LIC's Jeevan Varsha

After the success of the close ended guarantee returns product Jeevan Astha, the life insurance behemoth comes with  another guarantee return, conventional money back policy - Jeevan Varsha.   The unique differentiators of the product from the other money back policies of LIC are as follows:

• its a close ended offer.  i.e. the policy is open for sale for a limited period
• unlike the conventional money back tenure of 20 + years,  the offered terms are 9 and 12 yrs
• the short duration coupled with money back at 3 years interval make your capital free regularly.   
• first time LIC coming with  a money back starting at 3 years rather than 4 years convention.
• for 9 year tenure, the guarantee return is 65 per 1000 SA and for 12 years tenure, it is 70.
  
• for 9 years policy, money is back at 3,6,9 years @ 15%,25%,60% and bonus in the 9th year.

However, the premium is slightly on the upper side as the term is less.  Average annual premium per 1 lac SA is 16000/-.   The product does not offer single premium, as the same is taken care by Jeevan Astha perhaps.  

Another contrast is that, Jeevan Astha has a guarantee tag of 90/100 of the maturity SA which is in fact 1/6th of the SA.  Many investers would have missed the fine line from LIC.  Some agents have canvassed it as 90 per 1000 on SA which makes the return very high.  

In that backdrop of truth and misnomer, the 65/70  per 1000 return offered by Jeevan varsha may seem to be less.  

Keeping in mind the successful money back plans of LIC having guarantee component, such as Jeevan samridhi, which offered 55 per 1000 as a guarantee return,  this offering is very good.  

The ULIPs....Part I

Unit Linked Insurance policies (ULIP) are the insurance policies that have a linkage with the stock market.  There has been an increased activity on this count and lets see the fundamental concepts of ULIPs and how they differ from the normal insurance products that have been offered till now called as conventional insurance policies.

In Indian financial world, the word unit was more popularized by Unit trust of India.  Units are the constituent elements of a mutual fund.  At a basic level, mutual fund is the collection (portfolio) of different securities that have differing risk characteristics aimed at maximising returns and minimizing the risk.  This is done by way of portfolio management carried out by specialized companies called as Asset Management Companies (AMCs).  The same unit is what we use in ULIPs.

In advanced countries, these are called as Variable life products and Universal Variable Life products ( VL & UVL), though at times ULIPs is also used.  

The primary difference between the conservative products and the unit link products is the transfer of risk. Other than the term insurance policies, the premium you pay consists of two elements. 1.  risk premium   2.  savings premium.   For term insurance policies, there is no savings component in general and only risk  premium will be there.  The insurance company by investing the savings premium in eligible investment avenues, generates a return on the funds. This is paid as bonus on policies after deducting the operating costs of the company.   Traditionally the insurance companies try to maintain a average return on compounding which gives a better return.  Here the missing element is, the customer does not know where his premiums are being invested.  In ULIPs, the savings premium is invested as decided by the customer. The customer has a choice of  different funds which differ in their risk character along with an option to switch the funds.    The other area of transparency is the costs.  Various charges such as administrative charges, fund management charges and all are pre declared and customer can know how much is the cost deducted.  This transparency is missing in the traditional products.    Read part II of ULIPs for why ULIPs and What you need to know about your ULIPs. 

lets take a journey... Part II

While you fill the proposal forms - you will be furnishing , your legal name, legal heirs details, communication address, (now IRDA seeks identity also), your qualification, occupation, annual income, previous insurance details, familay members details, if any member died then cause of death, your health record such as smoking habits, hospitalization information etc. also you will be mentioning the sum assured ,the term and mode of premium payment.

Pleae note: the inforation you provide here forms the basis for test of law in case of any disputes!!

Based on the information provided by you, the insurance company scrutinizes your suitability for insurance. This is the job of an Underwriting department. There are international standards for underwriting. Each underwriter will have some upper limt upto which if sum assured lies, he can underwrite the risk. The higher the sum assured, the more scientific the underwriting becomes. The insurance company can call for specific medical reports if need there be. In general, the cost of these reports is born by the insurance company only.

Upon underwriting, the insurance company may reject your proposal, accept it with some conditions or accept unconditioanlly. You may have choice to pay the first premium as a deposit along with your proposal or pay it after the confirmation. This may vary from company to company.

Once your insurance is accepted, on making required payments, you will be given a policy bond or a policy certificate. Please keep this safe. There exists a provision for issue of duplicate in case of loss of this certificate. But, the procedure may be irritating as you have to establish the cuase of loss and all. check if all the details are correctly recorded in the bond. Else, you may face problem at the end of the day.

lets take a journey... part I

In many sites you will find insurance glossary and definitions about policies and other related matters. when you read each and every term separately, the full picture may not be clear.... lets take a journey from your intention to take a policy to maturity of your policy... this shall give you a good understanding about the insurance company operations as well.

In life insurance business, the primary channel for business procurement is 'tied agents'. Not only in India, across the world, tied agents paly an important role in procuring insurance business. They are the agents whom you come across when you want to take a policy. Atleast in Indian scenario, each agent is supposed to canvas products of only one company. Apart from the tied agents, now there are alternate channels of business procurement i.e through banks (popularly know as bankassurance) , insurance brokers. Details about insurance business procurment can be found in a separate article with title " The nitty grities of life insurance agent system"

when ur agent approaches, you start listening many new words and things may seem to be complex. In the ideal situation, you should be clear about the following:

• your insurance need - safety? investment? children? pension? all of the above etc
• your ability to pay - insurance is a long term contract, how much you can pay in future?
• Your human life value - please see a description of this term give here below.

human life value is a concept which says that we should know how much we should put in life insurance, so that, the family can live the same standard of life, even after demise of the earning member, or after the earning member retires. You may not be able make provision immediately to meet this, but, one can keep this as a target and start your insurance portfolio.

When you decide to take an insurance, the agent may inform you to sign the proposal forms. Its a common practice that the agent takes down the details like date of birth, approximate salary, family details and then takes a signature in the proposal form and he fills your details later. Please remember, insurance is a contract and its worth you fill the proposal form on your own. These forms have a legal basis and whatever your signing in the form will come into picture in case of any claim. It takes only 5 mins to fill the form. Next time when your agent comes with proposal form, insist that the same be filled by you or atleast before you. Infact, IRDA insists that the agent should give a copy of the proposal form which he has submitted in the company to the customer.. which is now under a court case. continued in Part II