Are we really prepared to live our life?

Life is a beautiful journey. Yes, it indeed is.

What is a paid up life insurance policy?

I have seen many people who buy life insurance policies and start paying premiums only to realize after a few years that they need to continue to pay the premium for another 20 years or in some cases, even throughout their lifetimes. After 3-4 years, they seem to be running out of finances to continue to pay regular premiums for the policy to stay in effect. Do not lose heart. Insurance industry provides a provision in such cases.

Tax benefits for NGO donations under Sec 35AC and Sec 80GGA

As i am working on my goal of setting up my first NGO this year, there came the realization that i would also need some funds to run this NGO :). Well, do not worry, i will not bore you with my NGO details on this post. The purpose of this post is to help me collect funds :) just kidding..it is actually for you to know the tax benefits you can avail when you donate money to any NGO. There are different IT Act sections that apply if you are salaried class or if you are running a business.

Can multiple insurance policies cover the same risk?

Background

Insurance policies are designed to ensure that the recipient of the policy benefits do not collect more than the claim is worth (risk coverage), regardless of how many insurance policies may be in force. 

Insurance is designed to protect against financial losses from damage. It is not meant to be used as a way to gamble and make money off damage to your business or personal assets. If you own multiple policies that cover the exact same risk, the payout result depends on the type of insurance coverage.


Kind of Insurance Contracts
Policies will typically build in wording to address how they will respond in the event of a claim and other insurance is available. There are a few ways that policies can interact with each other and there is no one standard provision that can be applied to all policies. When you buy insurance, you are given a policy that explains the terms of your agreement. Your policy states what your insurance company will do if you own another policy for the same risk. 

Some policies pay on a pro-rata sharing basis, meaning they divide the payments with the other companies. 

Other policies designate themselves as primary or excess policies. Primary policies always pay claims first, whereas excess policies wait until the other contract has paid before making payments. 

Some contracts offer no coverage at all in the event you own a duplicate policy, making your extra coverage worthless.

Let us look at it on a case to case basis for various types of insurance that we do.

Auto Insurance
If you own duplicate auto policies, it is crucial that you review the terms of your contracts. Auto insurance does not pay more than the limits of your insurance. If your vehicles are insured for the same amount by each company, it is possible that the two companies will argue over who should pay. This could delay the payment of your claim, forcing you to pay for your bills out of pocket. You should never use two auto policies to cover the same risk.

Health Insurance
 Owning two types of health insurance is more common and can have some benefit. This often happens when a person enters Medicare while he is still working. Health insurance policies follow the "coordination of benefits provision" created by the National Association of Insurance Commissioners. If you or your employees own two policies, the provision designates one policy as primary and the other as excess. The primary policy covers the health claim up to its benefit limits. If you or your employee still owes money for a medical claim, the excess policy picks up the difference. The insured needs to pay the deductible and co-pays for the primary policy first. If the excess policy needs to be used afterward, its deductible and co-pays also need to be paid.

Life Insurance
Life insurance policies follow different rules for duplicate coverage. While someone may destroy property to earn a profit, few would end their lives to make a profit on life insurance. As a result, owning duplicate life insurance policies will not reduce your future payment. Both policies will pay their face value in full after your death. While an insurance company may refuse to sell you excess life insurance coverage due to existing coverage, it will not refuse a death benefit for an outstanding contract.

 
In the worst case scenario, some policies state they will not pay any claims in the event any other insurance is available for the same loss and achieve this denial of coverage in a few ways. Some policies simply include policy language to exclude any coverage in the event another policy covers the same loss. Other policies will reduce the amount of insurance by any other insurance available. If the other available insurance is in an amount equal to or greater than the policy's limits, essentially no coverage will be available from this policy.

Knowledge of such overlapping policies and the provisions in your insurance contracts can go a long way in saving your money and giving you surprises at the end of the day.

Cheers

Manoj Arora

No Claim Bonus (NCB) for your Car Insurance

Vehicle insurance is mandatory. But make sure that you are not losing out on the No Claim Bonus especially when you are buying a vehicle (new or 2nd hand).

What is a No Claim Bonus (NCB)

No claim bonus is a discount given by the insurer to the policyholder on his / her vehicle insurance policy premium for making no claims. NCB can be accumulated over years and the discount ranges from 20% to 50% on own damage premium. No claims bonus (NCB) is crucial to reducing car insurance premiums.

What is Own Damage (OD) premium?

Before you understand NCB premium calculation, you must understand what is an Own Damage (OD) premium. Own Damage (OD) premium is the amount of premium that you pay to the insurance company over and above the mandatory third-party cover. If you have paid OD premium you are entitled to claim compensation in the case of damage to your vehicle due to flood, fire, earthquake, etc. In case you have only got 3rd party insurance (mandatory) done, then NCB will not be applicable on your premium since that is applicable only on the OD part of the premium of your total premium.

How does NCB work?

No claim bonus increases every year as per the following table. NCB rewards you for being a good driver and helps you save on your motor insurance.

The chart here illustrates the discount on Own Damage Premium on account of no claims for the consecutive years.

All Types of Vehicles	% of Discount on OD* premium
No claim made or pending during the preceding full year of insurance	20%
No claim made or pending during the preceding 2 consecutive years of insurance	25%
No claim made or pending during the preceding 3 consecutive years of insurance	35%
No claim made or pending during the preceding 4 consecutive years of insurance	45%
No claim made or pending during the preceding 5 consecutive years of insurance	50%

*OD= Own Damage

Illustration 

On first renewal, a car with IDV (Sum Assured) of Rs 4 lacs has own damage premium of Rs 12000. If no claim has been made, the policyholder is entitled to 20% discount so his premium would be Rs 9,600. He clearly saves Rs 2,400 by not making a claim.

The money saved on OD premium keeps on increasing every year with the discount increasing every year.

When is NCB terminated?

NCB can be terminated in the following 2 scenarios:

a) If a claim is made during the policy year, no NCB will be given in the corresponding next year. Reasons are obvious based on the NCB definition itself.
b) If the policy is not renewed within 90 days from date of expiry on your existing policy, then NCB is forfeited or terminated.

Important Notes :

a) NCB becomes Nil in case of a claim

b) NCB follows the fortune of the customer and not the vehicle. It stays with the initial owner of the car even when the ownership changes. In fact not many dealers update the buyers of this, and when someone with few years worth of NCB buys a new car, most of the people end up paying the full insurance amount, without claiming the NCB they have accumulated over the years.
c) NCB can be transferred to the new vehicle (actually the new owner) in case of substitution of vehicle of the same class
d) Validity of NCB is 90 days from the date of expiry of the policy
e) NCB can be utilized within 3 years (where the existing vehicle is sold and a new vehicle is purchased)
f) NCB recovery can be done in case of a name transfer.

g) NCB is also transferable from one insurer to another.

Save money wherever you can and you should. Money saved is money earned.

Cheers

Manoj Arora

Healthy Breakfast for your mind.

However fond you may be of junk food, morning is a time when everyone prefers to have something relatively healthy. This is what our body craves for. Surely, a good start to the day is half the battle won. But wait...What do you feed your mind for the morning breakfast?...Who cares...Read on...

Life Insurance Policy Tax Exemptions - Section 80C and Section 10(D)

[Last Update : 14-Oct-2017]
There is a general perception among the taxpayers that all premiums paid for Life Insurance is eligible for deduction under Section 80C subject to overall limit of Rs.1.50 Lacs. Further, it is also a misconception that all sums received from the insurance company against your life insurance policy is exempted under section 10(10D). You may be in for a shock if you are not careful with the sum assured and the premium you have been paying for these policies...Read on...

Income from House Property Part-3 (Sec 22 and 24 IT Act)

In this series of posts, we have been covering the tax awareness on Income from House property (Sec-22 and Sec-24 of IT Act). We have covered 2 parts till now and we are covering the 3rd and final part today. So, lets read on the Computation of Income from a self-occupied Property.