BasuNivesh moved to it’s own Domain “www.basunivesh.com” !!!

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I feel very happy to announce that “BasuNivesh” moved from this existing domain to new own domain www.basunivesh.com successfully. It is like moving from rental house to own house for me ūüôā

For readers- you will not loose any old contents but you feel some new changes in coming days. I am still working on the changes. All posts are available as it is in new domain. But I request all subscribes to do subscription once again to this new domain. You will receive mail regarding the same from official BasuNivesh mail soon.

I selected wordpress.org for creation of my new domain. I feel great freedom in all aspect than wordpress.com. I am thankful to all who helped me in this moving activity. Especially my brother, Abhinav, and BigRock team.

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Do you have “Orphan Life Insurance Policies”?

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

First let us look at the meaning of “Orphaned Policies”. It is common in Insurance business that today who used to say as full time agent or adviser of particular life insurance company may switch his profession due to¬†competitive¬†business¬†or finding any other lucrative profession than Insurance advisory. In that case persons who took policies through him may some time miss the premium paying cycle. If the premiums are not paid within the grace period then policy will be in lapsed condition. It is not only premium paying reminders which you may miss but also the services he used to provide like; switching in ULIPs, surrender, loan, nomination change, address change and claims in case of policy holders untimely death. So agents or advisers role is very much important when it comes to after sale service in insurance policies. But if agent who sold you the policy, either left the industry or terminated from the insurer whom he is representing then your policy will miss that service part. Such policies are called “Orphaned Policies”. For your information around 3,38,891 agents left the life insurance industry in the year 2011 (IRDA report 2010-11)

To serve such policies and reduce the lapsation ratio of insurers, IRDA came up with guidelines. Let us look at these guidelines and how they can be useful for you.

1) From now onwards your insurance company is allowed to allot such “orphaned lapsed policies” to another agent. But that allottee agent’s agency must be completed atleast 2 years (means he must be in insurance industry for atleast 2 years). But remember your policy must be in “orphaned lapsed policy” condition to get new agent to serve you. So if you are paying premium regularly within the grace period then even though your agent is no more in this industry, you will not get such facility by your insurance company. As per IRDA lapsed policies are those policies where premiums not paid even after six months from the due date.

2) Single premium Life Insurance policies, Life Insurance policies on which no further premiums are due for payment and online policies (as their is no agents role is required) are not eligible to avail such facility.

3) This allotment to new agent will be informed to you. New allotted agent may canvass new policies to you and get new business from you. But if you surrender the allotted policy before revival then the allotted agent will not be eligible to get the new business for next 6 months from the date of surrender. This measure is taken to serve the orphaned policies rather to close existing policy and get new business from you.

4) New allotted agent will get the future commission on the premium what you pay. Also he is eligible for the commission on the arrears what you pay to reinstate the lapsed policy.

To allot these orphaned policies to new agents for your service, IRDA given few guidelines to insurance companies too. Few of important guidelines are as below.

A) The number of policies that were allotted to this new agent shall not exceed 20% of the total number of policies that were introduced by him and in force as on the date of allotment.

B) Insurance companies need to check this new agents track record for complaints registered against him before allotting orphaned policies.

C) If the allotted policy is not revived within 6 months then insurance companies have rights to re-allot to the new agent.

In my view IRDA taken a good initiative to reduce the lapsation of policies.  But I have not found a single guidelines related to  for example-what will happen if your allotted agent not help you in other service related issues. IRDA only concentrated on premium collection and reducing the lapsation ratios of insurance companies. But servicing to policies will also includes like; providing good service during the time of surrendering the policies, getting loans, switching in ULIPs, nomination change, address correction and death claims.

LIC’s Whole Life Plan-Best for Estate creation

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

It is common practice by almost all agents to sell the products which they actually know. But I noticed during my search for LIC’s plans that Whole Life plans are I think untouched or neglected plans. Hence thought to give inputs how well they are and what are the drawbacks of these plans. First let us look at it’s feature.

In LIC’s whole life plans their are two¬†variants. One is the plan where you need to pay throughout your life span. Another is called Limited Payment, where your premium paying is restricted for few years only (like 15,20,25,30 and 35 yrs). Below are the few important features of these two plans.

Whole Life-Premium Payment throughout life Whole Life-Limited Payment
Min. Age 15 Yrs 12 Yrs
Max. Age 60 Yrs 60 Yrs
Max Maturity Age 80 Yrs 80 Yrs
Min. SA Rs.50,000 Rs.50,000
Max. SA Unlimited Unlimited
Loan Available Available

Maturity Benefits-Under first variant, policy get matured after the policy holder attaining the age of 80 yrs or after the completion of 40 yrs from the commencement date of policy. For second variant, policy will get matured after the policy holder attaining the age of 80 yrs. In both cases you will get Sum Assured+Accrued Bonus+Final Additional Bonus. One more benefit offered is, if policy holder can postpone his/her maturity proceeds later dates too. In that case he will continue to enjoy the benefit of available bonus rate till he takes back the maturity proceeds.

Death Benefits-If death occurs during the period of policy term then nominee will get Sum Assured+Accrued Bonus till the date+Final Additional Bonus.

Now the positive points of this plan are, lower premium compare to other LIC’s plans and enjoys the highest Bonus rate. So automatically you can enjoy high returns than other plans. Let us take example of 30 yrs old person who opt for limited payment 35 years. I took 35 years because in this plan maturity will be at policy holder’s 80 yrs of age. So instead of paying high premium better to lower it and opt for higher Sum Assured. Sum Assured I opted is Rs.25,00,000 and the yearly premium for him will be Rs.66,375.

Let us look at returns how much he can get if he attains the age of 80 yrs. Overall he pays Rs.23,23,125 for the whole 35 yrs of premium paying period. Maturity amount he will receive will be Rs.25,00,000 (SA)+ Rs.87,50,000 as Bonus (Calculated at the current rate of Rs.70 for SA of Rs.1,000)+Rs5,62,500 Final Additional Bonus (Calculated at current FAB for more than 25 yrs term policy and SA  more than 2 lakhs which is Rs.225 for SA of Rs.1,000). So total he will receive Rs.1,18,12,500. Overall IRR (Internal Rate of Return) workout to be 4.71%. Now few may say who will live till the age of 80 yrs.

Suppose if he lives only till the age of 60 yrs ( I considered 60 yrs because most term plans maximum maturity age is 60yrs) then from his current age of 30 years to his age of 60 yrs he will pay Rs.19,91,250. If we consider his untimely demise in that year means his nominee will get Rs.25,00,000 (SA)+ Rs.52,50,000 Bonus (Calculated at the current rate of Rs.70 for SA of Rs.1,000)+ Rs.5,62,500 as Final Additional Bonus (Calculated at current FAB for more than 25 yrs term policy and SA  more than 2 lakhs which is Rs.225 for SA of Rs.1,000). So totally his nominee will receive Rs.83,12,500.  In this case IRR works out to be 8.54%. So infact this shows good returns than the 80yrs of maturity returns.

So compare to other traditional plans and when you are buying insurance with the sole intention of creating some corpus for your dependents then it is best to park few % of your portfolio into this plan. Eventhough returns looks low, in first case it is 4.46% ¬†(probability of attaining 80yrs of age less :))and in second case 8.54%, but when you are looking for secured returns with bit of life risk cover then better to park here. This plan also holds good for few people who think Term Insurance as waste product where you will not get anything in return during the life time and in case of death only SA.¬†Hence I recommend you to have this high Bonus plan for creating wealth for your dependent. But as usual I am cautioning not to park all investment into this product instead some % of your portfolio. Happy Investing ūüôā

LIC’s Jeevan Vaibhav-Review

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

LIC is launching one more Single Premium plan on 21st May 2012. Looks like all insurers on launching spree of single premium plans. ¬†Now let us look at it’s features and what is new in it. It is a single premium plan and closed ended plan. It will be available for 120 days from May 21st 2012. It is non-linked insurance plan (non ULIP).

Eligibility Conditions:-

1) Minimum Age-8 Years

2) Maximum Age-65 Years

3) Mode of Payment-Single Payment

4) Minimum Sum Assured-Rs.2,00,000 and Maximum no limit

5) Minimum Premium-As being Minimum SA is Rs.2,00,00 so Minimum Premium Payment will change for each age group (for example for 8 years old Single Premium will be Rs.95,210 excluding taxes and for 65 years old Single Premium will be Rs.1,06,280 excluding taxes)

6) Policy Term-10 Yrs

Benefits:-1) Death Benefits

On death during the policy year excluding the policy year i,e 10 year you will receive Sum Assured.

On death during the policy 10 year, you are eligible for Sum Assured along with Loyalty Addition.

2) Maturity Benefit

On Maturity Sum Assured along with Loyalty Addition will be payable.

3) Loyalty Addition

It depends on LIC’s experience which you cant expect now exactly.

Loans-Loan can be granted after the one policy year subject to the maximum of Surrender Value (remember not the premium you paid). Loan interest rate is 10.25% Compounding Half Yearly.

Surrender Value- 1) Guaranteed Surrender Value- You are eligible for 90% of the premium you paid after the expiry of one year but excluding extra premium if you paid any.

2) Special surrender value will be payable, if it is more favorable to the policyholder.The Special Surrender Value will be the discounted value of the Sum Assured. The discount factors shall be the special surrender value factors used for LIC’s Endowment Assurance plan, which will depend on the policy term and the duration elapsed since commencement of the policy. The Special Surrender Value factors per Rs. 100 Basic Sum Assured for duration 1 and 1.5 years are 44.52 and 45.97 respectively

My Review:- In plain it looks like previous single premium plan of LIC’s Jeevan Vriddhi. But in reality you may find lot of ¬†differences.

1) Maturity benefits and Death Benefits- In Jeevan Vriddhi Maturity Sum Assured was guaranteed but here it depends on LIC’s Loyalty Addition declaration which you cant predict. ¬†Death Benefit too looks not attractive, usually in non linked plans you will get Sum Assured along with Bonus till the date of the death. But in this plan only Sum Assured will be payable if death¬†occurs within 9 years of policy term as only Loyalty Addition is attached with this policy. Instead if death occurs during 10th year then you are eligible for Sum Assured along with Loyalty Addition. So big drawback of this policy is death benefit you will get before 9th year of policy.

2) Returns-Let us consider Insured age as 30 yrs and for this age tabular premium will be Rs.463.417 for Rs.1,000 Sum Assured (Excluding applicable taxes). So if he opts for Rs.10,00,000 Sum Assured Plan then he need to pay a single premium ¬†of Rs.4,63,417. In this case your life risk will be Rs.10,00,000 and returns on death claim too same till the 9th year of policy. Now in this we will exclude the premium which you will be paying towards your life risk coverage of Rs.10,00,000. For that as usual I consider LIC’s Term Plan Anmol Jeevan for 10 yr period. So premium for this term insurance is Rs.2,564 yearly. Now after deducting this amount from the single premium you are paying Rs.4,46,213 ¬†(For this I considered whole 10 year term plan payment being invested now in a 8% returning avenue then today you need to invest Rs.17,204 to¬†accommodate yearly flow of Rs.2,504 towards Term Insurance)¬†. So for the whole 10 year your investment amount will be Rs.4,46,213. To generate returns of around 9% from this policy then Loyalty Addition LIC need to pay will be Rs.56,348 along with SA (Future Value with 9% CAGR is Rs.10,56,348). Will LIC deliver such a high Loyalty Addition after paying 2% agents commission and it’s policy expenses? Few may refer it as a Insurance+Investment Plan. But as the term of the plan being 10 years, will LIC issue same Sum Assured Term Insurance after 10 years without increase of Premium to the person who invest now in this plan? A big no, then forget about Insurance part attached with this plan and just purely think as how much you will get by investing.

3) Loyalty Addition-This is the major point you need to look for. Because your returns depend on this Loyalty Addition. Now let us look at the LIC’s history of Loyalty Addition payment. Loyalty additions hover from 40 to 60 for currently available plans. So you may not expect high and lucrative Loyalty Addition from this plan too.

4) Taxation-When you look for tax saving angle too, it lacks the current Budget modifications. To avail deduction under section 80C your premium should 10% of SA. So if you opt for Rs.10,00,000 SA then your premium should be within Rs.1,00,000 which is not possible from this policy.

Overall looks pathetic and LIC came up with this plan with sole intention of launching “Single Premium Plan”. You can easily get good returns by locking your investment in current high yielding Bank FDs for same 10 yrs and opting for Term Insurance till 60 years of your age (Remember not for 10 years because after 10 years you will not get the same life cover with same premium for what you will get now).

Why your Insurance Agent not sold you Term Insurance?

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

Today we will look for the reasons about why your insurance agent not sold you Term Insurance. Each true Financial Advisers recommending you to have it first to cover your life risk, but on the other side your Insurance Agents or Advisers are forcing you to buy the products which are Insurance+Investments where your will fail to cover your basic life risk to the fullest. It happened in past, is happening now and will continue in future too until investors awakes and ask 1000 questions for the reasons of recommending the particular product.  These are the few reasons which may forcing agents to be away from selling Term Plans.

1) Lack of Knowledge by Agents: When you ask agents about insurance, they usually have standard list of products which they used to sell on daily. Which makes them drawing their own comfortable level about products. When you ask about any older products or odd products, they totally not aware of those things. Primary reason for not having enough knowledge is, major chunk of insurance agents in India works as part time. Which will not let them to have enough time and patience to grab the desired knowledge.

2) Lack of Knowledge by Insurance seekers: Majority of people especially in India think that Insurance is a investment tool rather than a protective tool. It happened so due to no available avenues for investment in past. But presently when you have so many avenues to invest for then why you need to stick to the Insurance format where both insurance and investment mixed? It is also wrong thing to blindly follow your agents suggestion and signing the offer document without knowing the impact it will create on your future financial life. Yesterday itself I came across such a incident where one of my client asked my advise about investing yearly Rs.1,00,000 in any insurance products of one particular company. When I asked for reasons of his investments and choosing the particular company, he told he want to accumulate ¬†some decent money after 10 years and major reason is he want to help the agent who is his friend’s mother. I simply asked him Rs.1,00,000 is what percentage of his yearly income?? He never calculated that too. Finally ¬†advised him, if he really interested to help that agent then better to have term plan with that company. You will find such a cases regularly.

3) Earnings of Agents: When agent selling you the product which is Insurance+Investment, he have good opportunity to earn the handsome income. Like for example, if  he recommend you any Endowment Plan with the premium of around Rs.1,00,000 his income will be around Rs.25,000. This plan with such a high premium may cover your life risk around Rs.20,00,000. But if he sell you the same sum assured product i,e Rs.20,00,000 Term Insurance then premium may be around Rs.6,000. So by selling this Term Plan he will get the commission of around Rs.1,500 (25% of your premium). Then who will loose such a opportunity of selling Endowment Plan rather than Term plan??

4) Future business for Agents: When he sell you the Endowment plans or ULIPs and created your mindset such that insurance products are for investment, he have every opportunity to get continues business from you in the name of investment on regular base. So whenever their is a salary hike, increase in income or new family members entry (like birth and marriage) he uses such opportunities to generate his business. But when he convince you about the benefits of Term Insurance and sell you the product then you will not look back at him to purchase any insurance product for another 15 to 20 years. So he will loose the huge future business opportunity by selling you the term plans.

I think these are the major factors which led your insurance agents not recommending you Term Plans. Hope you now got bit of awareness and cover your life first. I will conclude this article with one example how even wrong media can create wrong perceptions about Insurance. Yesterday when I was watching the super,¬†competitive, breaking news spreading, and unbiased Kananda news channel, they showed one line breaking news that they are airing the programme which is mainly about “INSURANCE INVESTMENT IDEAS”. Strange even few medias also think that Insurance is investment ūüôā

LIC’s revised (2012-13) interest rates for Policy Loans, Revival and Dating Back

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

LIC revised it’s interest rate for various financial transactions like loan and dating back of policies for year 2012-13. Major change you look for is loan rate which is currently 9% changed to 10%. ¬†Revival and Dating Back of policies changed from existing 8% to 9.5%.¬†The details of the same are as below

Srl No. Type of Transaction Current Rate of Interest (%) Revised Rate of interest (%)
1 Policy loans (under all plans except Jeevan Aastha (Plan 195) and Jeevan Vridhhi (Plan 808) 9 10
2 Policy Loans under Jeevan Aastha (Plan 195) and Jeevan Vridhhi (Plan 808) 10.25 10.5
3 For policies issued on or after 1/1/1987 a) Arrears of premiums within 6 months from the date of FUP and b) For revivals 8 9.5
4 Arrears of premiums for alterations and age providing higher 9.5
5 Dating back of policies 8 9.5
6 Discount factor for a) Commutation of instalments under educational annuity policies, b) commutation of Income Benefits under Multi-purpose, Guaranteed benefits under annuity policeis and c) unpaid instalments under settlement options 9.5
7 Settlement options for Maturity Claims 6
8 a) Advance payment of premiums (for all plans except Jeevan Sneha (Plan 128) 5 6
b) Advance payment of premiums for jeevan Sneha (Plan 128) 10
9 Delayed payment of claims 11.5
10 Discounted value or accumulated value for calculation of Special Surrender Value under Jeevan Saral (Plan 165) 7.5
11 Accumulation of survival benefits under Jeevan Bharati (Plan 160) and Jeevan Bharati I (Plan 192) 4
12 Discounting of claims during the last year of policy term 9
13 Reinstatement of surrendered policies 10.5

For further clarification you can look for LIC’s circular of Actl/PS/2202/4 dated 28/04/2012

Do you know LIC’s Term Insurance Plans??

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

“Is LIC offer any Term Insurance Plans?” this is the common question which I face during my conversation with my clients when I recommend them to have Term Insurance Plan to cover their Life Risk. This is the situation we are facing due to lack of knowledge sharing and eagerness to sell the products rather than solution. So thought to have a look about the available Term Insurance products in LIC. I thought to speak in this article about LIC’s plans.¬†Reasons are 1) It is India’s oldest Life Insurance Company 2) Major player in Indian Life Insurance industry with it’s huge penetration 3) Faith it generated among the people since long. This is the reason even today also after the private insurers entry into India since 2000, people believe in LIC. But will LIC folks retain this glory? Wait and watch the future ūüôā

To proceed further let us look at the history about when LIC started to sell Term Insurance Products. Before the current available term plans Amulya Jeevan and Anamol Jeevan, LIC had term plans called Bima Sandesh and Bima Kiran. Bima Sandesh was the term plan with benefits as Death Benefit-Full Sum Assured payable and Survival Benefit-Return of Premium payable. Bima Kiran was the  improved version of Bima Sandesh,  Death Benefit was-SA+Loyalty Addition and Survival Benefit was-Premium Paid+Loyalty Addition. Currently Bima Sandesh and Bima Kiran not available. Now let us look at the available Term Plans from LIC.

1) Anmol Jeevan-This plan was started on 1-11-2003 with the need of pure term plan which was missing in LIC and this absent was the reason for private insurers to increase their business. This plan was pure term plan rather than any return of premiums or loyalty addition benefit. Main features are as below.

1) Minimum Age at entry-18 Years

2) Maximum Age at entry-55 Years

3) Maximum Maturity Age-65 Years

4) Minimum Term-5 years

5) Maximum Term-25 years

6) Minimum Sum Assured-5 lakh

7) Maximum Sum Assured (Effective from 27-02-2006)-24 lakhs.

Drawbacks are-You cant add any riders to it and as usual compare to private insurers premium is costlier.

2) Amulya Jeevan-This pure term plan was started on 18-02-2008 to cater the insurance need of high earning segment. Major features are as below.

1) Minimum Age at entry-18 Years

2) Maximum Age at entry-60 Years

3) Maximum Maturity Age-70 Years

4) Minimum Term-5 years

5) Maximum Term-35 years

6) Minimum Sum Assured-25 lakh

7) Maximum Sum Assured-No upper limit.

Positive point being age factor- entry and maximum maturity age which is increased compare to Anmol Jeevan. But drawbacks being same-No option to add riders and costly to private insurers.

3) Two Year Temporary Assurance Policy-This plan is suitable for insuring non-insurance minded class of lives who require risk cover for a short period of 2 years or less. Features of this plan are as below.

1) Minimum Age at entry-18 Years

2) Maximum Age at entry-60 Years

3) Maximum Maturity Age-62 Years

4) Minimum Sum Assured-3 lakh

5) Maximum Sum Assured-1 Crore.

6) Modes of Premium payment-Single only

7) Terms Allowed-6/12/18/24 months.

Drawbacks- Insurance for two years??  Proposer required to pay the medical examination fees.

4)¬†The Convertible Term Assurance Policy-LIC shows this plan too as “Term Assurance Plans”. But I dont feel it as a pure term plan as the major aim of this plan is convert in future insured person into investing either in Whole Life plans or Endowment Plans. This plan rather suitable to people who started their carrier recently and unable to pay high premiums for whole life and endowment plans. By taking this plan they can cover their life risk now with lesser premium payment but later they need to convert this plan into Whole Life or Endowment Plans. After the¬†conversion, premium will also raise. Hence this plan is not suitable to them who is looking for pure term plans.

These are the four plans which currently LIC offers. But LIC need to change it’s view on available Term Plans which lacks in competition¬†comparison¬†to-Price, Service, Agents activity to push for these plans and finally online term plans.

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