Waiting Periods in a Health Insurance Policy

When you buy a health insurance policy, you might assume that you are covered from day one. But that’s not always true. Insurance companies apply a waiting period, and it is important that you understand the types of waiting periods.

Wealth Protection via Personal Accident Cover

Personal Accident Cover is a must have insurance - whether as a rider to your existing life, health or vehicle insurance policy, or as a separate policy - to protect your wealth from the looming threats of an accident.

Understanding Solvency Ratio

Before you select any insurance provider - be it vehicle, health or life insurer, make sure that you judge the financial strength of the company by looking at its Solvency Ratio.

9 smart ways to reduce your vehicle insurance premium

Vehicle Insurance is the only mandatory insurance in our country. Here are some smart ways to save more money and improve our monthly cash flow.

Strategies and Clauses while choosing a Health Insurance Policy

[Last Updated: 13-Apr-2023]

You may not need Life Insurance after a certain stage of life. 

But Health Insurance is one insurance you would love to have until the last day of your life. Choosing a right health insurance policy, selecting the right clauses, and adapting a right strategy is the key to protect your wealth, and live with a peace of mind....Read on...

8 Strong Reasons to buy your own Health Insurance Cover right now.

You feel you are too young for Health Insurance? Or you are under the false impression that you are already adequately covered by your employer? Or you are one of those who have closed their eyes to the modern lifestyle diseases and feel that nothing is going to happen to you? Whatever be the case, it is better to wake up to the reality of Health Insurance before it is too late....Read on

10 Financial Checkpoints in the new Financial Year

The financial year 2015-16 started more than a month back. Thats how fast time moves. Now that you are well into the new financial year, make sure you do not miss out checking on the following 10 (ten) financial checkpoints to have a financially rewarding year..read on..

1. Calculate RoI for the last year

Most people have no clue about how their portfolio is actually performing year on year. When I ask the so called 'financial wizards', they start talking about returns on real estate or stocks or mutual funds, as if Fixed Deposits, Recurring Deposits, Employee Provident Fund, Public Provident Fund etc were not a part of their portfolio. 
If you have had a chance to seek financial freedom advise from us, I am sure you would be tracking your entire portfolio, and not just a part of it. But even if you have not started tracking your portfolio, no problems. It is never too late, and it is not difficult. Just go to the Freedom Portal, login and download the Step 2 Template for Assets from the 'Dive in the book' section. Just fill in the current value of your assets and get going with your portfolio tracking. You should be able to find out what returns you are getting on your overall portfolio and how you can tweak your portfolio to balance it for risks and rewards.

Knowing RoI on your portfolio is a critical input for financial freedom planning and wealth generation.

2. Monitor Inflation Data

Understand what average inflation has been going on for the last 10 years. This is critical to make assumptions for your future expenses and calculating future value of money. Look at some of the inflation figures by clicking here. Make sure that you take a rolling average of inflation and adjust your financial plan and financial journey every year. A 2-3% variation in inflation can have a drastic impact on your wealth calculation.

3. Claim your Leave Travel Allowance (LTA)

When was the last time you claimed your LTA? 2014-2017 is the current block of 4 years wherein you can claim the LTA twice. If you missed out in 2014, dont miss it this year. Give your family the break they deserve, and save taxes as well. Read more about LTA / LTC claims and other rules by clicking here.

4. Re-balance your portfolio

If, over the last year, because of the bull run in the equity market, your stocks + mutual funds (equity component of your portfolio) has over shot the prescribed thumb rules for investment, you may want to re-balance your portfolio by moving some of the money from equity towards the debt portion. Read more about understanding the portfolio here.

5. Re-validate your Life Insurance needs

Most people get their life insurance done once and seem to believe that they are done for their life. Even more feel that life insurance is an investment and expect it to give decent returns apart from covering for risk. 
Life Insurance is a risk cover and should never be mixed with investment. Also, life insurance needs change with your changing financial profile, passive income, standard of living, liabilities, assets and so on. Get a financial planner re-assess your life insurance needs and bridge the gaps, if any. If there is any confusion, feel free to write to us.

6. Re-validate your health insurance needs

Health insurance needs also change with age, lifestyle, medical inflation and so many other environmental factors around you. Get a financial planner to re-assess your health insurance needs and bridge the gaps, if any. If there is any confusion, feel free to write to us.

7. Start investing in Section 80C right now

Most often, we invest and save for saving taxes. While we must get smarter in saving taxes, investments should not be driven primarily by tax savings. The best way to counter this psychological human behaviour is to save taxes at the beginning of the year rather than leave it for the last minute rush at the end of the financial year. 
Section 80C has the biggest bucket (after home loan interest) available for tax savings. So, whether it is PPF, EPF, SSY, NPS or any other investment tools, get going from this month itself.

8. Submit Form 15G / 15H, if applicable

Only if you are applicable, do remember to submit Form 15G / 15H. Every year, you need to resubmit this form to your bank so that they do not deduct your TDS. For applicability and other rules, click here.

9. Check applicability for Sukanya Smridhi Yojana
This (SSY) was a new scheme launched in this financial year specifically for the girl child. It is said to be better than PPF. Check the eligibility for your girl child, if applicable and take a decision whether you want to invest in this. To understand the merits and demerits of this scheme and for a comparison with PPF, click here.

10. Decide on NPS investments

With the Budget 2015 proposals, investing in NPS has become more lucrative. It offers additional tax savings over and above the limits posed by Section 80C. But again, investments done just for the purpose of saving taxes often prove themselves to be a liability in the long run. Read a comprehensive article on NPS investments by clicking here before taking a decision.

The book "From the Rat Race to Financial Freedom" takes you through all possible investment options to enrich your financial freedom journey.

Cheers

Manoj Arora

Freedom can buy you.... what money cannot !!

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Home Insurance for an Apartment Flat in India

Any standard home insurance policy will protect the structure of your house and its contents from perils such as fire, flood and earthquake. The terms are therefore straight if the house is on your own land. However, if you own an apartment, which is equally exposed to the dangers of getting partially damaged or completely razed by a natural or man-made calamity, it may raise some queries in your mind considering that your apartment is just one part of the complete building. Let us find more.

How it works?

In case of loss due to risks listed in the insurance policy document, the insurer will pay on the basis of the house's reconstruction cost. The reinstatement value (the price needed to reinstate the house back to its original condition before the calamity) is calculated on the basis of the built-up area and the construction cost, generally fixed by the insurance company. 

How to calculate the Sum Assured Needed?

You just have to estimate the cost of rebuilding the apartment 'which should be the sum insured' and the insurance company will pay accordingly in case of loss. The insurance plan for an apartment has the same underwriting principles and sets of inclusions and exclusions as a policy for an independent house, irrespective of the floor on which the flat is. There are no additional features either. The insurance is done considering the built-up area and the cost of reconstruction. If you feel the society's insurance is inadequate, buy an individual policy as a top-up cover.

Who does the group insurance?

Usually, housing societies get the structure of the building insured. This means you have to insure only the contents of the house such as jewelry, electronics and furniture. If the society hasn't insured the building, you can buy a cover individually as well.

In such a case, each flat owner gets a separate insurance cover. An insurance contract is concluded based on declaration by a proposer wherein occupancy is also declared. So, if your declared occupancy has not changed, for example from residence to a shop, the policy will continue and the claim will not be affected even if your neighbor has breached the contract.

What about an "Under Construction" Apartment

You cannot buy a cover for an individual apartment in the course of its construction since it is part of the entire building structure. While a building is under construction, it should ideally be covered under a project insurance policy taken by the builder.

This would be in place until the construction is completed as per the approved plan. After the completion of the project, either individual flat owners or all of them together, as a society, can buy the insurance cover.

In case it is a private bungalow or an independent house which the customer himself or a builder is constructing, then the owner can take a cover for the same and change it to a regular home insurance cover  after the completion of construction.

If neighbor violates policy terms in a group policy

An insurer can reject your claim if any commercial activity is being carried out from your house. But if the flat is covered under a common policy taken by the society as a whole and your neighbor violates the policy terms, then usually it does not lead to rejection of your claim. Such activity by a neighbor will not affect the claim as long as the flat owner doesn't breach the contract himself.

What about common areas of the building?

The only difference between buying a cover for an independent house and an apartment relates to common areas such as compound walls, staircase, etc.

The whole apartment, including the common area, can be insured only by the residents' association on behalf of all flat owners. In such a case, a copy of the policy is given to each flat owner with details of the sum insured for individual flats. If an owner feels the sum is insufficient, it can be increased through the association only.

Will the claim settlement be with society or individual owner?

If a single flat in a building has been insured the cost of reconstruction of the flat is payable, to the flat owner, but up to the sum insured. Even if the proposer was the association, there is a provision to settle the claim with individual flat owners, to the extent of damage to the flat, provided the association gives a no-objection certificate. However, if the association takes up reconstruction, the amount will be paid to the association only.

Adequacy of sum insured

Since sum insured is the basis of compensation, it is important that it reflects the correct property value. Most people make the mistake of choosing the sum insured equal to the market value of the house, which may be extraordinarily high. However, the company pays on a reinstatement basis, which keeps fluctuating with construction costs.

On an average, one can take a 10-15% increase in the cost of construction (this differs from city to city) every year. One can check construction rates from the municipal corporation or real estate websites. However, arriving at an exact figure is difficult.

A customer can also opt for an escalation clause for increasing the sum insured every year. "The escalation can be up to 25% of the sum insured.

Tenure of the cover

You can either go for an annual cover or choose a multi-year policy. While the annual policy will give you the option to revisit the sum insured's adequacy every year, a long-term policy offers discounts which can be as high as 50%, depending on the tenure.

Cheers

Manoj Arora

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Comprehensive or Third Party Insurance for your vehicle

Background
Third party insurance and Comprehensive insurance are two options available for owners who want to insure their automobiles. Owning a new car is a delightful experience and a car is a thing of pride for the owners. Getting it insured is a necessity. There are people who consider their car as an asset and hence go for a comprehensive insurance, while others take it as a utility to cover distances and are satisfied with a third party insurance only.
Whatever the type of car insurance you opt for, it is a fact that getting insurance is a must for your car. Understanding the differences between a third party insurance and a comprehensive insurance can give you the required knowledge to take an informed decision and be prudent about optimizing your vehicle insurance expenses.

Why do you need to insure your vehicle?
Vehicle Insurance is important not only to protect your vehicle, but also to save you from any financial loss caused by accidents, damage or theft of your car. In addition, car insurance covers the safety of the co-passengers, someone else's property, pedestrians and yourself.
Also, it is mandatory under the Motor Vehicles Act 1988 to get your car insured as soon as you purchase it.

The parties involved
In insurance terminology, first party is the individual or business that is getting insurance policy and the insurance company is called the second party. Third party is the person or company that claims damages after suffering a loss through your car. Third party coverage is most commonly used in terms of auto insurance. Comprehensive insurance, on the other hand, as the name suggests, is full coverage that includes third party coverage.

What is Third Party Insurance (TPI)?
Third party coverage refers to damage or loss of property to third party. Third Party Insurance (TPI) is also referred to as Compulsory Third Party insurance (CTP). It indemnifies vehicle owners and drivers who are legally liable for personal injury to any other road user in the event of a motor vehicle accident. Your TPI insurance will cover you for claims made against you by other road users such as drivers, passengers, pedestrians, cyclists, motorcyclists and pillion passengers.
It is a compulsory form of insurance and the TPI premium is included in your registration payment.

Merits of Third Party Car Insurance
- Premium Calculation for 3rd Party Car Insurance is always lower against comprehensive policy

- TPI premium is independent of car value, and therefore gives value for money, especially for expensive cars.
- No Cap on Compensation Amount to the third party injured or damaged.

Demerits of Third Party Car Insurance
- Does not cover injuries or loss to the insured himself or his own car.
- Does not cover for loss, damage or theft of car.


What is Comprehensive Insurance (CI or CCI)?Comprehensive policy on the other hand is all inclusive and covers third party claims. Comprehensive Car Insurance not only covers your car for accidental damage, theft and fire. But also gives you a fixed liability cover for damage you may cause to someone else’s car or property.

Merits of Comprehensive Insurance
- Covers for injuries or loss to the insured himself or his own car.
- Covers for loss, damage or theft of car.
- The Limitations of 3rd Party Insurance is also the biggest difference between Third Party Car Insurance and Comprehensive Policy. However, along with 3rd party insurance, once can also take theft insurance. But combined premium will then be equivalent to Comprehensive Car Insurance Policy making it nonviable to have 2 insurance policies and rather go in for comprehensive policy.

Demerits of Comprehensive Insurance
- Expensive.


Conclusion
In general, Comprehensive insurance gives you a better piece of mind. So go for it.

But in case you want to get more prudent about the vehicle insurance expenses, then you can follow a general thumb rule that if your car is less than 7 years old, go for comprehensive insurance and later you can switch to TPI. The only logic behind this thumb rule is that a car older than 7 years has lesser probability of theft or financial impact of vehicle damage.

Cheers

Manoj Arora

Understanding KYC, eKYC and CKYC

[Last Update : 12-Nov-2017]

As the financial industry in India evolves, it is easy to get lost in the complexity of  this evolution. Know Your Customer (KYC) has many facets today - KYC, eKYC, CKYC, KIN being some of them. A simple and clear explanation will help you set things in perspective...Read on..

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

Understanding Mortgage

 

^{Understanding mortgage and few other key terms and concepts around it will help us understand more on this critical aspect of money management in our lives. So, lets go..}

Typical Car Insurance Claim Rejection reasons

Facing an insurance claim rejection is never easy. It can put your monthly or even annual budgets into jeopardy, depending on the loss.

In many cases, auto insurance claims are rejected because of mistakes or lack of awareness on the part of the owner.

Following are some of the typical reasons for insurance claim rejection:

1) Post accident, if the driver is found under the influence in alcohol, the claim is liable to be rejected

2) If the driver of the car does not possess a valid license, the claim can be easily rejected

3) If you car remains unattended following an accident and subsequently gets stolen, the insurance company would not honor such a claim

4) Any consequential claims would be rejected, which means when a car gets damaged and the owner does not get it repaired, then any further consequential damage is at owners risk. e.g. if your car hits a road bumper resulting in oil leakage, if you do not get this repaired soon enough, you could damage the car engine. If such a damage is established, it will not be covered under insurance.

There are many other reasons which you may not be aware of. Let us say your car gets stolen because of your negligence like you forgot your keys inside the car itself and the car gets stolen, then the claim would be rejected. The insurance company can find out about this. They would typically ask you to submit both the original keys of your car before they approve your insurance claim. If you cannot produce both the original keys, the assumption would be that you would have forgotten the keys inside the car.

To avoid such a situation, you should apply for a new car key with the dealer if you do not have all the original keys.

Small habits like these can help you save money and can also prevent from your budgets going into jeopardy. The book "From Rat Race to Financial Freedom" guides you through such practices which can help you save and grow your money.

Cheers !!

Manoj Arora

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Twitter : @manoj_216

Blog : http://ratrace2freedom.blogspot.in/