurance only tothose in the pink of health. Applicants with even mild health conditions get reduced sum assured orrejected. Hypertension and diabetes are commonplace. Only a few insurers are comfortable insuringsuch risks. One measure of issuability is the number of applications compared with the insurancesactually issued. Insurers should consider publishing this.

Done right, health insurance can transform our lives. It helped a friend’s senior citizen father get a stentput at the best hospital in Mumbai. It allowed a poor golf caddie have his kidney removed by a leadingdoctor in Delhi. There are many people who are relieved that they had health cover. But there need tobe many more. It is too important an issue not to get right.

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Questions and Answers: Life

Risks covered under term and personal accident plans vary

Published in Mint on 17th June 2014, Written by Kapil Mehta

I am 33 years old, male, married and a non-smoker. I am looking to buy a term insurance plan for Rs.1crore. Please suggest which provider to go for.

—Ankit

Buy a term plan that conducts medical tests and costs the least. In your case, the premium should beless than Rs.14,000 for a 30-year term. That’s about it. Conditions are standardized across insurers. Theonly exclusion allowed is suicide in the first year. Also, for a Rs.1 crore sum assured plan, much of themortality risk will be transferred to a reinsurer. This means that the quality of reinsurer is important butall the reinsurers allowed to operate in India are highly rated and reliable. Medical tests are relevantbecause they shift the responsibility of assessing your health to the insurer.

I will be getting married late this year. However, I plan to buy a term cover now. Can I make my fiancemy nominee?

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—Siddhartha P.

Your fiance can be your nominee. Insurers will ask some additional questions since selection of a non-relative nominee is not typical. The more important point for you to know is that if you die beforegetting married, the sum assured will be paid to your fiance but she will have to hold the money in trustfor your legal heirs, your parents as I understand it. If you want the money to remain with your fiance,then write a Will naming her as the beneficiary. After marriage, your spouse will become a legal heir andentitled to receive her share of the death benefit.

Should I buy term insurance or a personal accident cover?

—Soumit B.

The risks covered in term life and personal accident insurance differ. Term covers death for any reason.Personal accident covers death or disability due to an accident. The difference in risks is reflected inpricing. Term life tends to be twice as costly as personal accident insurance. Term should be your firstpriority.

I am looking for a comprehensive cover that will take care of life insurance, accident benefits anddisability. Which policy should I buy?

—Abdul Khan

Buying a comprehensive cover protecting multiple risks is a theoretically sound but practically poordecision. I find that insurances which bundle multiple risks invariably end up over-charging customers.Such products tend to be opaque and hard to benchmark. Instead, buy a term plan from a life insurer toaddress your death risk and a stand-alone personal accident plan from a general insurer to addressaccident and disability risks. If you are 40 years old, a term plan of Rs.1 crore that covers you until age 65will cost Rs.35,000 per year. A comprehensive accident and disability cover for Rs.1 crore will cost youabout Rs.15,000.

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Contractual workers can be covered under group term plan

Published in Mint on 3rd June 2014, Written by Kapil Mehta

I will be taking an online term insurance in this month. Being a central government employee (36years old), my family and I are eligible for pension after 20 years of service. Presently, I am in my 12thyear of service. Should I take the term up to the maximum possible age or for just about another 10years to ensure my family gets pension?

—Debangshu Ball

Term insurance and pension plans address two entirely opposite needs. Term plans cover the risk of youdying early whereas pension covers the risk of living long. Term insurance will pay your nominee thesum assured if you die while your insurance is active. This amount will help your family membersmaintain their standard of living and future expenses. Pension plans pay a certain amount of money toyou for as long as you live. If you live very long and run through your savings, the pension plan continuesto provide a regular income. Most people, including government employees, have a working tenor of atleast 30 years, even though pension eligibility kicks in after 20 years. The term insurance should cover

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you for your entire working life, which is why I recommend it until age 62 in your case. Considerincreasing the sum assured in the future as your income increases.

I am 29 years old and earn Rs. 10 lakh a year. How much insurance will I get?

—Komal Nag

Insurers will provide you up to 25 times your annual income as sum assured. This is Rs.2.5 crore in yourcase and will cost you about Rs.23,000 per year. In case you want to spend less, buy at least 10 timesyour annual income, or Rs.1 crore, for a premium of around Rs.11,000 per year.

Can I change the due date of my premium for my policy?

—Shakti Bhakat

You cannot change the due date, but you can choose not to pay on the due date. This is not an option Irecommend unless you are clear that you want the insurance cover to lapse or want to surrender it.

We have several contractual workers at our resort. Can we buy life cover for them?

—Bela M.

You can cover contractual workers in a group term life or a group personal accident cover. Make surethe contractual nature is declared to the insurer and job profiles of the workers are accuratelydescribed. Group personal accident will cover only accidental death, while group term life will coverdeath by any cause (except suicide) in the first year.

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Standalone plans are available at prices similar to riders

Published in Mint on 20th May 2014, Written by Kapil Mehta

While buying a money-back policy, agents usually give a benefit illustration. How genuine are these?—Kamini Ghosha l

When I hand a Rs.500 note to a shopkeeper, she invariably peers at it suspiciously. If she finds the rightink marks, holograms and dates, I get a smile and the tender is accepted. A benefit illustration should betreated the same way. Look at it carefully—it should have guaranteed and non-guaranteed paymentsclearly marked out, death benefit separated from living benefits, and a professional look. However, thebest check is that regulations require you to sign the illustration and a copy of the signed illustration tobe sent to you along with the policy copy. If that does not happen, call the insurer for verification.

If the nominee of a policy is different from the legal heir, who gets the proceeds?

—Ankit Kapadia

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If the life insured had left a valid Will, then that will be honoured. But, if there is no Will, the legal heirsare entitled to the proceeds. In terms of process, the insurer will not wait to determine who the legalheirs are. It will discharge its responsibility of paying the claim by paying the nominee. Legal heirs willthen need to take the claim amount from the nominee.

How do I decide if I need a standalone cover or a rider?

—Hari Nair

You need to compare the quality of risk cover and price in the rider and the standalone plan. Take thepopular critical illness rider as an example. You should look at the number of critical illness diseasescovered, the number of years for which pre-existing diseases are excluded, and the price per unit of sumassured. Similarly, in the case of a personal accident rider, look at the kind of personal accident cover.Generally, I prefer stand-alone plans. In most cases, these have wider, more feature-rich cover at pricescomparable to riders.

I am 38 and don’t have a life cover. My parents stay with me but aren’t dependent on me. My wifeworks and is covered for Rs. 10 lakh. How much insurance should I buy? —Parag Jain

You should buy term insurance that covers you for 10 times your annual income. If you die, your familycan maintain its lifestyle and annual savings for 10 years with no change. This is sufficient time for thefamily to plan its future. Your parents may not be dependent on you financially today but may requireyour help in the future, perhaps with medical care. This makes a term plan for you even more critical. ARs.1 crore cover for 30 years will cost about Rs.20,000 a year. Your wife should also buy an insurance forRs.1 crore. This will be slightly cheaper than your plan because women get preferred insurance rates.

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Life insurance policies cover death due to drunken driving

Published in Mint on 3rd June 2014, Written by Kapil Mehta

As a non-resident Indian (NRI), what are the various ways in which I can remit payment of premium toan insurer?

—Jay Nambiar

The two most prevalent ways of payment are: (a) electronic rupee transfer. This could be from youroverseas, domestic or NRI account; (b) credit card transfer. If you send credit card details to theinsurance company, it will automatically debit the account. You could also give standing instructions forpremium payment to your credit card or bank.

What is accelerated death benefit with regard to life insurance?

—Vijay Mathur

Some life insurance policies allow a portion of the death benefit to be paid before death if the lifeinsured has developed a terminal illness. This is an accelerated death benefit. The money received inadvance helps the terminally ill person pay for daily expenses and hospital costs. This benefit can bepackaged into the main policy or as an add-on rider. People who become eligible for the accelerated

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death benefit generally die within six months to two years of diagnosis. The benefit paid on death isreduced to the extent of accelerated death benefit that has already been paid out.

Is it possible to pay insurance premiums through my credit card? If so, will it have extra charges?

—Lakshmipriya

Payment through credit card is standard procedure. Credit card charges are always paid by the insurer.You will need to fill out a form authorizing the credit card debit and give a photocopy of your credit card.You can also use the net banking facility to make the credit card payment.

I am replacing my term insurance with a new cheaper insurance. Unfortunately, my old insurance haslapsed and the new policy is yet to be issued. Am I currently uninsured?

—Ashish

You are insured by the previous term plan if you are still within the grace period. This is 30 days forannual-pay insurances. If you die during this period, then the sum assured will be paid after deductingthe due premium. However, if the grace period is over, then you are uninsured. Push your new insurerto quickly give a decision. If it takes inordinately long, then renew your previous insurance.It is not agood idea to be uncovered even for short periods.

Is death caused by drunk driving excluded in life insurance?

—Sanjeet

Death due to accidents while intoxicated is not excluded in regular life insurance. The only exclusionallowed in these products is suicide in the first policy year. However, drunken driving is excluded inpersonal accident insurances.

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Death claim can be made on more than one insurance policyPublished in Mint on 8th April 2014, Written by Kapil Mehta

My policy, for which I have paid premium for five years, has lapsed as I did not pay the premium lastyear. Can I revive it?

—Gayatri Ramanath

Reinstatement rules depend upon the insurer and type of insurance, i.e. whether it is unit-link ortraditional. Generally, you will be able to reinstate the insurance after a medical declaration of goodhealth. Some insurers may ask you to do medical tests and charge you interest for a year.

If a life insurance policy was taken for a parent and the parent dies, will the insurer insist on a siblingto sign for the sum assured to be paid, even though a death certificate was sent?

—Ketan Bhagat

In the case of a death claim, the insurer will want to establish that the insured has actually died, therewere no non-disclosures or even false disclosures, and the claim has been paid to the nominee specified

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by the insured. Typically, the nominee submits all this documentation to the insurer and must sign thepapers. If the sibling is not specified as a nominee, then she need not sign.

I was mis-sold an insurance product. I have put in around Rs. 3 lakh in it but I do not want the policynow. Should I exit?

—Sofia Das

You will need to do a small analysis to answer this question. Compare the cost of: one, surrenderingyour insurance immediately; two, not paying any more premiums but withdrawing when surrendercharges are minimal; and three, continuing the policy. This information will be available in your policycontract. Typically, in the first few years of an insurance, it is better to continue. Surrendering makesmore sense towards the end of the policy term.

I have to two life insurance policies. When I die, can a claim be made on both?

—Rajesh Chaturvedi

Yes. While applying for the second insurance policy you should have disclosed the first. If you have not,then do so now. This is not the case in health insurance where you can claim hospitalization costs onlyfrom one insurance.

I have diabetes but all my medical parameters are in control. I had applied for an online term plan andthe insurer has loaded my premium by 50% because of diabetes. Should I buy this?

—Vaibhav D.I recommend that you accept the offer and buy this plan. In diabetes cases that I have seen, premiums

were increased between 50% and 150%. In that sense, a 50% increase in premium is probably the bestoffer you are likely to get.

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Easier to pay regular premiums than a big one-time paymentPublished in Mint on 23th March 2014, Written by Kapil Mehta

Should one opt for a single premium insurance product or a multiple premium product?

—Jayesh Gupta

A policy that requires a single premium payment has two advantages and one disadvantage. The firstbenefit is that you need not worry about renewal dates since no renewal is needed. Second, singlepremium products are relatively cost effective because commissions are restricted to 2%, insurers earnbetter investment returns and incur less servicing expenditure. The disadvantage is that the absoluteamount of money to be paid upfront is large. Consider the example of a 30-year term insurance policyfor a 40-year-old for a sum assured of Rs.1 crore. The annual regular premium will be about Rs.23,000,while the single premium will be Rs.3.3 lakh. Most will prefer to pay Rs.23,000 each year even thoughthat is a total outgo of Rs.6.9 lakh over 30 years. I have a slight preference for regular premiums becausethe annual payments are affordable and one retains the option of stopping payment in the future.

What do switch and re-direction in unit-linked insurance policies (Ulips) mean?

—Gaurav Jain

The premium in Ulips are used to buy units. The securities underlying these units could be equity, debtor some combination of the two. Each time you pay a premium, the number of units increases. Switchmeans that you sell the units already accumulated and replace with others. For example, you may sellyour debt units and buy equity units with the money. On the other hand, re-direction means that you donot sell the accumulated units but use future premiums to buy a different kind of unit. In that sense re-direction is a more gradual shift in investment focus than a switch. Insurers will give you a certainnumber of switches and re-directions free of cost. Several insurers have introduced a lifestage fund

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where investments are re-directed or switched automatically as and when you age. So, older people willhave more debt units and younger policyholders, equity.

I took a unit-linked policy with a private insurer this year and paid Rs.50,000. I cancelled the samewithin one month of the date of taking the policy due to mis-selling. I got a refund of Rs.49,490. Do Iget tax benefit for the Rs.50,000 I had paid, and will I be taxed on the Rs.49,490 that was refunded?How should I deal with this when I file my income-tax return?

—Parth Patel

I would suggest that you do not claim a tax benefit for the premium of Rs.50,000 and treat theRs.49,490 as a refund that is not taxed. However, if you are very particular about accounts, then thededuction of Rs.510 is eligible for a tax benefit under Section 80C of the Income Tax Act.

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Grace period in annual premium policies is 30 daysPublished in Mint on 11th March 2014, Written by Kapil Mehta

The bank has offered me a life insurance cover with the home loan I had applied for. Should I opt forit?

—Naresh Gupta

It is important to buy a life cover equivalent to your outstanding loan. Buying from the bank itself ismost efficient because documentation is done in one place and the premium is financed by the bank.These home loan life covers are typically sold under a group structure which makes them cost-effective.Banks often have insurance attachment rates of over 80% with their loans. There are four importantfeatures that loan-linked covers should have. First, and most important, your family should be thenominee and not the bank. Second, if the loan is foreclosed, then there should be a provision to receivesurrender value. Third, the bank should take the benefit of a group structure and waive off any medicalrequirements. Finally, the life cover should reduce in line with the outstanding to keep premiums low.

I had taken an insurance policy around seven years ago. I want to surrender it. Can I do so withoutlosing money?

—Keshav Madhav

Surrender conditions and charges vary by insurer and product. If you read the policy terms andconditions, it will clearly specify the surrender cost. At a broad level, many of the insurances issued from

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2006 to 2008 have a surrender charge today. Before you surrender, evaluate the non-forfeiture optionsin your insurance. These allow you to keep the policy active without paying any additional premiums.Reduced paid-up is the mandatory non-forfeiture option. In this the sum assured is reduced for theremaining term so that no additional premium need be paid. Some insurers also offer extended terminsurance option in which you are provided a death benefit equivalent to the current sum assured butfor a shorter term.

Will a cover get suspended soon after the due date of the premium payment?

—Gerard D’MelloGenerally, if you pay your premium annually, cover will get suspended 30 days after your due date. Ifyou die within 30 days of the due date then the benefit will be paid after deducting the premium due. Ifyou pay on a monthly basis, then the grace period is 15 days. If you want to renew your insurance afterthe grace period, the insurer will ask for a declaration of good health and may conduct medical tests ifneeded. You may have to pay an interest cost on reinstatement. In short, renew on time if you want toretain your insurance.

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Consumption of large amounts of alcohol might deny you coverPublished in Mint on 25th Feb 2014, Written by Kapil Mehta

I will be going abroad for around seven years. I want to know whether I can pay my premiumsthrough cheques from my account there.

—Jayanti Bose

Insurers generally prefer that you pay in Indian rupees. Paying in foreign currency is possible but comesalong with considerable reporting and documentation requirements. If you have an active bank accountor credit card in India, you could issue standing instructions. If you must pay from overseas, then onlinepayment or electronic transfer will be easiest to do. Overseas cheques are not that prevalent nowadays.

Will the amount of alcohol I consume affect the premium of a term life policy? Can an insurer refuseto give me insurance if I consume alcohol?

—Shyam Nambiar

The insurer’s response will depend upon the sum assured you select, amount of alcohol you drink, yourgeneral health and, more specifically, the condition of your liver. Insurers will look into your drinkingmore if the sum assured is high; you drink large amounts and often, your general health is poor or yourliver function tests are not normal. Then, they may increase your premium or turn down the insurance.Practically speaking, in most cases, moderate social drinking isn’t an issue.

How do I decide how much life insurance cover I need to take?

—Kavya

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There are several approaches to assess the amount of insurance needed. The first approach, which Iendorse for its simplicity, is to purchase enough cover so that if you were to die today, your family willimmediately get an amount equal to 10 years of your annual income. This is a long enough term for thefamily to settle down and create alternate incomes without compromising their quality of life. A secondapproach is to estimate specific expenses that the family would incur over the foreseeable future andpurchase enough insurance to cover that amount. The sum assured estimated in this approach is usuallyless than the first method. Be mindful of the tendency to underestimate expenses and make sure youbuild in inflation. A third approach is to construct a list of your current assets, current and futureliabilities. The difference between your liabilities and assets is the funding gap that needs to be bridgedwith insurance. This is a relatively complex exercise because interest rates and inflation needs to befactored. Follow this approach if you are comfortable with financial modelling and computing the timevalue of money.

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Nominee has to pass money from insurer to deceased’s heirsPublished in Mint on 11th Feb 2014, Written by Kapil Mehta

Do critical illness protection riders offered by life insurance companies serve the same purpose ashealth insurance?

—Avik

Health insurance is a broad term that covers several types of insurance products—mediclaim orindemnity-based, critical illness, hospital cash or accidental injury. Generally health insurance is usedsynonymously with mediclaim and is different from critical illness. Mediclaim pays for actualhospitalization costs. Critical illness pays a fixed amount if you are diagnosed with a pre-specifieddisease. The critical illness benefit is independent of the actual treatment costs and is not a replacementfor mediclaim. From a risk standpoint, mediclaim is meant to compensate for actual medical costsincurred. Critical illness helps compensate for the subsidiary and often hidden costs of a major disease.For example, you may have a loss of income or family members may need to travel with you or you mayneed nursing support at home. Buying mediclaim is the first priority, while critical illness is a goodcomplement. Until a few years ago, the only way to buy critical illness benefits was as a rider to a lifeinsurance policy. Today, several stand-alone critical illness plans are also available. A good critical illnessrider or stand-alone plan should cover over 10 critical illnesses and exclude pre-existing diseases for notmore than four years.

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I am being appointed as the nominee for my uncle’s life insurance policy in preference to his children,who are the legal heirs to all his assets. What is supposed to be my role?

—Karuna D.

If your uncle passes away, your role will be to receive the money from the insurer and then give it to thechildren, who are the legal heirs. The role of a nominee was clarified by the Supreme Court in 1983 inthe Sarabati Devi versus Usha Devi case, where the court ruled that the laws of succession supersede anomination made under the Insurance Act, 1938. This ruling has been upheld in several instances after1983.

I stopped smoking two years ago. Should I apply as a non-smoker for life insurance?

—S. Goel

In the proposal form, declare that you stopped smoking two years ago and apply as a non-smoker. Theinsurer will then let you know what rates will apply. The insurer’s response will depend upon their viewof the smoking risk, number of years you have been smoking as well as the sum assured applied for.Many insurers require five years of non-smoking to give non-smoker rates. A few insurers will do acotinine test to determine the nicotine level in your body and then decide.

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If you want a high sum assured, you might not get insurancePublished in Mint on 28thJan 2014, Written by Kapil Mehta

What is the ideal duration for a life insurance policy?

—Shikha

I would recommend a term insurance until a person turns 65. That’s because most people retire bythen. By 65, most would have created their financial assets and met family obligations. For investment-oriented life insurance, a tenor of at least 15 years is required. This allows you to benefit from the long-term appreciation in underlying assets and the forced savings each year.

On what basis does a life insurer refuse to provide a policy?

—Ketan Shah

There are four reasons why an insurer may refuse life insurance. These are ill health, over-insurance,lack of insurable interest and creation of a moral hazard. If you are not in good health, insurers willclassify you as a sub-standard risk that’s too high to take. If the sum assured you want is too high, morethan 25 times your annual income, the insurer may refuse life insurance. Such high sum assuredrequests can indicate that the insured is aware of a potential health issue or, worse, contemplatingsuicide. The insurer will not provide life cover if you want to insure someone on whom you are notfinancially dependant, say, a good friend. Finally, insurers are extremely careful with insurance for

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children and housewives. This may sound pre-historic but dependant children or housewives arevulnerable if too much insurance is placed on them.

When my endowment plan matures, will the maturity benefit be automatically paid to me?

—Anna D’Cruz

Don’t count on it. I suspect that there are large sums of money in suspense accounts because nobodyhas stepped forward to claim maturity or death proceeds. You should reach out to the insurer whenyour policy matures. Make sure that your bank details are recorded when you buy it.

I plan to buy both life and health insurance for myself. Do I need two separate medical tests or can thesame tests be used by both insurers?

—R. KapurThe life insurer will insist that you do the medical tests at centres approved by it. This is because thefinancial implication of incorrectly placing life insurance can be severe. Health insurers are more likely toaccept these test results but you need to specifically take their approval first. The best solution may beto find a lab that is on the panel of both the insurers.

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Don’t hide any fact from insurer while filling proposal formPublished in Mint on 14th January 2014, Written by Kapil Mehta

How long does it usually take for the insurer to pay claims that happen due to critical illness?

—P. Chandra

The insurance regulator requires insurers to settle claims within 30 days of receiving the requireddocuments and clarifications. Payment time for critical illness is similar to that for death claims. In FY12,which is the most recent data available, 83% of claims were settled within 30 days and an additional10% within 30-90 days. In critical illness, the main reason for claim delays (and repudiation) is that theinformation provided by the claimant is insufficient or inconsistent with the insurer’s definition of thedisease. For example, a claim on blindness is generally payable only if the condition is not treatablesurgically. Or a payment for coma requires that the patient be on ventilator for a certain minimumperiod. The claimant must make clear that these conditions have been met. The life insurance proposalform has a question whether I have had any medical tests in the past 5 years. The company salespersonis asking me to mark this as “no” since all my tests have been routine in nature. Should I do that? —Suhas Abel I strongly recommend that you mark the question as “yes” if you have had any medical testsat all. This shifts the onus of determining your health condition back to the insurer and leaves no basisfor denying a claim. The salesperson has a vested interest in marking the question “no” because policyissuance will be faster and possibility of a decline less. Don’t succumb to that pressure. I am 35 yearsold, my wife is 31 years old and have a two-year-old daughter. I earn around Rs.2 lakh a month.

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I have a term cover of Rs.1 crore and traditional policies with combined sum insured of Rs.45 lakh. AmI adequately covered or should I buy more cover? Please suggest.

—VivekYou are inadequately covered because your total sum assured should be 10 times your annual income,i.e., Rs.2.4 crore. Since you already have Rs.1.45 crore of sum assured, you should bridge the gap ofabout a crore with a term insurance. Term is the most cost-effective way to buy death cover. A Rs.1crore cover will cost you about Rs.17,000 per annum for insurance that covers you until 65 years of age.This is probably the most meaningful New Year gift you can give your family.

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Critical illness cover is cheaper if bought with term planPublished in Mint on 31st March 2015, Written by Abhishek Bondia

I am 30 years old and plan to buy a term plan. What type of plan should I go for? Are there any ridersthat I can take?

—Eric Limaye

You should go for a term insurance that covers you at least till 65 years of age. This will ensure coveragefor income generating years. By then, most obligations such as mortgage and children’s education willbe covered. You can go with either a flat sum assured or increasing sum assured. Several riders areavailable with term insurance. Rider benefits include critical illness, accidental death, permanentdisability and waiver of premium. I highly recommend the critical illness rider. Others are good to have,however better substitutes are also available.

Buying a critical illness cover along with term insurance has multiple advantages. First, you will not needto undergo an additional medical examination. Critical illness can be issued within the medicalunderwriting for term insurance. Second, the premium for the rider gets fixed for the term of the plan.In stand-alone critical illness plans issued by general insurers, premium increases with age.

My wife has an irregular stream of income. She wants to buy a life insurance policy. How should wedecide the amount of sum insured for the policy?

—Dharmesh Asthana

For a person with irregular income, you should consider the average earnings over the previous 3 years.You could take a sum assured that is at least 10 times the average income.

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In case of investment plans, you should take a cover of at least 10 times the annual investmentcontribution. This will make you eligible for deduction under section 80C at the time of investment, andexemption under section 10(10)D at the time of withdrawal.

Why is suicide covered from second year in a term plan? Can I exclude it for future years too and get adiscount?

—Naveen Lakda

Life insurance products are structured around guidelines issued by the regulator. The regulator hasensured that there are minimal reasons that could be cited to reject a life insurance claim. To this end, ithas standardized the exclusions list for life insurance cover. Insurers cannot have any exclusions fromthe second year onwards. Therefore, suicide is excluded only in the first year. The rationale is thatsuicide in the first year may be something a policyholder plans for to get the family a large deathbenefit. However, it is very unlikely that a suicidal person will be far sighted enough to plan death twoyears or more in advance.

Insurers can remove the exclusion of suicide in the first year if they want. However, they cannot insertconditions that are more onerous for the policyholder. This means that the exclusion cannot beextended for a discount.

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Growth option in Ulips suitable for younger policyholdersPublished in Mint on 17th March 2015, Written by Abhishek Bondia

What is the ideal duration of a term insurance policy?

—Harish Sathe

A term life insurance policy should be taken to cover the prime income generating years of an individual.Death in these years causes the dependants of the individual major loss in terms of source of income.Worse still, they may inherit liabilities such as loans. Typically, by the age of 65, a person has fulfilled hermajor obligations such as children’s education, mortgages and so on. It is also a common retirementage. It is recommended that you cover yourself up till the age of 65. The duration of the policy should be60 less your current age.

What are the risks associated with investing in the growth option of a unit-linked insurance plan(Ulip)?

—Kishore

Ulips offer several funds to invest into. These funds differ in terms of their investment in equity, debtand liquid asset classes. Of the three, equity generates the maximum return in the long term but alsocarries the most risk. Growth option in a Ulip typically refers to investing a larger portion in equity. Therisks associated with the growth option are similar to investing in equity mutual funds or directly intothe stock market. The principal is not protected. In a bad market year, the value of the fund can golower than the total premium paid. As a rule of thumb, younger people should select the growth option.People approaching retirement should opt for the more conservative debt funds where the volatility islower even though expected returns are lower.

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Can I change the insurer in the middle for my term policy?

—Bindu Narayanan

Yes, you can. However, the same policy is not carried forward. Your previous policy will lapse on its own.And, you will need to enter into a new contract with the new insurer. The suicide exclusion will re-applyfor the first year. In some cases, after your financial underwriting, the new insurer may insist that yousurrender the previous policy. I would recommend to definitely evaluate the cost of buying a new terminsurance at the time of renewal of the previous policy.

Could you tell me what is the free-look period of life covers?

—Damini N.

Insurers offer a free-look period of 15 days to every new policy holder. It is a no-questions asked returnperiod. The insured can return the policy within 15 days of receiving the hard copy. The insurer isobliged to return the premium amount less administrative and risk related expenses. This is acompulsory feature of all life insurance policies mandated by Insurance Regulatory and DevelopmentAuthority of India. The rationale behind such a feature is to curb mis-selling. Policyholders get anopportunity to review the contracts and see if it’s in line with what they expected. The free-look periodstarts from the day the policyholder receives the contract.

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A life cover above Rs.15 lakh usually requires a medical testPublished in Mint on 24th Feb 2015, Written by Abhishek Bondia

My insurance policy says that charges will be deducted from the fund. How does this work?

—Pulkit Chandra

Your unit-linked fund value is estimated as number of units multiplied by the unit value. Unit values areupdated each day by insurers. The way in which insurers deduct charges from fund is by cancelling acertain number of units to recover charges. This will be evident in the annual fund statement whereinthe unit cancellation is transparently shown. The units can be cancelled on a daily or monthly basisdepending upon the type of charge being recovered.

Are there policies that offer the flexibility of making lump sum investments as and when I havemoney?

—Nimit Agarwal

Yes, unit-linked insurance plans (Ulips) offered by several insurers offer flexibility of ad hoccontributions. Over and above the scheduled premium, you can make additional investment as lumpsum contributions. These contributions are typically called “top-ups”. The premium allocation chargeson top-ups are significantly lower. So, this is a cost-effective way to enhance investment. If investmentsurplus is erratic, you may start with a single-premium plan and future surpluses can be invested as top-ups.

Note that when you calculate adequacy of sum assured for tax deduction under section 80C or section10 (10) D, top-ups will be considered as annual contributions.

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What is a medical examination while buying insurance?

—Amayra

Medical examination is a part of medical underwriting by insurers. In this, insurers evaluate themortality risk associated with your specific proposal. Using a medical exam, they identify if you have anypre-existing illness that could shorten your life. It also helps to verify the medical declaration you madein the proposal form such as smoking status. Insurers may reject a proposal altogether if they diagnose amajor chronic disease such as high level of diabetes. In some cases, they may come back with a loadingon the initial premium to accept the risk.

Every insurer has a medical examination grid. It lays down the tests required for a particular age groupand sum assured. Above a particular sum assured (typically Rs.15 lakh), medical tests becomemandatory. As age increases, the number of tests increases. For instance, people over 30 years aregenerally asked to undergo a treadmill test.

What is vesting age?

—Mihir V.

Vesting age concept is associated with deferred benefit plans such as pension plans. In such plans,premium contributions are made in the early years of the policy. The insured is eligible for benefitpayout only after a particular age, which is called the vesting age.

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Life insurers are required to settle claims within 30 daysPublished in Mint on 10th Feb March 2015, Written by Abhishek Bondia

What are the tax benefits of buying a life insurance policy?

—Mahesh N.

Life insurance policies are tax exempt, with certain conditions, at the time of contribution, investmentreturns and maturity. At the first stage, the contribution made to the life insurance policy is allowed as adeduction from gross total income of an individual. In the second stage, any returns generated on theinvestment are exempt from tax. Finally, the proceeds on maturity are also exempt from tax at the timeof withdrawal.

The above tax benefits are available subject to the death benefit in the policy being a minimum of 10times of the annual contribution. Also, the maximum contribution eligible for deduction is Rs.1.5 lakhannually. There is no upper limit on exemption at the time of withdrawal.

Pension plans offered by life insurers have a different tax treatment because the annuity is treated as anincome and subject to income tax. Similarly, keyman insurance is treated differently. A company paysthe premiums in such policies and also gets the benefit. The premiums are treated as an expense by theinsurer and reduce the tax liability. On death of a key person, the benefit paid is taxable at corporate taxrates.

How much time does an insurer take to settle a claim?

—Zeba

As Insurance Regulatory and Development Authority of India (Irdai) has stipulated, insurers are expectedto settle a claim within 30 days of submission of complete documents if investigation is not required. If

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required, then they are expected to settle the claim within 6 months. In practice, insurers do ask foradditional documentation after the initial submission of claim documents. The process of additionaldocumentation submission and claim settlement takes 45-60 days. Rules mandate that insurers shouldraise additional documentation query within 15 days of lodging the claim.

How are unit-linked insurance plans (Ulips) structured? Which investors are these suitable for?—Ketki Thakkar

Ulips are a combination of savings and protection plans. A standard Ulip will divide the contribution intothree parts—mortality charges, premium allocation/fund management charges and investment corpus.The returns are generated only on the investment. At maturity, the investment along with returns isgiven to the investor.

Ulips are efficient if held for long periods of over seven years. Investors must make a conscious decisionof the type of Ulip fund to select—equity, debt or a combination. Ulips tend to be an expensive way tobuy death cover. So, you should first make sure you have sufficient death cover through a term plan andthen buy unit-linked plans with an investment and savings objective.

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Life cover should be 10 times a person’s annual incomePublished in Mint on 27th Jan 2015, Written by Abhishek Bondia

I cannot afford the life cover I require. Can I do anything to lower the cost?

—Rakesh Gulati

It is advisable to take a life cover that’s 10 times a person’s annual income. For a 30-year-old, thepremium works out to be less than 0.1% of the coverage taken. So, if you even take the fullrecommended cover, it amounts to 1% of your annual income. If you are finding that unaffordable, youmay be looking at an exceptionally high cover. You could reduce the sum assured or term of insurance.Premium is lower for shorter terms. The shortest term for which insurance is available is 5 years.

I have taken a loan of Rs.1 crore from a bank. It suggested that I purchase a loan insurance. Pleaseexplain what it is.

—Mayank

Loan insurance can cover four risks—death, disability, critical illness or job loss. In case of death,disability or critical illness, the insurer will repay the loan. For job loss, the insurer pays a few months ofinstalments on your behalf. Death cover is the first priority. Most banks will offer you a credit shield lifecover along with a loan. These are reasonably priced and are often financed by the bank itself. Banks willoffer you products covering the other risks as well.

How do I assign a policy or transfer a life insurance policy?

—Simmi Bodra

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To assign a life insurance policy, you need to fill the assignment form of the respective insurer anddeposit your original policy bond. On receipt of these documents, the policy is assigned. On assignment,the assigner forgoes all her rights, title and interest in the policy to the assignee.

Is there a cap on the amount of life insurance a person can get?

—Ved

The cap on amount of life insurance is not a stipulated guideline but is based on underwriting practices.Typically, insurers are comfortable insuring up to 10 times a person’s annual income. In special cases,such as keyman insurance, one may take higher cover based on company profits.

My life insurer cancelled my policy mid-term saying that my fund value has lapsed. Can they legallydo it?

—Venky P.

Insurers can cancel a plan if the fund value is insufficient to pay for charges. In some of the earlier plans,insurers also set a relatively high threshold below which the policy lapsed. But the insurer must give youadequate notice before cancelling the insurance.

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Life insurance can be cancelled within 15 days of receiptPublished in Mint on 13th Jan 2015, Written by Abhishek Bondia

I wanted to buy term insurance of Rs.2 crore and paid a premium of Rs.16,606. But after the medicalcheck-up, the insurer increased the premium by Rs.8,938. To my surprise, they cited the reason astobacco consumption, which I have never done in my life. I’ve asked for a copy of the detailed medicalreport and am waiting for the same. What are my options in this case?

—Devesh

You have done the right thing to ask for the medical report based on which the loading has beenadvised. In this particular situation, you can refuse to accept the counter-proposal of the insurer. Youwill get a refund of the initial premium paid. Even if you decide to pay the premium, you will still have 15days after receipt of the physical copy of the policy bond to cancel the policy. At that time you will stillget a refund of the premium but after deduction of charges for medical tests, and administrativeexpenses.

Insurers do a cotinine blood test to determine if nicotine is present in blood. Apart from human error,your diet and work environment can lead to a positive test result on nicotine. Foods such as cabbage,garlic, almonds, and some others lead to high levels of thiocyanate. This could result in a false positivefor nicotine. Also, people working in heavy metal industries tend to have high thiocyanate levels.

What is the difference between switching and future premium allocation?

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—Shantanu Singh

Most unit-linked insurance plans (Ulips) offer multiple funds in which premiums can be invested. Thesefunds vary in composition of asset classes, i.e., equity and debt.

Switching refers to transferring funds from one fund to another. Generally, a few free switches are builtinto every Ulip. Future premium allocation refers to determining share of funds in prospective premium.Future allocations are typically free.

What tax benefits is one eligible for if making a lump sum investment versus a top-up?

—A. Bodra

The tax benefits in life insurance are similar for lump sum, top-up or regular premium payments. Twoconditions need to be fulfilled to avail these. First, death benefit should be at least 10 times that of theannual premium. Second, the plan should be kept in force for more than two years for traditionalendowment plans and five years for unit-linked plans. If these conditions are met, the insured is eligiblefor two tax benefits—under section 80C (deductions up to Rs.1.5 lakh for annual contributions), andunder section 10(10)D (receipt of the proceeds on maturity is exempt from income tax). Do note that forthe 80C benefit, the death benefit criteria should be fulfilled in the year of contribution. But to availbenefit of 10(10)D, the death benefit during the entire term of the policy should be 10 times ofmaximum premium paid.

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Health cover should be at least 50% of your annual incomePublished in Mint on 6th Jan 2015, Written by Abhishek Bondia

How much insurance is needed to cover my entire family?

—Danish

The right amount of coverage depends on the kind of hospitals you prefer, age and health conditions ofyour family members. Healthcare costs vary significantly by hospital and the facilities opted in aparticular hospital. For example, the cost of a knee replacement surgery almost doubles if you use animported implant instead of an indigenous one.

So quantum of health cover is closely linked to your income and lifestyle.

Do keep in mind that medical inflation is high at over 10%. The cover you buy today should be sufficientfor the future as well. There are two rules of thumb. First, take health cover of at least 50% of yourannual income. Second, the insurance cover should at least cover the cost of a coronary artery bypassgraft in a hospital of your choice.I recommend a minimum health cover of Rs.5 lakh. You can use the same sum assured as a floater toinclude your family members.

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What can I do if my insurance claim is rejected?

—Lalitha Nambiar

An individual insurance policyholder has multiple forums for appeal in case of claim rejection. Typically,my first port of call is to escalate within the company itself, i.e. head of claims or underwriting or sales,depending on the reason for rejection. If this does not work, I will write to the grievance cell within thecompany. The response of the insurer’s grievance department becomes the basis of complaint with thegrievance redressal cell of the consumer affairs department within the Insurance Regulatory andDevelopment Authority of India. You can also move straight to the insurance ombudsman andthereafter to the consumer court.

In our experience, most claims that are rejected incorrectly get sorted when escalated within theinsurer. Such claims had been initially rejected because of an aggressive interpretation of the rules orinappropriate application of judgement.

I have been staying in the UK for the past 10 years. I have a mediclaim policy in India for the past sixyears. I have been regularly renewing the policy. I want to know that since I don’t stay in India, can Iget mediclaim coverage?

—Rajesh Singh

Yes, you can buy a medical insurance from India even if you are a non-resident Indian (NRI). However,the claims are admissible only when the treatment is done in India and the claim is settled in localcurrency. The benefits and process remain the same irrespective of your residency status.

Not all insurers issue a policy to NRIs but many do. Insurers develop their own internal underwritingguidelines about covering foreign citizens and NRIs. In this regard, I would recommend you to share thisinformation with your insurer so that at the time of claim, non-disclosure is not made the basis for claimrejection.

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Policy can be revived by restarting premium paymentPublished in Mint on 30th Dec 2015, Written by Abhishek Bondia

I missed paying premium for a few months. Can I start paying again? Would there be any charges?

—Jayashankar

If you do not pay renewal premium within the grace period after the due date, the policy lapses. You canrevive your policy by restarting your premium payment. Insurers charge interest on the unpaid premiumfor the overdue period. At the time of revival, insurers generally ask for a declaration of good health.They may also ask for additional medical check-ups. You may need to bear the cost of these medicaltests.

I want to invest some money annually in a unit-linked insurance plan (Ulip). What are the parametersthat I should look at when selecting a Ulip?

—Madhurya KamathYou should consider the following parameters: a) Past returns: Every Ulip has multiple underlying funds,for example, equity, debt and so on. You should look at returns of these individual funds. This will alsohelp you allocate your premium among various funds. b) Mortality charges: Ulip is a combination of lifeinsurance and an investment product. High mortality charges will depress investment returns. c)Flexibility: Plans have in-built charges for switching between funds. If you want to actively manage your

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investments, then switching costs should be a consideration factor. Sum assured should be at least 10times the premium so that you get full tax benefits on maturity.

Can my employer pay premium on my behalf?

—Jayesh Seth

Companies can pay life insurance premium on behalf of their employees. There are three different typesof policies, which employers typically subscribe to.

One is group term life. This is a group policy for all employees. Premium is paid collectively for the entiregroup. In case of death, the benefit amount goes to the employee’s nominee. Whenever an employeeresigns, the policy lapses; portability is not allowed to an individual product.

Then there is Keyman insurance. This is an individual plan meant for key personnel of the firm. Thesepersonnel are so critical that their absence will have an adverse affect on the firm’s profitability.Premium is paid individually for each person. Death proceeds go to the employer. If the employer wants,the plan can be converted into a normal term life plan. However, the sum assured will be underwrittenagain based on the personal earning capacity of the employee.

There is also employer-employee insurance. This is a mixed scheme based on the above two products.The objective is to provide benefit to select employees. The product is based on an individual term life.Death proceeds accrue to employee’s nominee. Its key advantage is that after the employee completesa fixed tenor, she can continue the plan in her own name. The employee gets the benefit of the rate thatwas fixed at a younger age.

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Annuity from pension plans is treated as income and taxed

Published in Mint on 16th 2014, Written by Abhishek Bondia

I will turn 27 next year; my mother has told me that I should get myself a life insurance plan. What arethe benefits of buying a policy early in life?

—Karthik

There are several advantages to buying life insurance early. First, the rates are low because yourlongevity is higher. Second, you are far more likely to be healthy when young and insurers will readilyissue you insurance. Premiums increase and insurance issuability goes down as you grow older. Yourprimary life insurance should be a term cover. In this plan, name your dependants as nominees.

The second cover that you could consider is an equity-oriented unit-linked insurance plan. However, beclear, that the purpose of this will be systematic savings and investment returns over a 10-year or higherperiod.

Can I change my nominee?

—Malini Shinde

Changing the nominee is a simple process. Fill up a request form available in your policy docket or theinsurer’s website and submit to the insurer. I have seen some situations where the insurer asks reasonsfor change and the relationship of the nominee to the person insured. Once these queries areaddressed, the nomination change gets done.

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Are there insurance plans to help with retirement planning?

—Javed Mirza

A pension plan can help you plan for retirement. It has two parts: fund accumulation and annuity.During the fund accumulation stage, your premium may be invested in equity or debt. Generally,younger people would be better off accumulating a fund over 10-15 years in equities. The annuity partof a pension allows you to take the accumulated corpus and convert into a monthly or annual income.There are several kinds of annuities available, ranging from annuity for life to annuity for life followed byreturn of premium on death to a fixed annuity for a certain number of years. I find the annuity for lifewith return of premium best in terms of underlying rates and usability. There are two important aspectsone should be mindful of. First, if you do not buy an annuity on maturity then two-thirds of the maturityamount is taxed. Second, annuity is treated as income and taxed.

We are a start-up funded by an angel investor. The investor has asked us to buy a keyman policy. Howdoes this work?

—Sandeep Das

Keyman is a term insurance cover bought by the company on a key person’s life. Premiums are paid bythe company and treated as an expense. If the key person dies, then the sum assured is paid to thecompany. The sum assured is taxed. It is particularly relevant in start-ups where the investor funds abusiness based on the capabilities and drive of the founding entrepreneurs. The sum assured is meant tocover costs of finding a replacement key person and also the losses that the business may suffer.

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Look for insurers with high claim settlement ratio

Published in Mint on 2nd Dec 2014, Written by Abhishek Bondia

When choosing a life insurance cover, how important is the reputation of the insurer?

—Hari

Reputation of an insurer is a critical parameter to check before you buy any policy. Though the policyfeatures of a term insurance are same across companies, insurers need to have a strong back-endsystem. An objective way to assess will be look at their claim settlement ratios and number ofgrievances reported relative to premium. You can see these in the Insurance Regulatory andDevelopment Authority’s (Irda) annual report. I prefer insurers with over 85% claim settlement ratio andless than five grievances for every crore of premium.

I was told that insurers give benefit plans, not normal mediclaim. What is the difference?

—Kiran Raman

Life insurers can offer both. However, most of their current offerings are fixed benefit. Traditionalmediclaim policies are indemnity based plans, i.e., they reimburse covered medical expenses based onactual expenditure incurred up to a maximum limit. Under fixed benefit plans, you are entitled to a pre-agreed amount irrespective of your actual expenditure. The advantage of a fixed benefit plan is that itpays over and above a traditional indemnity insurance plan. It supplements traditional mediclaim bycovering out-of-pocket expenses. Your first priority should be to buy a normal mediclaim and a fixedbenefit plan could be an add-on.

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What is your opinion of insurance as an investment or as tax-saving instruments?

—Ritvik

Insurance as an investment works out well over a 10-15-year time horizon. Subject to fulfilling certainconditions, tax breaks available to insurance pushes their effective yield higher. At the time ofinvestment, the customer gets relief under section 80C. At the time of maturity, proceeds get exemptedfrom tax under section 10 (10)d. Over the past few years, the insurance regulator has tightened thenorms on charges in unit-linked insurance products (Ulips). Between traditional endowment plans andUlips, the latter delivers better returns due to lower charges. For investments via insurance, you couldgo for a Ulip with a 10-15-year horizon.

Can I take life insurance in the name of my grand-daughter, who is a US citizen?

—R.K. Gupta

If an individual has a normal Indian citizenship, her children and grand-children are considered People ofIndian Origin barring few exceptions. So, a policy could be taken in your grand-daughter’s name. Someinsurers issue dollar denominated policies, if the premiums are collected in foreign currency fromabroad or out of non-resident external (NRE) or foreign currency non-resident (FCNR) account of theinsured or insured’s family members held in India. If not, then proceeds will be in rupee terms only.

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Life cover does not have the flexibility to add dependantsPublished in Mint on 18th Nov 2015, Written by Abhishek Bondia

I want to extend my life insurance cover to include my wife. Would it just be better to get anotherplan instead?

—Nandan Kishore

Yes, buy a separate insurance policy for your wife. Typically, a life insurance plan does not have theflexibility to add dependants. Only a few insurance companies offer joint life term plans that cover bothhusband and wife. But in these, one needs to enrol both lives together at inception. Even in such joint-life plans, mid-term addition of dependants is not possible.

What is assignment and is it allowed in all insurance plans?

—Jayant

Assignment is the transfer of rights and title of your policy to a third party. Post-assignment, all survivaland death benefits accrue to the assignee. And, any nomination on the policy is overridden. Assignmentis typically done to execute a policy lien in favour of a financial institution. Assignment can be doneacross all types of life insurance plans—term, endowment and unit-linked.

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What are the important details required to be submitted if I wish to change or add another nominee?

—Naznin Rustagi

Adding or changing a nominee is a straight forward process. You need to submit the name, address andrelationship with the nominee. If you wish to add or change a nominee after the policy is issued, thesame needs to be endorsed in the policy. You need to file a nomination form at your insurer’s branchalong with the above details.

Do note three things about nomination: a) A nominee will not automatically retain proceeds of thepolicy; her role is that of a custodian for the legal heirs, b) A nominee should have blood relation withthe policyholder, c) You can divide the share between two or more nominees. For example, 80% to oneand 20% to another.

I have lost/misplaced my policy docket? What should I do?

—Faisal

To get a duplicate policy bond, you will have to apply to the insurer. The process of getting a duplicatebond varies across insurers and can be tedious. The insurer will require you to advertise in a leadingEnglish daily about the loss of your policy bond and await objections, if any. If there are no objections,the insurer will issue a duplicate policy subject to receipt of an indemnity bond, duplicate copy charges,and stamp fees. The requirement of advertisement is generally waived if the policy was stolen, burnt, orpartially damaged.

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Surrender value depends on the type of insurance bought

Published in Mint on 4th Nov 2014, Written by Abhishek Bondia

How does one go about renewing a life insurance policy online?

—Rehmat Amir

Each insurer has its own process for renewal. Not all insurers provide an online renewal option. A fewinsurers have a simple process. They ask for the policy number and date of birth of the policyholder.Once verified, you can make premium payments against such policy number.

I have not paid premium for some time. I want to discontinue my insurance policy. Do I get anythingback from the insurance company?

—Sulagna

The process of discontinuing the policy before end of policy term is called surrender. The surrendervalue depends on the number of years of paid-up premium, underlying cover and investment scheme.For instance, a normal term plan has zero surrender value. Traditional plans will generally levy a chargefor premature closure. You should enquire about the current surrender value in your policy from yourinsurer’s customer service department.

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My company wants to buy an individual life insurance policy for me? In case of death, will my familyget the benefits?

—B. Srinivasan

If a policy is issued under the employer-employee scheme, then the beneficiary is the employee forsurvival benefits and her family for death benefits. If the policy is issued under the keyman scheme, thenthe beneficiary is the employer.

Employers are increasingly choosing to provide life insurance cover for employees through theemployer-employee scheme rather than the traditional group term life. This has two advantages: a) Theindividual policy can be assigned to the employee when she leaves, and b) the premium is fixed for theterm of the policy.

Keyman insurance is taken particularly for employees whose sudden demise will significantly affect theoverall profitability of the firm.

What is the difference between nomination and assignment?

—Chander Ahuja

Under nomination, the beneficiary gets the proceeds of the policy if the insured dies. In case ofassignment, any proceeds, both survival and death benefits, are passed on to the assignee. Survivalbenefits include maturity payments and interim payments such as cash back under endowment policy.Assignment supersedes any past nomination.

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Insurer can’t increase premium due to past claims

Published in Mint on 28th Oct 2014, Written by Abhishek Bondia

My mother is 64 years old and has a mediclaim policy which is seven years in running. There has onlybeen one claim made this year. I plan to increase the cover amount next year and port to anotherinsurer as the present insurer has hiked the premium steeply. How should I go about it?

—Gaurav Sharma

People over 60 years find it difficult to get good health insurance with high sum assured. Insurers areparticularly wary if there has been a recent hospitalization. Most insurers will not accept portabilityrequests because all claims would be payable from the first day. It is likely that you will have to continuewith your current insurer. However, the good news is that health insurance regulations prohibit thecurrent insurer from arbitrarily increasing your premium due to claims made in the past. Insurers canonly stop the no-claim discount (if any), and charge age-based premium. In case the current insurer isnot willing to enhance the sum assured, you should consider buying a top-up cover. Unlike regular plans,a top-up plan has a deductible of Rs.3-5 lakh. Any claim above the deductible will be paid by the top-upplan. The deductible amount can be claimed from your current plan.

I understand that a marriage function can be insured. However, will that also cover any kind of loss,say, theft, while in transit from one city to another?

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—Laila Kaur

Typically, wedding insurance is based on the principles of event insurance. It covers risks or accidents onthe day of the event. So, a theft from the wedding venue is covered but not one during inter-city transit.You can cover transit risk by purchasing a separate marine insurance policy. Buy an all-risk marine policy,technically called Inland Transit Clauses-A marine policy. Clearly specify the mode of transit, basis ofvaluation and origin or destination. It will cost around 0.5-1% of the sum assured.

What are the most critical things that one should look at when buying a medical policy?

—Bhanuj

You should consider three things—the benefits; the claims record of the insurer; and the premium. Thefive most important benefits that you should compare are: a) restrictions on room rent, b) disease wiserestrictions c) waiting periods for individual ailments and pre-existing conditions, d) co-payment linkedto age/disease/general, and e) no-claim discount/bonus.

After doing an initial shortlist of plans based on benefits, you should look at claims track record of theinsurer and thereafter premium to finalize a health plan. These parameters have been factored into theMint Mediclaim Ratings (http://www.livemint.com/mintmediratings ), which you could use to choose apolicy.

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NRIs can take life insurance from Indian insurance firmsPublished in Mint on 21st Oct 2014, Written by Abhishek Bondia

A life term policy was taken in 2002 and premium was consistently paid till 2013. In 2014, premium,due in February, was missed. In September, the policy was revived by making the premium paymentfor 2014 without any penalty or questions asked with the same benefits and without change of terms.In August 2014, however, before revival, the insured was detected with a fatal disease. Now, if theinsured dies, will the nominee be entitled to the insurance amount, or can the insurance companyrefuse to honour the claim, citing lack of complete information? Will the fact that the policy continuedfor 12 years but missed renewal just once affect the payment to be made to the nominee?

—Suyash

History of a policy is certainly appreciated at the time of claim decision on lapsed and revived policies.For instance, some insurers allow full payment of sum assured on a lapsed policy for 12 months, if thepolicy was continuously in force for the previous five years. You have a favourable history. However,since you knew about the disease before revival, your case can be classified as purposeful concealment.

Most insurers ask a good health declaration in their revival form. If you filled this form without disclosingthe disease, the insurer would repudiate your claim. If there was no provision at all for you to discloseany additional information, then the insurer cannot repudiate your claim.

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I am 60 years old and my life cover totals to around Rs.15 lakh. One of my insurance policies ismaturing by the end of the year. Should I go for another policy then? What all should I look into whentaking this decision?

—P. Surana

Unless, you have dependants (other than spouse) or sizeable liabilities, I recommended that you focuson building a retirement income. You could do this by purchasing an immediate or deferred annuitypension plan, investing in secure mutual funds, the National Pension System or fixed deposits.

Can a non-resident Indian (NRI) buy a life insurance policy from an Indian insurance company?

—Shailesh Vasisth

Yes, an NRI can take life insurance from an Indian insurance company. She can have the insurance issuedwhen visiting India. Some insurers have a provision to issue insurance online without requiring physicalpresence in India.

Such insurers typically lay down guidelines to select medical practitioners for local health check-ups.The underwriting norms for an NRI are generally the same as for a normal resident Indian.

A few insurers do not offer certain riders or products to NRIs but there is no blanket rule.

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Life insurance cover bought in India is applicable worldwidePublished in Mint on 7th Oct 2014, Written by Abhishek Bondia

I am a 32-year-old married male, and have a daughter. I earn Rs.15 lakh a year. I plan on buying a termcover. I am a regular smoker and drink occasionally. How much death cover do you think I should buy?Also, will I be charged a higher premium since I smoke and drink?

—Jayesh Patil

The thumb rule on term insurance is to buy cover worth 10 times of annual income. The objective is toensure enough funds for the family to stabilize before they find an alternate source of income; 10 yearsis considered reasonable.

Rates for smokers are significantly higher than non-smoker rates. The underwriting is stricter andrequires additional tests. As you grow older, the gap between a smoker and non-smoker rate increasesfurther. I will recommend you to buy a cover soon.

Drinking within reasonable limits does not result in higher premiums.

I will be shifting abroad next year. I have some life covers. Can I shift these to a foreign insurancecompany?

—Ganesh Mathur

Life insurance coverage is a worldwide coverage. In case of death, the Indian insurer will settle the claimirrespective of your location. So, you don’t need to shift to a foreign insurance company.

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Inter-country transfer of life insurance is not possible.

I recently got married and have changed my surname to my husband’s name. Do I need to inform mylife insurance company about the change?

—Barnali Deb

Yes, you need to inform the insurance company about any significant change in your personal details,such as name, occupation, and so on. At the time of claim, doing so makes the settlement processeasier.

If you don’t initiate this change, simple things such as the name on the bank account not matching theone on the policy will cause delays.

I am covered under my employer’s Group Term Life (GTL). Should I still take an individual lifeinsurance?

—Malini

The coverage in an employer-provided life insurance is similar to an individual life insurance policy.

The downside is that when you leave the company, the cover lapses. Since individual life cover becomesmore expensive with age, my recommendation is that you buy an individual cover early on.

The other factor to consider is the sum assured. Most companies offer a term cover as a multiple ofsalary, typically between one to five times. Whereas an ideal sum assured is 10 times of annual income.

At the very minimum, you should buy the deficit sum assured on an individual basis. In case of death,both policies will pay the full sum assured to the nominee.

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Claim settlement ratio of insurer should be above 85%Published in Mint on 23rd Sept 2015, Written by Abhishek Bondia

I’m a 25-year-old male and am planning on buy a term insurance plan for Rs.1crore. The claimsettlement ratio of the insurer is 66%. Should I choose it? My doubt is why would any insurer rejectthe claim if we had given them the correct details at time of entering into the contract? Why are theresuch variations in the claim settlement ratio?

—Karthik

The claim settlement ratio of the insurer you are considering is low and I recommend you buy fromanother insurer. I am not comfortable with claim settlement ratios of less than 85%. Term policies donot have exclusions except for suicide in the first year. So, the reason for rejection is the insurer’scontention that you did not disclose material information. If your claim is rejected, it will putunnecessary pressure on your nominees to argue the case and have their grievance redressed.

Do make sure that the insurer conducts a medical test before issuing the cover. This makes the insurermore responsible for assessing your health and they will find it harder to repudiate a claim.

I have a few big financial liabilities and responsibilities, but no insurance to cover them. I have a homeloan of Rs. 20 lakh, and an auto loan of Rs. 5 lakh. I have a 3-year-old son, and I would like his

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education to remain uninterrupted even when I die. I want Rs. 20 lakh available for his education andanother Rs. 20 lakh for living expenses. As my parents are partly dependent on me, I want them tohave money when I die—an amount of Rs. 20 lakh. The total comes to Rs. 80 lakh. Which would bethe best way to cover these in terms of insurance?

—Kalyani Nair

The liabilities you describe are all long term, maturing typically over the next 15-20 years. It is importantyou buy a term insurance. A Rs.1-crore term cover over 20 years will cost you about Rs.13,000 per year.This will ensure that if you die, your family will be able to meet all obligations. Simultaneously, youshould invest systematically and build your savings. There are several options for you to evaluate,mutual funds, unit-linked plans or government savings schemes.

Do critical illness protection riders offered by life insurance companies serve the same purpose ashealth insurance?

—Mathai Tharakkan

No, critical illness riders are limited to specified illnesses only. The number of diseases covered variesbetween four and 35. As the name suggests, these illnesses are of a very serious nature, and the morecommon ailments such as dengue or cataract. Your first priority should be to buy regular mediclaiminsurance and then to buy a critical illness cover. For critical illness cover, I find stand-alone criticalillness plans better than riders attached to life insurance as they are more comprehensive.

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If premium is overdue after grace period, the policy lapses

Published in Mint on 9th Sept 2014, Written by Abhishek Bondia

I missed paying past few months’ premiums. Can I start paying my premium again? Are there anycharges?

—Shaheen Jamal

If premium is overdue after the grace period, the policy lapses. You can start paying the premium againafter reviving the policy. Fill a revival form and pay the unpaid premium along with interest and anypenalty levied by the insurer. Commonly, if the revival is done within six months, insurers levy intereston the unpaid premium and do not charge any penalty. Beyond six months of lapsation, insurers do levya penalty.

Besides this, if the sum assured is high, insurers tend to also conduct a medical check-up beforereinstating the sum assured. Do note that once the policy has lapsed, the insurer has the right to revisethe terms and conditions.

What is assignment? How does one make an assignment of a life insurance policy?

—Mayank Senthil

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Assignment of a policy transfers all rights of the policy to the assignee. All proceeds, both survival anddeath benefits, from the policy, thereafter, go to the assignee. The insured and the nominee do not haveany rights on an assigned policy. Typically banks ask for assignment when a policy is kept as collateral.

You need to fill an assignment form, submit the original policy copy and know-your-customerdocuments of the insured. After submitting these documents, the insurer takes about 15 days toendorse the assignment in the policy. Any notice of unpaid premiums or default thereafter goes to theassignee.

What is the criteria for determining the eligibility of a loan under a life policy?

—Gaurav Kumar

A life insurance policy becomes eligible for loan once it acquires a surrender value. This is to ensure thatin case of default, the lender can liquidate the policy to recover the loan. Typically, the loan granted isless than the surrender value to keep a buffer for unpaid interest. Some insurers offer loan on a lifeinsurance policy after few years of paid premium.

My company wants to buy keyman insurance for me? How does it benefit me?

—Faisal Majeed

Keyman insurance is a term insurance policy wherein the insured is a key employee of the company andthe beneficiary is the company itself. In case of death of the employee, the proceeds will go to the firmand not the employee’s family. The purpose of keyman insurance is to safeguard the company fromsudden impact on cash flows due to death of the employee. An example of keyman are the key businessdevelopment personnel. In keyman insurance, the premium is treated as a business expense and thedeath benefit, if paid, is subject to corporate tax.

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Usually, individual terms plans work better than joint plansPublished in Mint on 26th Aug 2014, Written by Abhishek Bondia

Will my life insurance be in force even when I travel abroad?

—Harsh Vashist

Life insurance has worldwide coverage. So even if an untoward incident happens abroad, you arecovered. Do note that when you buy a policy, you should declare all planned travels to the insurancecompany.

When is the payment done in a critical illness rider in a life insurance policy?

—Riyaz

Typically, critical illness rider with a life insurance policy is a fixed-benefit plan. Herein, full payment ismade when the insured is diagnosed with one of the specified illnesses. Unlike a health insurance policy,here lump sum amount of the rider is paid irrespective of the expenditure incurred.

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Do note that companies offer different types of critical illness riders. The three most common types arestand-alone, accelerated and waiver of premium. In case of stand-alone, the rider benefit is over andabove the death benefit. Under accelerated, the payment made for the rider is deducted from the deathsum assured. In the third scenario, there is no payment made at the time of critical illness but futurepremiums towards the policy are waived.

What is a limited premium payment plan? Is it recommended under term insurance?

—C. Issac

In limited payment plans (LPP), the duration for premium payment is less than the duration of coverage.For example, you pay premium for five years but the coverage continues for 10 years. Essentially, thepremium for the last five years is amortized in the initial five years.

If you ignore the time value of money, a limited premium payment plan has a few advantages. First, alarge proportion of long-term plans get lapsed because the insured does not follow up on premiums. AnLPP allows an insured to complete the obligations in limited time and enjoy coverage for the full term.Second, an LPP carries a surrender value, whereas a regular pay term plan has no surrender value.Finally, in an LPP the absolute premiums paid over the term of the plan is less than sum total of thepremium paid in a regular plan. The principle disadvantage is that it front-loads your liability. So, if youhave liquid cash with low opportunity cost, LPP serves well.

Should I buy a joint life policy to cover my wife or would it just be better to get another plan?

—A. Mani

Under a joint life plan, you get a discount varying between 5% and 20% (depending on the insurer andtype of death benefit i.e. dual death or first death). The discount makes the joint life cheaper comparedwith the standalone plan from the same insurer. However, there are limited insurers that offer joint lifeplans. Standalone covers are competitively priced and you are better off going for those.

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Have at least a 10-year horizon if you buy an endowment planPublished in Mint on 12th Aug 2014, Written by Abhishek Bondia

Can a life cover work as collateral security for a loan?

—Thomas George

Theoretically, life covers that acquire a surrender value can be conditionally assigned to a bank and usedas collateral. The collateral will kick in if the loan is not paid. In such cases, the bank can surrender theinsurance and claim the surrender value.

Practically, however, life insurance is not preferred by banks because the surrender value is uncertain.The surrender value depends upon the year of surrender. Also, the borrower may not pay up futurepremiums, which, in turn, erodes the value of collateral.

Apart from this, most lenders now insist on a term life insurance cover equal to the loan value. This isonly an additional safeguard in the event of death of the borrower. A normal term cover has nosurrender value so cannot be used as collateral.

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What factors should be considered while choosing the duration of an endowment plan?

—Jaipal Shetty

Endowment plan is a long-term investment. The purpose of an endowment plan is to force regularsavings, create an asset for a long-term liability or expenditure, and provide life insurance to cover thespecific liability if you die prematurely. Hence, end date of an endowment plan is earlier of the two:

a) Date till when you can comfortably pay regular premiums. For example, you do not want anendowment plan to continue post-retirement.

b) Date when the planned expenditure or liability matures, for example, child’s education or marriage.

Generally, one should have at least a 10-year horizon if you are buying an endowment plan.

What is a gratuity scheme and what are its benefits?

—Latha

Employers pay a gratuity amount if an employee leaves after working for at least five years in thecompany. A gratuity scheme helps an employer plan for this liability.

Based on the number of employees, average salary and average tenure, the insurer does an actuarialestimate of the liability. The employer makes a regular annual contribution to fund this liability.

There are three key benefits of a gratuity scheme. First, it helps plan for an erratic liability through aregular annual contribution. Second, the contribution to a gratuity fund is tax deductible. And, third,these funds generate healthy returns (upwards of 8%).

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Investment products don’t require medical underwritingPublished in Mint on 29th July 2014, Written by Abhishek Bondia

How do I go about changing the nomination in my life insurance policy?

—Farah Mohammed

You have to visit the branch of the particular insurance company and fill a “change request form”. Youneed to submit an identity proof and original policy copy for verification.

In some cases, you may be asked for a relationship proof. After receiving these documents, the insurerwill then endorse the new nominee and send an acknowledgement letter across.

Are there cases wherein I don’t have to undergo medical tests to buy a life insurance?

—Gaurav Tejpal

Insurers offer life insurance without medical underwriting primarily in investment products, i.e.endowment plans and unit-linked insurance plans. For term insurance, unless you are very young orbuying a small amount of insurance, most insurers insist on a medical check up.

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On investment products, insurers define a non-medical grid by age and sum assured. If you fall withinthe grid and have a clean medical history, then medical tests are exempted for you.

For example, if you are below 35 years of age, then no medical test will be required up to Rs.35 lakh ofsum assured. The sum assured threshold decreases as age increases. You should actively seek a medicalexamination. Thorough medical underwriting reduces the possibility of repudiation.

What are the advantages of buying a life insurance policy at an early age? I am 26 years old and I earnaround Rs.7 lakh a year. How much insurance will I get?

—Keshav

The need for life insurance is highest when you are young. At this stage in life, you have limited assets.Your dependants will lose a constant stream of annual income and have few assets if you die. Lifeinsurance provides the much-needed money in such situations.

At a young age, an additional advantage is that insurance prices are low. Underwriting is simpler withfewer medical tests and questions.

As you grow older, the possibility of age related diseases is higher and increases insurance rates. Themaximum insurance is fixed as a multiple of annual income.

The maximum limit is about 25 times the annual income, which means you can get up to Rs.1.75 crore oflife insurance cover.

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Annuity payments are a part of your taxable incomePublished in Mint on 15th July 2015, Written by Abhishek Bondia

I recently applied for a very high sum assured for term insurance. During the medical underwriting, Iwas diagnosed as a pre-diabetic. The insurer raised the premium by 150%. Is it common to put such asignificant loading for pre-diabetes cases?

—Aravind

Insurers commonly reject or increase premium on proposals from diabetics. These risk decisions aregenerally guided by the handful of reinsurers operating here. Hence, it is likely that you will get similarfeedback from other insurers as well. Premium loadings for diabetics vary from 50-200%.

The way insurers evaluate risk is different from the way doctors do. While a doctor may be quitecomfortable with pre-diabetic conditions, insurers tend to be conservative in assessing the risk. Youmust, however, buy term insurance. If necessary, reduce the sum assured to make the premiumaffordable. If your conditions improve, you could buy more term cover.

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I am diabetic and I applied for online term insurance along with an accidental death benefit (ADB)rider. The insurer loaded the premium by 100%. While loading the term insurance premium isunderstood, can it be done for ADB rider also?

—Arun Gupta

It is incorrect for the insurer to load the ADB rider premium, but then it retains the right to set prices.You can raise the issue with the authority but a speedier solution may be for you to drop the ADB rider.Instead buy a stand-alone accident insurance cover from a general insurer. These stand-alone accidentcovers do not require medical underwriting and come with additional benefits of accident disability.They are issued to you at standard rates.

I applied for term insurance but my policy was rejected because I had plans to go to Afghanistan.Doesn’t term policy have worldwide coverage?

—A. M. Das

Term insurance does have worldwide coverage, but insurers use immediate travel plans and past travelto underwrite. Planned travels to certain countries is on the negative list because of the risk. This listchanges from time to time but if the country is on an insurer’s negative list, it will reject the proposal orpropose a premium loading. Once the policy is issued, you will be covered worldwide withoutrestrictions.

My pension plan is due to mature next month and I will get a monthly annuity thereafter. Will this betaxable?

—Ganesh

Annuity payments are considered to be a part of your taxable income. Receipts from annuity are notexempt under section 10(10) D. We need to see the fine print but based on recent budgetannouncements, with effect from October 2014, insurers will even deduct tax at source of 2% if theannual taxable payout exceeds Rs.1 lakh.

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Claim can be rejected if a material fact is misrepresented

Published in Mint on 1st July 2015, Written by Abhishek Bondia

What is a return of premium term plan (ROP)?

—Karthik Shankar

Pure term plans pay a benefit if the insured person dies during the policy term. There is no maturitybenefit. An ROP term plan has a maturity benefit. Typically, the total premium paid is refunded if theinsured survives the policy term.

This proposition sounds appealing but is not. The underlying economics are poor. Typical investmentreturn on an ROP plan after adjusting for mortality costs is less than 5%. You are better off buying a low-cost pure term plan and investing the remaining money elsewhere. Will a claim be rejected if thedeceased policyholder had misrepresented some information in the form?

Will a claim be rejected if the deceased policyholder had misrepresented some information in theform?

—Mayank Shah

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Insurers can reject a claim if a material fact is misrepresented. Section 45 of the Insurance Act allows alife insurance policy to be questioned by the insurer if material facts were made fraudulently orsuppressed intentionally. Examples of material facts include history of prior illnesses or smoking habits.Over time, an insurer’s ability to reject a claim comes down. In fact, after two years, the onus of provingthat facts were misrepresented shifts to the insurer. Insurers cannot reject a claim if a non-material itemsuch as an address is not properly disclosed.

Insurance companies are well equipped to identify fraud. Claims in the first two years are most likely tobe investigated. If a fraud is suspected, the insurer will deploy considerable resource to get to the heartof the matter. The safest approach is to be careful about all declarations made.

What are the conditions that are to be fulfilled to get a critical illness cover? I am a 32-year-oldfemale.

—Christina D’Mello

The process for getting a critical illness cover is same as that of a life or a health insurance policy. Youshould have a filled proposal form, age proof and an address proof. Usually, companies do not go for amedical check-up if the prospect is under the age of 45, has a clean medical history and seeks cover forless than Rs.10 lakh.

Do I have to declare myself as a smoker, even if I have already quit smoking a month ago?

—Arun Dorjai

Yes. Smoking status is relevant not just on the day of filling the proposal but also for prior periods.Generally, you need to have quit smoking at least four years ago to be counted as a non-smoker. To besafe, clearly specify your smoking history in the ‘additional information’ section. It’s best to give thefacts straight. Insurers can determine from cotinine and other tests if you are a smoker. The worstoutcome can be a claim denied if it’s found that you misrepresented your habit.

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Questions and Answers: Non-Life

Disclose all facts accurately in mediclaim proposal form


I am a 50-year-old male. I was a smoker for about 20 years, till the age of 45. Do I need to disclose thiswhile purchasing a health cover? What effect will this have on the premium?

—Puneet Ishrat

Be as precise as possible when you answer questions in the proposal form. Most health insurers do notinquire about smoking habits so there is no need for an additional disclosure. A few insurers ask if youever had any addiction. For that specific question, you may want to mention the exact number ofcigarettes that you smoked and that you stopped five years ago. If your medicals are fine, insurers willissue insurance at standard rates.

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Does health insurance only cover treatments in hospitals?

—Smruti

Health insurance generally covers treatment in hospitals or day-care centres. Hospitals are specificallydefined as registered under the Clinical Establishments Act, 2010, or meeting minimum criteria of 10 to15 beds depending upon the town size and having round the clock nursing staff. In some specificsituations, domiciliary treatment is allowed. This is when the patient is unable to travel to a hospital orrooms are not available.

I was hospitalized for around two days during a trip abroad last month. I have travel insurance. Inanother three months, I will be travelling again. Will my previous claim history impact my insurance?—Rishav Bose

Pre-existing diseases are excluded from overseas travel insurance. So the nature of your first claim isimportant. If it was an accident, then it will not impact a second unrelated claim. However, if thehospitalization was for a disease, then that will be excluded in future claims.

I have lost my mediclaim card but need to get hospitalized soon. What should I do?

—A. Baig

The mediclaim card is not necessary to get hospitalized. However, you do need to know your insurancepolicy number. If you are covered under group insurance, you could name the company that covers youand give your employee identity card.

How can I cater to inflation while buying health insurance? I need to cover costs for several yearslater.

—J. Carvalho

Buy a high amount of health insurance today. Small premium increases can get you disproportionatelyhigher sum assured. Several insurers will give you no-claim bonuses each year, which can effectivelydouble your insurance. Finally, review your cover every few years. In later years, you could considerbuying top-up health insurance as a cost-effective means of increasing your insurance.

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Buy insurance that requires proper medical check-up


I was told that online plans do not require a medical check-up. If I buy insurance without a check-up,will there be a problem at the time of claim?

—Deepesh Rathi

Online plans do require a medical check-up, especially if the sum assured is high. At times, for small sumassured, insurance companies issue insurance based on declaration and without extensive tests ordocumentation. I do not like these simplified products because they increase the possibility ofrepudiation. Buy insurance that is fully underwritten and needs medical tests.

I have a company health plan. If I want to increase the amount, how do I go about it?

—Lata Rai

Ask your employer to raise the sum assured. Offer to pay the additional premium yourself if requiredbecause company health plans typically have the best features. You could also buy a personal top-uphealth insurance that has a deductible in line with the amount of your company group insurance. Thiswill cost-effectively increase the cover but not your dependence on the company.

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My parents are covered by the Central Government Medical Scheme (CGHS). Should I include them asdependants in my company’s health insurance policy or should I take a separate policy for them?

—Amit K.

CGHS is a good insurance to have. It covers most illnesses including pre-existing conditions. However,you must bolster the plan by buying your parents individual cover. This enhancement will help them gettop-end medical care without incurring out-of-pocket costs. Consider the example of cataract surgery.Most hospitals use a basic intra-ocular lens if you are covered by CGHS. To get a better quality lens, oneneeds to pay extra. A well selected personal health insurance will not have this constraint. The option ofincluding parents in the company’s health insurance is also good. However, you will have to live with thepossibility that the company may withdraw benefits or you may change jobs to a firm without parentalcover.

I purchased marine insurance to transport some valuables from Mumbai to Pune. An item gotdamaged enroute to my home. On what basis can the insurer deny the claim?

—Hridesh

A marine insurance clearly specifies the start and end destinations. If your insurance covers transit onlytill Pune warehouse and not your home, then the leg from the warehouse to your home is uninsured.The other reason for turning down a claim could be that the valuables were imported but you had notdeclared that.

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Do not rely only on company health cover for dependants

Published in Mint on 27th May 2014, Written by Kapil Mehta

My mother and father have retired and have no mediclaim. However, my wife and I have added themas dependants in our company health insurance. In my company, they are eligible for Rs.1 lakh asgroup cover and in my wife’s, they are eligible for Rs.7 lakh. In case we switch jobs, we will add themas dependants again. I don’t pay any premium but my wife pays Rs.7,000. Do we still require anadditional insurance protection for them?

— Rohan

The group health cover you have for your parents is excellent because the waiting period for pre-existing diseases would have been waived. Keep this cover as long as possible. Many companies arereducing or withdrawing parental cover because it is expensive and the (often) adverse claims ratioaffects their base employee insurance. This is why you need to plan for an eventuality where your firmremoves this cover or a new firm you join does not offer parental health insurance. I recommend youbuy an individual health insurance for them. These plans come with a 2-4 year waiting period for pre-

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existing diseases. If your parents fall ill during this period, your company insurance can be utilized.Having own insurance gives the security that your parents will always be insured.

I am a doctor and have heard of professional negligence policies. What determines the premium?

— Amit Sanyal

Doctors are generally expected to own professional indemnity insurance. This is becoming increasinglyimportant as the number of malpractice suits have increased dramatically. The premium depends uponvarious aspects. First is your specialty. Surgeons carry higher risks than others; specialties such ascardiology and neuro-surgery are perceived to be riskier; litigation in metros is higher than smallertowns. Second is the number and skills of support staff. More support staff may mean more risk,particularly if the staff are not licenced nurses. Finally, the quality of patient counselling and writtendisclosures. When you purchase a professional indemnity, make sure that the retro-active date is fromwhen you bought the first indemnity insurance and the any-one-accident to any-one-year ratio is 1:1.This increases the effective level of insurance that you have.

Shouldn’t I purchase health insurance with out-patient department (OPD) benefits?

— S. Vasan

Most health insurance plans are focused on hospitalization or daycare procedure costs. A few cover OPDtreatment as well. However, I find that plans with OPD cover essentially charge extra premium that isequivalent to OPD benefits provided. Make your product choice by looking at the core hospitalisationbenefits.

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Inform your auto insurer when moving to another cityPublished in Mint on 13th May 2014, Written by Kapil Mehta

I will be shifting to another city soon and plan to take my car with me. I bought it just a few monthsago and plan to get it registered there. Do I have to inform my insurance company that I am moving asmy policy will expire in one year?

—Ashu Toshniwal

You must inform the insurer by sending an email. They should issue an “extension of geographic area”endorsement. Sometimes, the insurer will charge additional premium. Generally, the extension excludesdamage during transportation. This means you will need a different marine insurance to cover thetransit risk. Inform the insurer when your registration number is changed. It will make an endorsementwith the new number.

What does it mean when an insurer says that its health insurance policy restores the sum insured if itis used up. Is this a good facility?

—M.D. Dwivedi

Restoration of sum assured is a good feature to have and is now standard in the newer healthinsurances. It is particularly relevant in a family floater when different members of a family may sufferserious ailments. Restoration implies that if the entire sum assured is used up in any one year then the

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sum assured is reinstated and can be used by any of the insured persons to treat an unrelated ailment.The feature is seldom utilized because of the unrelated ailment condition. Nonetheless, it is useful foradverse situations when insured persons are afflicted by multiple unrelated diseases.

I had purchased an overseas travel insurance for 15 days of travel. Unfortunately, my travel has beenpostponed for personal reasons. Can I modify the travel insurance dates or do I need to buy a newinsurance?

—Nitin

You can ask for a change in dates, provided you make the request prior to the original start date in yourinsurance. However, if you have crossed the original start date, your insurance becomes active in theinsurer’s books and it is unlikely to accept any changes.

The insurer rejected my health insurance application and deducted the cost of medical tests from therefund. Is that fair?

—Bhaskar Reddy

Insurers follow different approaches in accounting for medical tests. Some will make the customer payupfront for tests and promise to refund a part or the entire cost if the insurance is accepted. Othersbuild the medical test costs into the premium and will deduct a part of the cost only if the insurance isnot accepted. I think it is fair if the insurer explains the rules to you before you apply for insurance. Inany event, you are entitled to complete medical reports from the insurer.

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Buy health insurance and critical illness cover separatelyPublished in Mint on 29th April 2014, Written by Kapil Mehta

I will be travelling by train from New Delhi to Kolkata to attend a cousin’s wedding. I will be carryingexpensive jewellery. Can I insure it for the journey?

—Karan Kapur

The jewellery can be insured under marine or domestic travel insurance. However, there are practicalissues in this that you need to be aware of. First, you need to provide an invoice or valuation certificatefor the jewellery. Second, many insurers will not provide a stand-alone insurance for gold. It will need tobe combined with cover for other goods in transit.

I am a 30-year-old woman. Should I opt for a health plan with in-built critical illness option or buyseparately?

—Rashmi Lakra

You should buy a stand-alone critical illness plan. That way you will get the best-in-class plan forhospitalization as well as critical illness. One of the issues in buying separate plans is the requirement oftwo sets of medical tests. Since you are young, critical illness plan may not need a medical examination.

Why is the family history of relevance when I am the one who wants to take a cover?

—Aakash

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From a medical standpoint, there is a correlation between your family history of disease and theprobability of your contracting an illness. The correlation varies according to the disease. For example,diabetes and cardiac conditions show strong correlation whereas virus-borne illnesses are notcorrelated.

I have entered into a commercial contract with a shopping mall. The mall requires me to buy a liabilityinsurance with them mentioned as an insured party. Is that possible?

—Alpa Joshi

The concept of an additional insured is fairly standard and insurers are used to such requests. Theinsurer will issue an insurance with you as the primary insured and the shopping mall as an additionalinsured.

I get tense during a medical examination and my blood pressure increases. Will an insurer issuemedical insurance to me?

—Madan

Insurers and diagnostic labs do allow for anxiety during medical tests. Your complete medical testresults will present a clear and correct view on your health even if you were anxious during theexamination.

I am a veterinary doctor and employ 10 people. Can I purchase personal accident insurance for myemployees to pay for expenses in case of a dog bite?

—R.K. Chaddha

Dog bites due to occupational risk are generally excluded from a personal accident insurance. However,you may still want to buy it as such a cover is a cost-effective way of insuring against accidental death ordisability.

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Medical conditions should be disclosed while buying mediclaimPublished in Mint on 15th April, 2014, Written by Kapil Mehta

What does it mean when one is asked to claim for domiciliary hospitalization?

—Chandana

Domiciliary hospitalization refers to treatment that under normal course would have requiredhospitalization but was taken at home instead. The reason for taking the treatment at home should bethat no hospital room was available or you were not in a position to be hospitalized. It comes withconditions. Typically, the sum assured is limited; several chronic diseases such as asthma, hypertension,and diabetes are excluded; the claim period should be three days or more; pre- and post-hospitalizationcharges are not paid; and treatment cost is reimbursed rather than cashless. Does a minor thyroidproblem have a bearing on the amount of premium? Do I have to mention it as a pre-existingcondition when buying a health plan?

—Akshata Verma

You must definitely mention the thyroid problem in the proposal form. Insurers will ask for more detailsthat you should provide. If the problem is minor, it is quite likely that the insurance will be issued to youat standard rates but with thyroid excluded for a waiting period.

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The group mediclaim provided by my new employer is from the same company with which I have anindividual health plan. What will the claim procedure in case of an emergency?

—Daksh Gill

You should ask the insurer for a cashless payment through the company’s group health insurance. Thishas several advantages—generally the company will help in follow-up with the insurer; group plansoften waive conditions such as exclusion for pre-existing diseases; and you should avail benefits thatyour company is providing. Save up your personal health insurance for another rainy day.

I suffer from epilepsy but it is under control. Can I get health insurance cover of Rs.15 lakh?

—Pinky G.

Unfortunately, most insurers will not issue you a cover if you suffer from epilepsy, particularly if the sumassured required is large. You may, however, be able to get a cover for Rs.5 lakh. Do declare epilepsy inthe form.

An insurer has told me that no medical tests are required up to Rs.15 lakh of insurance. Does thatmean I will get this insurance even if I suffer from diabetes?

—B.R. Narayan

You will need to disclose pre-existing diseases even if there are no medical tests. For some pre-existingdiseases, the insurer may increase the premium, put waiting periods or decline an insurance. Do discloseexisting diseases. The insurance will be issued to you now but it is unlikely that claims will be paid if theinsurer discovers that material facts were not disclosed.

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Health insurance premium for parents is tax deductiblePublished in Mint on 1st April, 2014, Written by Kapil Mehta

Does a comprehensive motor insurance policy cover towing charges?

—Piyush

The practice varies across insurance companies. Increasingly, insurers are picking up these costs and, infact, even arrange for the tow. Some insurers put limits on the cost they will incur. For example, costsover the first 50km need to be paid by the policyholder or are capped at an absolute amount.

I purchased a contractor’s all risk policy for my home that was under construction. Unfortunately, thebasement collapsed. Can I claim for this?

—Arindam D.

There are two questions. First, whether the claim is admissible and second, the amount that can beclaimed. Admissibility depends upon the root cause for the collapse. If this was caused by an accidentthen the claim is payable. If faulty design or material was the issue then the claim is not payable. Theclaim amount depends upon whether you bought a market or reinstatement value insurance. In market

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value, the insurer will pay the depreciated book value of the damaged portion to you. However, inreinstatement value insurances you will be paid the cost of reconstruction.

My sister and I are 24 and 27 years old, respectively. We want to add ourselves into our mother’smedical insurance. Can we do that?

—N. Verma

Unfortunately, most insurers will not allow you to be included in your mother’s policy because both ofyou are over 21 years of age. Instead, buy yourself an individual health insurance. It will be equally costeffective.

What are the requirements for a basic overseas mediclaim?

—Charles Issac

There are three simple requirements. First, you should be a resident Indian and have a valid passportand visa. Second, you should fall within the allowed age bracket, which is generally 6 months to 80years. Finally, your travel trip must be less than 180 days. These are not hard and fast rules and insurersdo make exceptions when requested. For example, people over 80 can be covered. Extensions beyond180 day are possible on request, and so on.

My father has a health insurance policy for which I pay the premiums. Can I get extra tax benefits? Myfather has the policy in his name and so far he was paying the premium. I have decided to pay hispremiums from this year onwards.

—Vandana Singh

For the premium that you pay for your father, you can claim up to Rs.15,000 as additional incomededuction under section 80D of the Income-tax Act. If your father is over 60, then you can claim up toRs.20,000 as income deduction.

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Frequent travellers should buy annual overseas travel insurancePublished in Mint on 18th March 2014, Written by Kapil Mehta

How does one get an overseas mediclaim policy? Is it advisable to get one?

—Nilofer

Overseas mediclaim is meant for Indian residents who travel for short periods abroad. A variant coversIndian students studying overseas. It’s an absolute must-have because medical treatment overseas isexpensive. It is best purchased online or from your travel agent. You will need to provide your age,passport details, country of travel and travel dates. The cover is primarily meant for accidents andemergencies. Deductibles are set at $100 or higher to prevent routine medical check-ups overseas. Pre-existing diseases are excluded from these insurances. If you are a frequent traveller, you should buy anannual overseas travel insurance. This is applicable each time you travel overseas provided each trip isrestricted to 30 or 60 days, depending upon the insurance. For about Rs.4,500, a 40-year-old can buyannual overseas cover of $500,000.

What is a no-claim bonus and what are its benefits?

—Ankita Saroda

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The concept of no-claim bonus is used in several individual insurances. It is an incentive for policyholdersto not file small or frivolous claims. It is most common in motor insurance where you get substantialdiscounts on standard rates if you have not had a claim in the previous year. The incentive worksextremely well. For example, my father has a 60% discount rate on his car insurance. Consequently, hewill not file even his moderate-size genuine claim because he does not want to lose the substantial no-claim benefit accumulated over the years. The concept is also common in medical insurance where thesum assured is increased if there is no claim. Typically, the sum assured can double through no-claimbenefits.

I have two insurance policies for the same asset. Can I claim under both these policies?

—Abhra

A fundamental principle of insurance is indemnity. This means that you will be paid only for actual lossincurred and cannot profit on an insurance claim. If you claim under both policies, each insurer willmake a part-payment to you such that you recover the asset cost only once. Also, you may find itadministratively easier to file the claim with one insurer. That company may then invoke the principle ofcontribution and ask the other insurer to pay its fair share of the claim. Insurers will know that you haveanother insurance because of declarations made in the proposal or claim form. They may alsodetermine this when they do a survey at the time of claim. The larger issue is: why you bought twopolicies for the same asset? In a sense, you paid double the cost with no incremental benefit.

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Mediclaim premium paid in cash not tax exemptPublished in Mint on 4th March 2014, Written by Kapil Mehta

Is it required to get third-party pet insurance? I have a German shepherd.

—Deeptiman

Third-party pet insurance is not mandatory. A few insurers cover third-party pet liability as an extensionto basic pet insurance. However, I don’t find the extension useful because liability is restricted. Themaximum limit I have seen is Rs.25,000 and that is paid only if a legal case is registered. I have a Spitzthat snaps at passers-by. I have tried to address the public liability risk by training the pet (ratherunsuccessfully) and keeping it on a leash in crowded spaces.

I met with an accident recently and my car suffered a lot of damage. Since I was hospitalized aroundthe time of my premium payment for my car insurance, I could not pay the premium. Can I still claimfor damages on my car?

—Jaydev

If the car was damaged after your policy lapsed, you cannot claim damages. Insurers will generally notget into the reason for non-payment. From an insurer’s perspective, they typically send renewalreminder notices a month in advance of the due date.

How can one assess the value of belongings for getting a householder’s policy?

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—E. Shakuntala

There are two approaches. First and the preferred one is to declare the actual purchase price. Ideally,you should have supporting invoices for bigger items. The second option is on an agreed value basis. Inthis case, you agree on the value of each item upfront without necessarily having invoices. At the time ofmaking a claim, you will need to demonstrate exactly which items were stolen and the agreed price willbe paid.

I have two insurance policies for my car from two insurers. I want to cancel one of them. Someonetold me that it is better to cancel the policy that was issued later. Why is that so?

—Piyush Jha

You don’t really have a choice in the matter. The Indian Motor Tariff specifies that in case of duplicateinsurance, you need to cancel the insurance that was issued later. If both policies were issued by thesame insurer, then you will get a complete refund of premium. Else, the cancelling insurer will returnpremium on a pro-rata basis. An exception is allowed if a bank or financial institution writes to theinsurer to cancel the first insurance. In any event, premium will be refunded only if there has been noclaim in either policy.

Will I get health insurance tax benefit if I pay premium by cash or demand draft?

—R. Satwan

You get a tax benefit if payment is through cheque, credit card, debit card or a demand draft issuedfrom your own bank account. Cash payments do not get a tax benefit.

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A top-up plan is useful only if you already own a base planPublished in Mint on 14th Feb 2014, Written by Kapil Mehta

I am 33 years old. I am covered along with my family (wife and child), for Rs.4 lakh through mycompany’s group mediclaim policy. I am considering taking a personal cover as well. Would yourecommend going for a top-up insurance plan? Not all insurers seem to offer it. Are there anyparticular disadvantages or caveats to keep in mind when considering a top-up plan?

—Rahul

I recommend that you do not depend on your company for health insurance and buy a regular healthplan. So many things can change over the years—you may move to a company without health insurance,your company may reduce health insurance benefits because of cost, they may restrict cover to onlyemployees, and so on. Think of your company’s cover as an additional safety net to be used if you fall ill.A top-up plan is useful if you already own a base plan but would like to supplement the sum assured.There are two distinct top-up structures. The more common structure is one where hospitalization costsfor a specific incident above a pre-determined deductible or threshold are paid. This is useful to mitigatethe risk of a single ailment that has very high costs. The second structure, which I prefer, is one wherethe top-up plan kicks in whenever the deductible amount is consumed. It does not matter if thedeductible is used up in one hospitalization or several. Premiums in these top-up structures are higher.Consider a case where you are hospitalized thrice for different ailments and each hospitalization costsRs.3 lakh, i.e. a total of Rs.9 lakh. If you buy a top-up plan with the first structure and with a deductibleof Rs.4 lakh then you will not be paid anything because each hospitalization is less than Rs.4 lakh.However, had you bought a top-up with the second structure you would have received Rs.5 lakh. That’swhy I prefer the second structure even though it is more expensive.

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I recently underwent a critical illness treatment. It was covered by my insurer. The insurer paid ontime as well. However, I plan to switch to another insurer for better services and my renewal is earlynext month. What should I do?

—Mahi Gulati

Retain your existing insurance. Other insurers are unlikely to offer you a similar cover if you have had acritical illness. Regulations require your current insurer to renew your insurance for lifelong and with nospecific premium loading or restrictions for you. However, you should consider enhancing yourinsurance by purchasing a top-up cover or additional insurance. There is no guarantee that you will getthis additional insurance but at least you will have your basic policy as a fall-back option.

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Inform your insurer of hospitalization within 24 hoursPublished in Mint on 4th Feb 2014, Written by Kapil Mehta

I am 69 years old and my wife is 63 years old. We already have a health insurance policy (for Rs.5lakh), which is up for renewal in the next 10 days. I have also taken a policy for my son (35 years) andhis wife (27 years) of Rs.3 lakh, which is also up for renewal in 10 days. I want to know how I canchoose a health insurance policy. Also, our agent says that under a 2012 mediclaim policy one has toinform the insurance company within 24 hours of hospitalization, whereas under the 2007 mediclaimpolicy, we had to inform about hospitalization within seven days. Could you throw some light on thisas well?

—Naresh Sahu

I think you should renew both the health insurance policies that are up for renewal in the next 10 days.The time period is too short for you to port your existing insurance to an alternate insurer. Withoutporting, the exclusion period for pre-existing diseases will start afresh in a new insurance and this is notadvisable, particularly since you are over 60. However, you could consider enhancing your insurance bypurchasing a top-up health cover that pays for expenses over Rs.5 lakh. Your agent is giving you thecorrect advice on claim intimation period for your specific insurances. In your specific case, you shouldideally inform the insurer before hospitalization in planned situations and within 24 hours ofhospitalization in a medical emergency. This information could be sent through an email to the

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customer helpdesk. Most hospitals have an insurance helpdesk, which could help you with theintimation process.

On what basis do insurers charge premium under a personal accident cover?

—Gauri

In a personal accident cover, the premium is a function of the type of benefit offered, occupation of theinsured person and the sum assured. The premium charged is least if the benefit is paid only foraccidental death. Benefits for disabilities that may be permanent or temporary, total or partial, increasethe premium. The maximum increase comes when medical expenses due to accidents are also included.Occupation determines the risk category. Office-goers are the safest and get the best rates. People inoutdoor, physical roles get more expensive rates. Finally, premium increases proportionately with thesum assured. Interestingly, the premium does not depend upon the age or health of the person insured.If a person is in poor health and unable to buy regular term or health insurance, they can buy anaccident cover that partially covers their death or ill health risks.

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Cashless facility is available only in the network hospitalsPublished in Mint on 21st Jan 2014, Written by Kapil Mehta

I plan to buy a health insurance plan. I prefer cashless policy and would like to buy a Rs.3 lakh policy.However, while I was researching for a good policy, I found that the company I like has very fewnetwork hospitals in the area that I live in. Should I go for an insurer which has more networkhospitals?

—Piyush Karnik

Cashless facility will be available only in the network hospitals. That’s why it is important that hospitalsclose to you or those that you prefer be empanelled with the insurer. If during a medical emergency,you need to go to a non-network hospital then that claim will also be reimbursed to you. However, inthat situation you will need to pay the bill and then claim from the insurer. This is typically a two tothree month process.

I bought a car in Kolkata and got an insurance too. Now I am using that car in Delhi with the WestBengal number. Is the policy and the benefits valid?

—Srimanth

I spoke to a few insurers about your question. They all assured me that policy benefits remain valid evenif you are using the car in another state. However, I am less sanguine that claims will be paid becausethere are so many more ways by which your claim can be denied. An insurer could say that you violatedthe Transport Department’s provisions and were driving illegally. Or they could aver that the premiumwould have been different if they had known you were driving in Delhi. As a matter of abundant caution

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you could inform them by email that you are driving in Delhi on a West Bengal number and ask them toget back to you if they have an issue. This shifts the onus to the insurer.

Can I port a post-paid health insurance for a cashless one? What is process and things to keep inmind? Will I lose out on any benefits?

—Venkatesh

Generally all health insurances are a mix of cashless and post-paid. Cashless settlement has become abasic element of health insurance and is not really a special benefit any more. Since cashless facility isavailable in network hospitals it is important to pick insures that have more network hospitals close towhere you live. Porting is possible in health insurance. The primary benefit of porting is that the waitingperiods for specific diseases and pre-existing disease exclusion gets reduced by the period for which youheld the previous policy.

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Learner’s with valid license are covered by motor insurancePublished in Mint on 7th January 2014, Written by Kapil Mehta

My daughter, who has a learner’s licence, had an accident recently wherein she drove into a smallshop. I want to know that since the car is in my name, will the insurance company compensate theshop owner?

—M. Chabbra

There are three implicit insurance questions in your query. First, if a car driven by someone other thanthe owner meets with an accident, is the claim payable? Second, is a motor claim payable when theaccident is caused by a learner? Third, is third-party property damage covered in a typical motorinsurance? The answer to all three questions is, yes, subject to some conditions. In motor insurance itdoes not matter if the owner is not the driver so long as the driver has a valid driving licence. Accidentsby learners are covered provided the learner meets all the requirements of a learner’s licence—she hasan active learner’s licence, is accompanied by an experienced driver with a permanent licence and an ‘L’is painted on the front and back of the car in red on white background. Finally, third-party propertydamage is payable but the claim process is long. The shop owner will have to file a claim with the motor

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tribunal. The tribunal will decide the claim amount due. You cannot directly have the insurance companypay the shop owner for the damage.

Can a compressed natural gas (CNG) kit installed in a vehicle be insured?

—Sajid A

CNG kit installed in a car can be insured. There is a standard additional premium that needs to be paidfor CNG vehicles. Typically, this is 4% of the kit value for own-damage cover and about Rs.60 for third-party liability cover. Your insurer will give you the exact terms for its policy.

Is there a cover available where cancellation of holiday bookings can be insured? Under whatcircumstances will an insurance policy pay for cancellation?

—Richard

As I write this, I have just returned from a domestic trip where my flight was cancelled due to fog and Ihad to return a day later. The incremental expenses involved in such delays can be material.Theoretically, insurers offer domestic as well as overseas travel insurance that compensates you fordelays and cancellations. There is a standard set of hazards that are insured including weather, accidentand health related cancellations. Practically, there are so many caveats and conditions in these policiesthat I am not confident about claim payment. Take the case of the fog that delayed me—a specificcarve-out in many policies is that delay due to inclement weather should not have been made public orthat the event should not be foreseeable with a high degree of probability. It is possible to exclude fog-related delays for these reasons.

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Add-on plans are better than having two health policiesPublished in Mint on 24th March 2015, Written by Abhishek Bondia

My car was slightly damaged in an accident. Should I make a small claim or wait to avail the no-claimbonus?

—Aakash Tripathi

You should lodge a claim if the potential claim receivable is more than the no-claim bonus. Typically, ifthe car is carrying a multi-year no-claim bonus, premium increase after a claim year can be up to 50%.

The potential claim amount is arrived at after a few standard deductions from the loss amount. Some ofthese are minimum excess, consumables and depreciation. Based on the specifics, an insurance adviseror an auto mechanic will be able to advice on the potential claim amount.

If it is a relatively new car—less than three years old—you should evaluate some add-ons that helpovercome such dilemmas. An add-on called “NCB protector” is offered by several insurers. With this youcan make a specified number of claims in a year and still carry forward the no-claim bonus. Other add-ons such as zero depreciation and consumables cover will help you avoid the deductions and increasethe potential claim amount.

I am 40 years old and have a family floater policy of Rs.5 lakh. I want to get further coverage foraccidents that may occur while pursuing adventure activities. Should I expand the existing policy ortake additional riders?

—Heena

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Ideally you should enhance the sum assured within your existing policy. If not, you should purchase atop-up insurance plan. These plans are cost-effective ways to enhance your coverage. You can take atop-up plan with a Rs.5-lakh deductible. The first Rs.5 lakh expenditure will be covered under yourexisting plan. Any expenditure above this will be paid by the top-up plan. Health insurance plans willcover hospitalization for any reason, not necessarily restricted to those related to adventure activities.

The cost of two standard health insurance policies combined is very expensive with limited advantagesfor the user.

I am going to leave my company in the next six months. Can I convert my group plan into an individualplan?

—Arunoday Sahay

Yes, you can convert your group plan into an individual plan. The duration for which you were coveredunder the group plan will be waived from the various waiting periods of the individual plan. However,you can port the waiting period waiver benefits only to an individual plan of the same insurer, and theprice and benefits such as room rent applicable henceforth will be of the standard individual plan.

Also, only the duration covered with the same insurance company will be considered for waiting periodwaiver.

In case the company changes its group insurer frequently, then porting to an individual plan will nothave much value.

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Some policies have 9 months waiting time for maternity costsPublished in Mint on 10th March 2015, Written by Abhishek Bondia

Is the no-claim bonus discount transferable if I decide to shift insurers?

—Pradyuman Sahay

Yes, it is possible to transfer the benefit of your no-claim bonus in a portability case. The receivinginsurer will give you the continuity benefit on the entire sum assured, i.e., base sum assured plus no-claim bonus sum assured. Your new insurer will consider this total sum assured as base sum assured. So,even if you have a claim, the base sum assured will remain intact for future. However, do note that thereceiving insurer will charge premium for the new sum assured. Continuation of the no-claim bonus willnot be free of cost.

What will determine my health insurance premium? How does it change year after year? Does itchange with my claims?

—Neha Arora

Your initial health insurance premium is based on your age, sum assured and the type of plan chosen.After you apply for health insurance, insurer may conduct medical tests.

If a pre-existing health problem, such as arthritis, is identified, the insurer may put a loading on theinitial premium. The initial premium plus loading becomes the basis of premium.

As you grow older, premium will be charged only on the basis of age and proportionate medical loading,if any.

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What if the hospital close to my residence doesn’t accept the cashless facility for a given mediclaimcompany?

—Shagufta Khanam

Every insurance company lists a network of hospitals with which it has a tie-up. Insurance companiesextend a line of credit to their network hospitals. Based on this credit, hospitals offer cashless services tothe respective insurer’s customers. If a hospital is not part of your insurer’s network, it will not be ableto provide cashless claim settlement. However, you can pay the money upfront and later claim it asreimbursement.

My son got married recently. Can I take an insurance plan that covers maternity benefit immediately?

—Biswajit Roy

There are health insurance plans that offer maternity coverage. Typically, this benefit carries a waitingperiod of 2-4 years. Some recent plans have waiting period of as low as nine months. No individual plantoday covers a pre-conceived maternity.

I have a small outlet in a shopping mall and have been asked to purchase several insurances such asfire, liability and workman compensation. How should I do this?

—T. Choudhary

Insurers package these requirements cost-effectively into a shopkeeper’s insurance. The mainrisks covered include property damage due to fire, earthquake, flooding and malicious damage,burglary, third-party liability if an injury takes place on premises, workman compensation andtheft by employees.

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Don’t have to declare existing insurance when buying new onePublished in Mint on 17th Feb 2015, Written by Abhishek Bondia

I suffered a fire-related accident at home and was hospitalized. I have two insurance policies. How canI claim from these companies as the hospital said it will provide only one discharge form?

—Karen D’Silva

Most medical insurance policies are indemnity policies. You are entitled to get your entire expensesreimbursed but not more than that. To claim from multiple policies, you need to submit a settlementletter from the first insurer to the second one. On request, the first insurer will give back the originaldischarge summary, bills and receipts. It will stamp these original documents. The second insurer willdeduct the claim paid by first insurer from the total bill, and settle the rest.

I already have a medical cover from my employer but am planning to take a personal health insurancepolicy as well. Is it important to inform the insurer about my existing group cover?

—Farooq Ajmal

No, you are not required to declare your existing insurances, when buying a new health cover. In fact, aclause known as the ‘contribution clause’ has recently been removed from health insurance policies.This gives the right to an insured to claim from multiple policies in whichever proportion she may deemfit. She is not bound by the proportion of sum assured of underlying policies. So, the purpose ofdeclaring existing insurances has been removed.

It is generally better to claim first from an employer’s group insurance policy rather than individualinsurance. The former has far fewer exclusions and it helps protect the no-claim bonus on the individualinsurance.

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I want to take a floater health insurance cover for my parents, aged 60 and 55 years. What are theparameters to look at?

—Aditi

There are three broad factors you should consider. First is the claim settlement track record of theinsurer. I am not comfortable with insurers that have a claim settlement ratio of less than 85%. Second,you should consider the exclusions and restrictions in the policy. You should compare plans for waitingperiod for pre-existing and named diseases, capping on specific ailments, restrictions on room eligibilityand co-pay. Ideally, go for plans without any disease-wise capping, lowest waiting periods and no roomrent capping. Most plans levy a co-pay for first-time insured above 60 years. So, you should be preparedfor 10-20% co-pay. Finally, look at the premium rates. The Mint Mediclaim Ratings provide a synthesizedrecommendation based on these factors(www.livemint.com/mintmediratings).

At this age, you should evaluate products with a long-term perspective as switching becomes difficult.Some insurers increase premium dramatically after 65-70 years. At that juncture, you will not be able toport to a new insurer as insurers are apprehensive of accepting new proposals of senior citizens.

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Voluntary abortion is not covered under health insurancePublished in Mint on 3rd Feb 2015, Written by Abhishek Bondia

What should I do if my health claim is rejected?

—M. Chourasia

An insurer has to clearly specify the reason for rejection and cite the specific clause under which theclaim is rejected. In case you do not agree with the insurer’s interpretation, you can challenge it atmultiple forums. Typically, my first port of call is to escalate within the company itself, i.e., to head ofclaims or underwriting or sales, depending on the reason for rejection. If this does not work, I will writeto the grievance cell within the company. The response of the insurer’s grievance department becomesthe basis of complaint with the grievance redressal cell of the consumer affairs department within theInsurance Regulatory and Development Authority of India. You can also move straight to the insuranceombudsman and thereafter to the consumer court. Generally, insurer’s grievance department andombudsman respond well to a clear line of reasoning. Say, an insurer rejects a liver damage claimbecause it believes the ailment is due to alcohol abuse. If it is not, then you need to clearly establish thealternate cause, supported with medical documentation. This increases the likelihood of claim payment.

My wife underwent an abortion. Can I claim that money through my insurance?

—Parth

Most individual insurance products do not cover abortions. If the abortion is necessary to protect themother’s life, then a case could be made to cover abortion if it is certified by a medical practitioner.

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Voluntary abortion is not covered.

What is the maximum number of claims allowed in a year? What are the documents required to makea claim?

—Charlie Issac

Unless your policy explicitly says so, most individual policies do not have a restriction on the number ofclaims in a year. The maximum utilization is limited by the sum assured. The total value of all claimsshould not exceed the overall sum assured in the policy. Insurers have increasingly started introducingthe concept of any-one-accident limit in individual policies. This clause limits the maximum amount thatcan be used in any one claim. The balance sum assured can be used for other claims in the same year.

The claim documentation varies by policy type. However, the common documentation across productsis intimation to insurer immediately after occurrence of the event and detailed bills and receipts forexpenses incurred to make good the loss. Then, depending on the loss, additional documentation suchas police first information report in case of burglary, or fire brigade report in case of a fire claim arerequired. On first intimation of the claim, insurers typically revert with all required documentation forthat particular type of claim.

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Duration of travel insurance policy can be extendedPublished in Mint on 20th Jan 2015, Written by Abhishek Bondia

Why should my place of residence affect the premium amount of my motor vehicle insurance?

—Karthika

Several insurers now charge different rates for various cities as road quality and driving behaviour varyby city.

If you see underwriting practices in developed countries, the pricing formulae are far more complex andvary significantly by insurer. Large-scale data analytics do establish correlation between claims and placeof residence, occupation, colour of car, education and so on. Accordingly, insurers give due weightage tothese factors while pricing the risk. In India, such underwriting practices are at a nascent stage. Forinstance, one of the insurers gives an extra discount for people over 45 years in age.

Could you throw some light on the tax benefits of a health insurance policy?

—Chandresh Parekh

Premium paid towards health insurance is eligible to be deducted from total income of an individual.The amount eligible for deduction is calculated as per section 80D. Herein, the aggregate amount paidfor self, spouse and children should not be more than Rs.15,000. An additional deduction of Rs.15,000 isavailable to maintain cover for parents. In case the people covered are above 60, the eligible amountincreases to Rs.20,000.

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If I were to take a three-month travel insurance policy, can I extend the tenor when needed?

—Soraine Chabbra

Yes, it is possible to extend a policy. Generally, for a single trip, most insurers allow a maximum durationof up to six months. Do note that if you incur a claim during the original policy period, the insurer mightrefuse to extend the policy. It is recommended that to the extent possible, you should keep sufficientprovision in your original policy itself for marginal delays. In case you are a frequent traveller, you maywant to consider an annual multi-trip policy.

To take a home insurance, on what parameters is the valuation of the property done?

—Dhirendar Agarwal

Standard fire and special perils policy could be taken for residential homes. Valuation for fire insurancecould be done either on market value or reinstatement value basis. Under the market value concept, theoriginal cost of the home is taken as base. Thereafter, standard depreciation is deducted for the age ofthe property. The resultant figure is considered to be the value of the house. Under the reinstatementvalue, the current market cost to construct a house of similar age and specifications is considered to bethe value. In the latter concept, it is critical that the homeowner reinstates the house, else the claim isnot payable. Under the market value concept, reinstatement is not necessary for claim settlement.

Do note that a higher sum assured on the policy does not entitle the policy holder to a higher claim.

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Professional indemnity cover premium depends on speciality

Published in Mint on 23rd Dec 2014, Written by Abhishek Bondia

I might need a joint replacement surgery soon. Can I take an insurance policy to meet my surgeryrelated expenses?

—Vaibhav Ghosh

Insurers will consider your joint replacement as a pre-existing ailment and exclude it for a few years.Many insurers also explicitly include a waiting period for joint replacements. From an insurer’sperspective, the economics do not justify immediate cover. Consider that an individual Rs.5-lakh sumassured plan for a 60-year-old costs about Rs.18,000. But a knee replacement surgery costs betweenRs.2 lakh and Rs.10 lakh, depending on the implant. Be careful of ‘schemes’ that promise such coverimmediately.

The only exception is to avail cover through group medical insurance provided by employers. When alarge number of members are covered together, insurers forego individual underwriting for membersand waive off waiting period for pre-existing conditions. You can be covered under a group insurance asan employee yourself or a dependent, i.e., spouse or parent.

What is the coverage under a professional indemnity (PI) policy for doctors?

—Rajesh Shukla

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PI for doctors covers legal expenses arising out of suits filed against the doctor for negligence inperforming duty. The policy covers defense costs—lawyer fees and compensation awarded by the court.If an out of court settlement is authorized by the insurer, that is also covered. The policy gets triggeredas soon as a notice is served on the insured.

Some scenarios of doctors facing litigation are a patient alleging negligent diagnosis or providing sub-standard course of treatment or loss of patient records.

Doctors often face legal threats irrespective of whether they were at fault. A PI policy cover is initiatedeven if there is a mere allegation. It costs around Rs.50,000 for Rs.1-crore cover for a plastic surgeon.For physicians, and other categories of doctors, it is substantially cheaper.

The rates depend on the doctor’s speciality, equipment used and the extent and quality of nursing staff.

I am 50 years old and had an angioplasty a year ago. What is the cover I can expect to get and howmuch costlier will my premium payments be?

—Mahesh

Insurers hesitate to issue health insurance if you have recently had a serious hospitalization. The coveroffered will vary considerably across insurers.

Several insurers will not issue a policy at all, while some may issue up to Rs.5 lakh with 50-200% loadingon the base premium.

The good news is that some insurers have introduced plans exclusively for people with cardiac ailments.Such plans have relatively lower waiting period for cardiac ailments. However, these plans are expensiveand have a few restrictions, for example, room rent capping. If you meet their conditions for issuance, Iwill recommend you take one of these plans.

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No-claim bonus is linked to the owner and not the vehiclePublished in Mint on 9th Dec 2014, Written by Abhishek Bondia

I plan to buy a second hand car and the owner has not renewed the car insurance. When I buy the car,should I take a new insurance plan or continue with the existing one?

—Kavitha

You should buy a new car insurance policy. When ownership changes, renewal of existing insurance willeffectively be treated as a new policy. The main benefit of renewal is a no-claim bonus (NCB). However,the NCB is linked to the owner and not the car. So, if ownership changes, the NCB is no longer offeredon renewal.

The discounts given in motor insurance vary across insurers, so you should negotiate to get the bestterms.

I live in New York and want to get my parents here for around five months. I would like to buy travelinsurance for them. What is the procedure and relative cost for this?—Gautam Singhal

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Travel insurance policies are simple to issue. It is best bought online. Submit the travel itinerary andpassport copy of your parents. Once you pay, a soft copy of the policy will be emailed. This is goodenough for you to carry for claim purposes.

When comparing travel policy benefits, consider four items: a) benefit amount against each coverage,for example, hospitalization, dental, and baggage loss; b) deductible for each section; c) coverage forpre-existing diseases; and d) the reputation and hospital network of the insurer’s service partner.Premium is linked to coverage amount, age, travel destination and duration of stay. A $50,000 medicalcover for a 60-year-old going to the US for five months would cost between Rs.10,000 and Rs.12,000.

I am 75 years old and have a medical insurance policy with a public sector insurer. I want to shift mybranch closer to home so that it’s easier for me to deposit my renewal premium. How can I do this?

—Nathan D’Souza

Most private sector insurance companies have a centralized mechanism of policy issuance and servicingwhereas public sector insurers depend more on branches for these functions. For public sector insurers,each branch works relatively independently. This is why sometimes a new branch may not want toaccept the renewal premium of a different branch.

Some of the ways in which you could address this issue by doing a National Electronic Funds Transfer(NEFT) to your branch, or by finding an agent located close to that branch, and then sending the chequeby courier and a follow-up on the phone. This may be simpler than trying to change the branch fromwhere the insurance is issued.

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A newborn isn’t automatically covered under maternity policyPublished in Mint on 25th Nov 2014, Written by Abhishek Bondia

Are newborns covered under maternity policies? What all does the insurer pay for in such policies andwhat are the exclusions?

—Methali

Most individual medical insurance plans have a minimum enrolment age of 91 days. So, newborns arenot automatically covered. However, most individual plans that offer maternity benefits allow coveragefor newborns in their first 90 days as well.

Once covered, the policy works for a newborn in the same manner as for the parents.

Three standard exclusions relevant for newborns are a) congenital diseases, i.e., physical abnormalitiespresent since birth, b) non-medical expenses such as nursery charges, and c) vaccination charges, unlessspecifically mentioned.

I want to buy a health cover and a critical illness cover. Do you think I should opt for a health plan thatcomes with a critical illness option built in or buy the critical illness cover separately.

—Ashwin Gupta

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A critical illness cover is a good health insurance plan to buy. I prefer stand-alone critical illness plansprimarily because they tend to cover more number of diseases and allow a higher sum assured

Buy a plan that covers at least 20 diseases or more. The best plans cover diseases that may not requirehospitalization such as stroke, deafness, blindness, loss of speech and Alzheimer’s. Buy a sum assuredthat is comparable to your main health insurance cover.

Is there a particular time period within which an insurer has to pay the claim? And in case the insurerfails to do so, what action can the insured take?

—Lakshmi

The Insurance Regulatory and Development Authority (Irda) has specified step-wise deadlines forprocessing and settlement of a general insurance claim for example, home insurance. A snapshot isprovided below:

Appointment of surveyor: within 72 hours of intimation.

Submission of surveyor report: 30 days (maximum extension up to 6 months)

Clarifications from surveyor: within 15 days of initial report submission (allowed only once)

Final surveyor report: 21 days (after receipt of clarifications)

Offer of settlement or rejection: 30 days (after receipt of final report)

Payment after acceptance of settlement: 7 days

In case there is delay in payment, the insurer is liable to pay an interest of 2% above bank rate.

If the insurer fails to meet the above deadlines, you can escalate the matter within the internalgrievance department of the insurer. If you are not satisfied with their resolution, you have the optionof filing a complaint with the insurance ombudsman or regulator.

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No-claim bonus from company’s name can be transferred to youPublished in Mint on 11th Nov 2014, Written by Abhishek Bondia

I have a Rs. 1-lakh health insurance cover from a private sector insurer and want to increase my coverto at least Rs. 5 lakh. Is it better to stay with the same company or should I look for a new insurer?

—Thomas Cherian

Assuming that you are satisfied with the product structure of the current insurer vis-a-vis room rent,disease wise restrictions and so on, it is better to enhance your sum assured with the current insureritself. This will save you the hassle of porting your old policy. Some insurers do waive medical checks forenhancement, depending on age and medical conditions.

I am travelling abroad for a month with my family. I plan to purchase a travel insurance cover for theentire family. If I have to use the cover for a medical emergency, do I get cashless facility abroad aswell or would I have to wait till I return to India to get reimbursement?

—Subhash Ghosh

It is possible to get cashless facility under travel insurance. Insurers typically have a tie-up with aninternational network of hospitals that provides this service.

I had a car in the name of my company that was carrying a no-claim bonus (NCB) of 35%. I have leftthe company and retained the car. Can I carry on with the NCB?

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—Anjali Sharma

Yes, you can carry forward the NCB from company’s name to your name. You need to submit a letterfrom your employer that the car was being used by you and it has transferred the vehicle in your name.Thereafter, the insurer will transfer the NCB benefit to you.I had bought an unfurnished house about five years ago and insured it. Recently, I spent Rs.5 lakh onrenovations. Is it possible to increase the sum assured accordingly?

—Gayathri Paniker

You can increase the sum assured during the policy term. You would need to endorse the higher sumassured in the policy and pay an extra premium for the remaining period of insurance.

At the time of enhancement, ensure proper classification of sum assured. If the Rs.5 lakh was spent instructural improvements, for instance, tiles, the sum assured should be classified under the ‘building’section. If the enhancement came due to new contents, such as furniture, then put this under the‘contents’ section.

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Deductible is the amount of loss borne by the insuredPublished in Mint on 14th October 2014, Written by Abhishek Bondia

Someone recently told me about event insurance. Is it absolutely necessary to take this sort ofinsurance for my daughter’s wedding?

—Satish

Apart from third-party liability insurance for your car, no other insurance is mandatory in our country.However, I recommend buying event insurance for wedding.

This is because I have seen a few cases wherein a fire/burglary incident on the day of marriage hascaused financial havoc for the family.

Wedding functions are exposed to a number of risks including injury to the bride or groom leading towedding cancellation, jewellery theft, fire at the venue or injury to third-party (guests or neighbours) atthe venue.

Even though these risks are less frequent, they have a severe financial impact.The cost of event insurance is reasonable and varies between 1% and 2% of the sum assured dependingon the covers that you have opted.

With regards to an overseas travel insurance policy, what does the term deductible mean?

—Jatin Shah

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Deductible is the amount of loss that has to be borne by the insured herself. The insurer deducts thisamount from the total claim. The intent behind the deductible is to discourage small claims and coverthe cost of processing a claim.

Also, such losses are considered to be normally expected in the usual course of business. For example, intypical travel insurance, flight delays have a deductible of 12 hours. This means that any loss arising outof the first 12 hours of delay is not covered.

I am a vegetable oil manufacturer. Is it possible to cover my sundry debtors through an insurancepolicy? How does it work?

—Gaurang Khanna

You can cover your trade receivables through trade credit risk insurance. In case the buyer fails to paywithin the stipulated time, insurer will pay the debt and recover directly from the buyer. Under thispolicy, a credit limit is approved for each buyer.

Any outstanding up to this limit is covered by the insurer. The credit limit for each buyer is approvedbased on a thorough financial background check. If you have several small buyers, you can negotiate apre-approved credit limit for all buyers based on their past trading history.

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Patients with heart conditions can get special mediclaimPublished in Mint on 30th Sept 2014, Written by Abhishek Bondia

I am 30 years old and have a year-old daughter. My wife is a homemaker. What will be the rightamount of health cover for my family?

—S. Karuna

At this young age, you have several options. Here is an approach to choose the right cover. First,shortlist plans that have no disease sub-limits, no co-pay and no room rent restrictions. These conditionssignificantly affect your admissible claim amount. Second, if either of you have a pre-existing condition,then filter plans with least waiting period for pre-existing diseases. Finally, compare costs. Additionally,you can use the Mint Mediclaim ratings for a specific detailed comparison across products.

When buying health cover, do not compromise on the sum assured. A rule of thumb is to take a coverthat is at least 50% of your annual income.

I plan to buy a health insurance for my parents, which will be in their name. But since I am buying thepolicy, will I get tax deduction on the premium?

—Piyush Jha

You will get tax deduction under section 80D up to Rs.15,000. The deduction for parents’ policypremium is over and above the deduction allowed for self, spouse and kids. If your parents are morethan 60 years old, the eligible deduction limit increases to Rs.20,000.

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I have a health insurance policy of my own and one from my company. I want to make a claim. Can Iclaim on both?

—Alex

As per recent health insurance regulations, you can hold two health insurance policies and can distributea claim between the policies in any proportion you want. You can file the entire claim in one policy aswell. I recommend that you first claim on the company policy. After that is used up, utilize yourindividual insurance. This will help protect your no-claim bonus in the individual policy. Also, claimsettlement in corporate group insurance tends to be faster and more streamlined.

I suffered a heart attack two years ago. Will this in any way affect my getting a health insurancepolicy?

—Saqib

Yes, it will. Insurers hesitate to issue a cover when there is a major pre-existing condition, such as aheart attack or epilepsy. Some insurers might issue a policy either with premium loading or makecardiovascular diseases a permanent exclusion. You need to identify an insurer with slightly liberalunderwriting—that’s typically insurers with a large health insurance portfolio. The good news is thatthere are some special plans designed exclusively for heart patients. These plans are expensive and witha few restrictions but will provide you at least a basic cover.

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Nature of commercial activity decides risk valuePublished in Mint on 16th Sept 2014, Written by Abhishek Bondia

I have read that with regards to home insurance, the claim can get rejected if there are commercialactivities happening in the premise. Does this mean that if I offer tuition in my house, my claim canget rejected?

—Sanjay

The type of activity conducted in a place directly affects its risk value. For instance, within the same mall,a restaurant is considered to be three times riskier than a grocery shop. It is critical to provide fulldisclosure about the activities undertaken and have this acknowledged by the insurer. Incompleteinformation gives an insurer grounds to reject a claim.

In your specific case, the standard risk profile of an educational institution and usual residence is same.Hence an insurer should not argue that the risk was not priced appropriately. In any case you shoulddisclose it in the proposal form to avoid any future dispute.

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I had insured my television for Rs.30,000 and it stopped functioning recently. Upon making the claim,the insurance company only paid Rs.10,000. Why is this so?

—Arif Baig

The reason for a lower payment is likely to be the type of cover you had taken and the standarddeductibles. In standard fire insurance, apart from the sum assured it is important to choose the basis ofclaim settlement. It can be reinstatement, market or agreed value basis. If nothing is mentioned, thedefault is market value. Under this approach, assets are insured for depreciated value and the claimsettled after deducting depreciation on the damaged asset. You may have over-insured the television,got the claim settlement after deduction of depreciation and had some standard deductibles removed,hence the gap.

Under the “reinstatement value” approach, the cost of replacing with a similar asset is paid.Reinstatement value is the most common approach followed by companies to insure their assets. Underthe “agreed value” approach, the sum assured is taken as the basis for claim settlement. The sumassured is mutually agreed upon with the insurer, often backed by an independent valuer’s report.Agreed value approach is used primarily for antique art and paintings.

Is there any time limit for the settlement of claims under a householder’s policy?

—Diganta

In case of a claim under a householder’s policy, you need to inform the insurer immediately but no laterthan seven days. On receipt of notice, the insurer will appoint a surveyor to assess the loss. The surveyorlists the documentation requirements to the insured. After submission of all necessary documents, asurveyor typically submits his report within a month. The insurer on receipt of the report, if satisfied,settles the claim within a month.

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All-risk insurance is not available only for short periodsPublished in Mint on 2nd Sept 2014, Written by Abhishek Bondia

I will be going abroad for a few weeks. Is there an insurance policy that I can take to insure my laptop,e-book reader and music player?

—Kriti Singh

Portable electronic equipment can be insured under a comprehensive all-risk insurance policy. Suchpolicies cover perils including fire, natural calamities, burglary and accidental damage. Most insurers donot offer this as a stand-alone policy but bundle it with home insurance. The premium for suchinsurance is usually Rs.1,000-2,000 for assets worth Rs.1 lakh. When buying this insurance, alwaysdeclare the serial number of the asset concerned for easier claim settlement.

Do note that these insurances are available as annual policies and are not offered for a short duration.The short-term overseas travel insurance can, however, indirectly cover such assets through baggagecover. But here the cover is limited to checked-in baggage that is not delivered.

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I recently purchased two adjacent apartments in a group housing society. Is it possible to get a singlecover for both?

—Bhartendu Vijay

You can buy a single insurance policy to cover two adjacent apartments. You need to ensure that theunit numbers of both these apartments are clearly specified in the policy. The sum assured will be thesum total of the risk value of both the houses. There is no concept of a shared or floater sum assuredunder house insurance. So, the principal advantage of buying a single cover is easier policymanagement.

How can I gift a family floater plan to my daughter?

—T.N. Bansal

For a health insurance policy, you can be a proposer for your daughter’s insurance. You can initiate apolicy by providing all her details, and the payment. The policy will be issued with you as proposer andyour daughter as insured. Either of you can pay the future premiums. If you intend to cover her husbandas well, you should be well versed with his medical history. Any information that is found to beconcealed (even un-intentionally) or untrue can jeopardize a claim. If the sum assured chosen is high orthere is a pre-existing condition, the insured person(s) will have to undergo a pre-issuance medicalcheck-up. A medical test is advisable because it helps ensure that all medical information is properlyrecorded.

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Switch health insurance 45 days before the renewal datePublished in Mint on 19th Aug 2015, Written by Abhishek Bondia

What is the best time to switch between health insurance policies? The one I have has many usefulfeatures but is too expensive. I think I can get similar features with a collection of policies at a lowercost.

—Kasturi Bhanuj

The best time to switch a health insurance policy is 45 days before the renewal date. You should switchunder a process called health insurance portability. The scheme will allow you to carry the waitingperiod lapsed in the current policy to the new policy. Inform the new company about your intention toport. They will ask you to fill a portability form and provide previous years’ policy copies. Do note thatportability can be carried to only one policy and not a collection of policies.

My husband and I have employer-provided health insurance cover of Rs. 5 lakh each that covers us,our daughter and my husband’s parents. Do we need to buy additional cover? If yes, then should it beonly for us or should it include our parents as well? Should we buy critical illness insurance as aseparate policy?

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—Rashmi

Though employer-provided insurance is a great relief in terms of costs and benefits, it comes withuncertainty about coverage continuity in event of a job-change or change in the company’s humanresource policies. A parallel personal cover provides certainty. Waiting periods will lapse while you arecovered by the employer. You could start with a cover of Rs.2 lakh and if anything changes at youremployer’s end, then enhance coverage. This is important for senior citizens. With age the need forcover increases but it becomes much harder to buy good insurance.

Critical illness policies are fixed benefit plans, so the payment is made irrespective of the expenditure.Even if you claim under your employer’s plan, you will still get the full benefit amount. The purpose of acritical illness plan is to provide for liquidity, cover a part of loss of income and non-hospitalizationexpenses. Current critical illness plans are value for money. Buy a plan that covers at least 10 illnesses.

My wife has an employer provided cover of Rs. 30,000 for maternity related expenses, while mycompany provides a cover for the same of Rs. 50,000. What is the procedure to claim the benefits?

—Ashish

You should check if either of the insurers covers your desired hospital in their network. If yes, you cantake a cashless service from that insurer. At the time of discharge, you will get a claim settlement letterwith a break-up of the amount paid by the insurer. Submit this, along with all other original documents,to the second company. If the hospital is not part of the network of any of the two companies, you willhave to do the same process on a reimbursement basis.

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Policies do not cover all the treatments done at hospitalsPublished in Mint on 5th Aug 2014, Written by Abhishek Bondia

Does a mediclaim cover any treatment done at a hospital? Or, are there some that are not covered?

—Binu Ved

Health policies are meant to cover treatments done at hospitals. However, all treatments done athospitals are not automatically covered. Generally, those that are experimental, cosmetic and self-inflicted in nature are not covered. You should refer to the exclusions list mentioned for your specifichealth insurance policy.

My car got scratched recently. Is it better to go for a small claim now or pay for the repairs myself toavail a no-claim bonus?

—Vipul Seth

The expenses to fix a scratch in a regular hatchback or sedan are nominal. A medium-sized scratchshould get fixed for under Rs.5,000. After considering non-allowable expenses and compulsorydeductible, even if you approach the insurer with a claim, the amount payable would be under Rs.2,000.Considering an average annual premium of Rs.10,000, you are better off with paying for the repairsyourself and going for a no-claim bonus (NCB) next year.

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Generally, if the claim amount is less than one-fourth of your current annual premium, it is better toforego the claim. NCB starts at 20% in the first year and goes up to 50% for five consecutive years of no-claim.

Recently, I spent Rs.6 lakh on renovating my house. Is it possible to increase the sum insured of myhouse accordingly?

—Harita Sehgal

It is, in fact, mandatory to increase the sum assured when the value of an asset increases. If you don’tincrease your insurance, the principle of under-insurance will apply on claims. This means that theinsurance company will deduct a proportionate amount of claim to the extent of under-insurance.

You should approach the insurer to endorse the increased sum assured. A proportionate premium forthe unexpired period of the policy will be charged. Say, if you had initially paid Rs.1,200 for a cover ofRs.12 lakh, and this renovation happened after six months, then you ought to pay Rs.300.

I purchased a health insurance policy and have a cover from my company as well. Can I use both if aclaim arises?

—Raghavendra

You can use both the policies to cover your medical expenses. Utilize the full sum assured in one of thepolicies and then claim the balance amount in the other one. I would recommend that you use theinsurance by your employer first. This insurer will give you a “claim settlement letter” and return theoriginal documents duly stamped. Then you need to submit these documents to the second insurer,who will process the balance claim. Do note that it is not possible to claim reimbursement for the sameexpenses from both the firms.

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Transfer NCB to new car by cancelling old car’s insurancePublished in Mint on 22nd July 2014, Written by Abhishek Bondia

I am 35 years old and as of now, I only have a term plan of Rs. 40 lakh. What health cover would yourecommend for me?

—Madhur Gupte

You should not mix health and term covers, as these are unrelated. Term plan is a benefit amountreceived by your family after your death. Health plan will cover your out-of-pocket expenses in case ofhospitalization. A rule of thumb is to take health cover of at least 50% of your annual income. Health-care costs vary significantly from hospital to hospital and the facilities opted in a particular hospital. Forexample, the cost of a cataract surgery almost doubles if you use an imported lens instead of a local one.Hence, quantum of health cover is closely linked to your income and lifestyle.

If you buy health insurance at a young age, it has an advantage of accumulating no-claim bonuses(NCBs). Current plans offer between 5% and 60% of sum assured as NCB. Once you have shortlistedplans with the desired benefits within your budget, choose the plan that offers maximum NCB. This willhelp you benefit from high cover in later years.

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I have had a car for five years and plan to buy a new car. Can I transfer the NCB to my new car?

—Rajeev Singh

You can transfer the NCB to a new car by cancelling the old car insurance. Upon cancellation, you willreceive an NCB retention letter from your current insurer. Present the NCB retention letter to the newcar’s insurer to avail the bonus.

The insurer will ask for the following documents to issue the NCB retention letter:

- Request letter for policy cancellation

- Original policy copy and certificate of insurance (also called Form 51)

- Form 29 (notice of transfer of ownership of a motor vehicle)

- Form 30 (application for intimation and transfer of ownership of a motor vehicle)

- Photocopy of registration certificate book with name of the new owner

- Proof of delivery of car to the new owner

The last four documents are only required if you are selling your old car. Though technically, it ispossible to transfer NCB without selling the old car. Several insurers insist on ownership transfer. Iinterviewed frontline executives of five insurers and got a different view from each. A transfer to aspouse or family member is considered valid. You can apply for a NCB retention letter within 90 daysfrom the date of sale. The retention letter is valid for three years. So, do the paperwork much inadvance before you actually buy your next car.

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Insurance companies cover laptops on an ‘all risk’ basisPublished in Mint on 8th July 2014, Written by Abhishek Bondia

I plan to get a compressed natural gas (CNG) kit installed in my car. How can the car be insured?

—Tanmay Bhatt

Motor policies can insure cars fitted with CNG kits. You will be charged an additional premium. Yourinsurer will provide the exact amount but generally it is about 4% of the kit’s value and Rs.60-100towards liability. On receipt of additional premium, the insurer will make an endorsement in yourexisting policy to reflect the CNG fitting.

Can I insure my laptop which I received as a gift?

—Yamini Lal

It is possible to insure a laptop; however, be mindful of two things. First, let the insurance companyknow that you do not have an invoice in your name. The laptop should be insured on “declared value”basis and the policy copy should state absence of invoice. Second, insurers tend to have a highdeductible for laptop insurance. Claims above the deductible amount are paid, so make sure this isreasonable. Typically, a deductible of 5-10% of sum insured subject to minimum of Rs.5,000-10,000 isconsidered fine. Laptops are generally covered under an “all risk” basis. Big risks such as fire, accidentalbreakage and theft are covered. Insurers cannot reject a claim unless it is attributed to normal wear andtear, negligence or carelessness.

What are the requirements for an overseas mediclaim policy?

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—Lalita Krishnan

Generally, there is no pre-issuance medical check-up until 65 years of age and supporting documents arenot required. Only a proposal form with personal details and passport number is needed. It is issuedprimarily for short-term travel. These policies cover emergency and accidental medical treatment whileabroad. A few insurers have started to cover overseas treatments in regular health insurance policies.But this benefit is limited to people with high sum assured (Rs.25 lakh or more) and coverage limited toa few critical illnesses.

Could you tell me what is covered under a professional indemnity (PI) cover?

—Satish Gopala n

PI is a liability policy offered for specific professions such as doctors, lawyers, accountants and so on. PIcovers liability arising out of legal suits due to acts of errors and omissions by the insured. For example,a wrong diagnosis by a doctor leading to death of a patient is covered. The policy pays for defence costs,i.e., lawyer fees and compensation awarded by the court. PI policies cover civil liability only; criminal andillegal acts are not covered.

PI can be bought by an individual or group. A hospital can buy a group PI policy to cover all its doctorsand nurses, as well as itself. Companies in the business of providing services can also buy cover forprofessional negligence.

Economy & Finance

SecureNow's articles published in 2014-15