Stuck with a wrong life insurance policy? Options for you..

It is not uncommon to get into buying a life insurance policy which we should never have bought. In India, because of the lack of financial education at an early age, we tend to mix insurance with investments. We all have done that mistake at some point of our financial decision making. But, having bought the policy and paid a few premiums, what are the possible options with us? Should we let the policy lapse? Should we surrender? Read on..

What are electronic Insurance Repositories

IRDA has formally launching the Insurance Repository System (IRS) and you can now demat your insurance policies. Here's what you should know about this new concept. READ ON..

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.

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.

Term Insurance Vs Whole Life Insurance

Background

When it comes to buying life insurance, neither there is any dearth of plans nor are the insurance companies and their well meaning agents shying of bombarding you up with options. Two of the most fundamental life insurance plans are Term insurance and Whole life insurance. Knowledge about the right insurance plan to buy for yourself can not only save you lot of money but also give you the appropriate risk coverage.

What is a paid up life insurance policy?

Introduction
I have seen many people who buy 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.

If you take it literally, a paid up policy is a policy where life insurance is paid up and you don't have to pay any more premiums.

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.

Health Insurance Tax Exemptions under Section 80D

After Life Insurance, Health Insurance is probably one of the most critical risk mitigation actions that you would under take. While life insurance would cover the risk related to your life and some optional top ups like critical illnesses or accident cover, health insurance is more related to covering risks wrt the expense you may have to incur on account of hospitalization for small, medium or critical illnesses.

Those of you who are in regular full time jobs with reputed organizations might be ignorant of various health insurance nuances and its income tax related implications, for the simple reason that your employer would have you and your family insured for health.

All about Top-Up Premiums

What is Insurance?
Insurance is a form of risk management, primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment.

Who is an Insurer & Insured?
An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy.

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..}

In layman's definition, a mortgage is a loan to finance the purchase of one's home. This is clearly the biggest debt that you would ever get into in your life.

Literally, The word mortgage is a French Law term meaning "death contract", meaning that the pledge ends (dies) when either the obligation is fulfilled or the property is taken through foreclosure.

Your home is a collateral for such a loan. Collateral means anything that you pledge as security for re-payment of your home loan. For mortgage, your home is the collateral. Remember that the collateral is subject to seizure on default. It is logical and very obvious that the bank would not give you a loan which is more than the value of the collateral.

To repay the debt (loan), you make monthly installments or payments that typically include the following:

(1) Principle: The principal is simply the sum of money you borrowed from the bank or financial institution to buy your home. Before the principal is financed you can give the lender a sum of cash called a down payment to reduce the amount of money that will be financed by the bank.

(2) Interest: Usually expressed as a percentage called the interest rate, interest is what the lender charges you to use the money you borrowed.

Principle and interest comprise the bulk of your monthly payments in a process called as amortization. Amortization is a process which reduces your debt (principle) over a fixed period of time. Over this period, which can be generally anywhere between 10 to 30 years, the principle component of the loan (the original loan) would be slowly paid through Equated Monthly Installments (EMIs). With amortization, your monthly payments are largely interest during the early years and principal later.

(3) Taxes: The taxes are the property taxes your community levies based on a percentage of the value of your home. The tax is generally used to help finance the cost of running your community, say to build schools, roads, infrastructure and other needs. You must pay property taxes even after your mortgage is paid off.

(4) Insurance : Though this is optional in some regions of the world, you might definitely want to consider one or both of the following insurances to safeguard your home:

a) Home insurance This covers your home and your personal property against losses from fire, theft, bad weather, natural calamities and other causes. Even if you pay cash for your home, you should buy home insurance unless you can afford to repair or rebuild your home if it's damaged or destroyed. 

b) Life Insurance - You should consider buying life insurance if you think that it would be financially challenging for someone in your family to continue to pay the EMIs for your home in case of your death. Typically, you should go for a term plan which gives you maximum returns with minimum investments.  

Foreclosure or Repossession 

The possibility that the lender has to foreclose, repossess or seize the property under certain circumstances is essential to a mortgage loan. Without this aspect, the loan is arguably no different from any other type of loan.

Types of Amortized loans 

Across the globe, there are two types of mortgage loans available:

1. Fixed rate mortgage (FRM)

The interest rate charged by the lender is fixed at the time of signing the mortgage contract and does not vary irrespective of prevailing market and economic conditions

2. Adjustable-rate mortgage (ARM) 

This is also known as a floating rate or variable rate mortgage. In some countries, such as the United States, fixed rate mortgages are the norm, but floating rate mortgages are relatively common in other countries like India.

Adjustable rates / Floating Rates transfer part of the interest rate risk from the lender to the borrower, and thus are widely used where fixed rate funding is difficult to obtain or prohibitively expensive. Since the risk is transferred to the borrower, the initial interest rate may be, for example, 0.5% to 2% lower than the average fixed rate.

Mortgage underwriting 

It is the process a lender uses to determine if the risk (especially the risk that the borrower will default) of offering a mortgage loan to a particular borrower is acceptable. Most of the risks and terms that underwriters consider fall under the three C’s of underwriting: credit, capacity and collateral (In the UK they are known as the three canons of credit - capacity, collateral and character).

To help the underwriter assess the quality of the loan, banks and lenders create guidelines and even computer models that analyze the various aspects of the mortgage and provide recommendations regarding the risks involved. However, it is always up to the underwriter to make the final decision on whether to approve or decline a loan.

Getting involved with real estate, and hence with mortgage loans, is a critical aspect of financial freedom, even after you are financially free.  In fact, my book "From Rat Race to Financial Freedom" will explain you how you can leverage the mortgage loans to maximize your annual returns.

Happy mortgaging till then !!

Cheers

Manoj Arora

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Grace Period in your Life Insurance Policy

 

What is Life Insurance Policy?

A contract under which an insurance company agrees to pay money to a designated beneficiary upon the death of the policyholder. In exchange, the policyholder pays a regularly scheduled fee, known as the insurance premiums.

What is a Grace Period?

Typically, all insurers of life insurance companies provide for a grace period for the payment of the premium towards the policy. Grace period is typically 30 or 31 days from the due date of the insurance premium. You must check your policy documents for the exact grace period applicable for your policy. No penalty - either as interest or delayed payment - is required to be paid if full premium is deposited during the grace period.

What happens in case of death during the grace period?

The policy stays in force during the grace period. If the insured dies on the premium due date or during the grace period, the premium due for the policy month in which the insured dies will be subtracted from the death benefit. Apart from this, there is no other impact on the death benefit of the policy as long as the death happens during the grace period.

What happens if you do not pay by the end of the grace period ?

If you do not pay any premium by the end of the grace period, this policy will lapse as of the premium due date. You may put the policy back in force by meeting the requirements of the Reinstatement provision. In such a scenario, the beneficiary is not applicable for any death benefit. For re-instating the policy, it is advisable to read the policy documents and comply to the stated requirements.

What if you are moving from one insurance provider to another ?

Never cancel a policy that you are replacing until the new policy is in force. If you actively cancel a policy THERE IS NO GRACE PERIOD. You can let it go into the grace period if your new policy is close to going in force, but you and your agent should be very careful not to let it lapse until the new policy is in force.

Summary

The grace period is a very generous thing insurance companies provide. Make sure you understand it and always keep track of when the premium reminder should be coming and don’t hesitate to call the company or your agent if you think you should have received a premium reminder, but haven’t.

Take care

Cheers

Manoj Arora