July 2012

IRDA Consumer Education website ~ Insurance ~ Educating Customers

insurance, IRDA, consumer education, life insurance, health insurance, car insurance, plans, Insurance is a sophisticated financial instrument which requires a fairly high level of involvement on the part of the consumer to make it effective. Yet insurance is also a basic requirement that every person should have. This universal need coupled with its complexity makes for a difficult combination since there is a mismatch between the perceptions of the customer and the reality of the product. It is this perception-reality gap that consumer education bridges.

The best protection for a consumer is education.

The IRDA website appears to be a sincere effort in this direction. Make use of the resources given in the website. It is useful.

You can access the site here : IRDA Consumer Education website

June 2012

Pension Policies and Differences between conventional life insurance plans and pension plans

retirement planning,life  insurance, pension policies, bonus,  life, maturity, tax benefits, nominee, beneficiary, business, What are pension schemes?
—Policies that offer money to the insured at the retirement age.
—If death occurs during the policy term, his nominee gets the amount – lump sum or as annuity.
—Pension plans (also referred to as retirement plans) are offered by insurance companies to help individuals build a retirement corpus. On maturity this corpus is invested for generating a regular income stream, which is referred to as pension or annuity.
—Pension plans are distinct from life insurance plans, which are taken to cover risk in case of an unfortunate event.
Classified as immediate or deferred pension plans.
Here are some of the differences between a traditional insurance policy and pension plans.
 Parameter Conventional insurance plans Pension Plans
Maturity payouts Full maturity amount received by the individual Only up to one-third of the maturity amt can be withdrawn. Remaining 2/3rd amt has to be compulsorily invested in an annuity
Death benefits Full maturity amount received by the nominees/ beneficiaries Nominees/ beneficiaries have the option of receiving either the entire maturity amt or investing up to 2/3rd of the amt in an annuity
Tax benefits Deduction up to Rs 100,000 available under Section 80C Deduction up to Rs 10,000 available under Section 80CCC
Taxation of maturity payouts Entire maturity amt treated as tax free in the hands of the receiver Up to 1/3rd of the maturity amt, if withdrawn, is treated as tax-free. Pension received on the remaining 2/3rd amt is taxed as per the individual’s tax slab
Stream of income Entire maturity amt/ death benefit received in one go. No provision for a stream of income by way of pension On maturity, provides for a regular stream of income. In case of an eventuality, option of pension benefits available

Components of Life Insurance Premium for Endowment Plan

In many parts of the world, Insurance policies get sold. They do not get bought.

Almost 70-80% of the Insurance Policies which get sold in India comprise of the Non-Term Life Variety (means that approx 80% policies are not pure risk cover).

Do you know the components of the premium which gets paid periodically. Many agents miss-sell and never disclose the breakup of the premium components.

It makes a lot of sense to be aware of the breakup and make a wise decision when buying a life insurance policy (whole/endowment etc)

Components ,Life Insurance ,Premium , Endowment Plan, Insurance, Tutorials, Understand Concepts


Next time be sure to ask your agent. Here is an example.

e.g. Annual Premium = Rs.100000, Sum Assured = 25,00,000, 15 yr Endowment policy for a 35 year old
Then (these are approximate figures, meant only for illustration purposes)
Mortality Premium = Rs. 10000
Agent Commission Expense = Rs. 25000
Operational Expense = Rs. 10000
Profit/ Loss = Rs. 5000
Policy Holder Fund ( Investible Surplus) = 100000 – 10000-25000  – 5000         = Rs. 50000
Mortality premium is the pure risk premium in case of a fatal event on the life of the insured. This is same premium which will be paid when one insures using a pure term policy for a sum assured of 25,00,000. 
Agent Commission/Operational Expense … self explanatory
The Investible surplus is the amount which can be invested by the insurance company in G-secs (Government securities)/ Bonds. 90% of the interest generated is distributed in the forms of bonuses. 
More on Insurance Primer…