Update on personal finance website
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The week’s update brings a lot of action taking place in the Insurance, Mutual Funds industry. We focus on the health insurance updates here.
· Several life insurance companies have of late plunged into the health segment, which till recently was dominated by general insurance companies. Among others, ICICI Prudential has launched Hospital Care and Crisis Cover and Bajaj Allianz, the Care First plan. Life Insurance Corporation, too, plans to roll out products soon.
· But, are these products any different from those offered by the general insurance companies, popular as mediclaim policies? The major difference is in the amount paid on either detection of a disease or on hospitalisation.
· General insurance companies have been paying claims according to the hospital expenses that a person incurs, depending, of course, on the amount of cover that a policyholder has taken.
On the other hand, most life insurance health products pay a lump sum, irrespective of whether the policyholder has incurred those expenses on his hospital stay. In other words, if you have incurred expenses of Rs 15,000 during your hospitalisation and are eligible for a cover up to that limit, general insurance companies will pay you exactly that amount as claims.
However, a life insurance company would pay the policyholder a fixed amount, based on the plan he has chosen but irrespective of the amount of bill generated, after he is hospitalised for a specified period.
· Moreover, the life insurance companies will issue a policy for a 10-20 year timeframe, whereas the general insurance companies issue them for a limited period subject to renewal every year. The catch here is that if a policyholder has been making several claims and is considered a risk, the general insurance company can deny renewing his policy. Though a lump sum amount is paid by life insurers, this comes with a cost. While the life insurers claim to have more surgeries and critical illnesses covered in their policies, they also charge bigger premiums compared with the general insurers. Besides, since some general insurance companies have been operating in this segment for a long time, the list of hospitals in their network is also much longer compared with the life players right now. Hence, one should check if the policy covers enough hospitals in his city before committing himself.
· In addition, most general insurance companies offer medical charges up to 30 days before a person is hospitalised and pay the claims if a person has been undergoing treatment at home - also called domiciliary hospitalisation. The life insurers seem to lack this facility at this point in time.
So, the take home, in Aggarwal’s words is, “They (health products offered by life insurers) work as effective top-ups when taken along with mediclaim policies. As things stand today, taking health insurance from a non-life insurer seems the better option.”
· The market value of Life Insurance Corporation’s total investment in equities is estimated to be over Rs 1,50,000 crore. However, in its accounts, total equity investments are expected to be just over Rs 50,000 crore.
· This huge difference is because of valuation norms for life insurance companies that do not allow them mark-to-market gains in their equity portfolio. If these gains were recognized, the corporation would have more than the required solvency margin prescribed by the regulator.
· LIC’s 4.3% shareholding in Reliance Industries — the company with the largest market capitalization — is worth Rs 13,913 crore. In the next largest company, LIC has a stake of 1.9% worth Rs 3,800 crore. The country’s largest insurer also holds 1.4% in Bharti Airtel, an investment that is worth over Rs 2,500 crore.
· But the real big investments are the ones in professionally-managed companies. LIC has a stake worth Rs 8,251crore in ICICI Bank. Similarly it has large chunks of investment in other professionally-managed institutions such as UTI Bank, ITC, Reliance Energy and L&T.
· The Indian life insurance sector would be investing up to $10 billion in the Indian equity market during this financial year. It is estimated that ICICI Prudential has invested over Rs 2,000 crore during April-August in the domestic equity markets.
· “The authority feels that there is a need for a study to be undertaken to ascertain the manner in which these (distribution) channels have been functioning , their efficacy, cost effectiveness, weaknesses and make recommendations on the changes to be made to make them effective, professional and accountable,” the IRDA said in circular.
· Max New York Life has launched Smart Steps range of unit-linked Child Plans to facilitate planning for children’s needs and provide financial protection.
· The new product, billed as a surety for a secure future of the child of the deceased insured, would enable the beneficiary to receive 100 per cent sum assured immediately.
· The country’s largest private general insurer ICICI Lombard has bagged a contract from the railways to provide personal accident cover at a premium of just 4.75 paise per passenger. The personal accident cover is for a year starting from September 20, 2007. Approximately 16 million people, who commute by train every year, are covered for a premium of Rs 34.35 crore, industry sources said.
· In the case of accident, ICICI Lombard will pay up to Rs 4 lakh per passenger, with the insured amount depending on the seriousness of the injury, or death. All rail passengers and platform ticket holders are insured against death or injury on account of train accidents and other unfortunate incidents like bomb blasts.
· ICICI Lombard was the lowest bidder for the lucrative contract. All the four public sector firms — New India, Oriental Insurance, United India and National Insurance — along with Reliance General Insurance were also in race to grab the contract, with bids ranging from Rs 38 crore to Rs 74 crore. Reliance General had provided the insurance cover last year to railway passengers.
· ICICI Lombard General Insurance Company (ILGIC) and Nabard have tied up to design a liability product targeting the debt-hit farmers of Maharashtra and Andhra Pradesh. The product would help the farmers in these regions mitigate their debt burden.
· For most people, the stock market is a place where only investment savvy ones are allowed entry. Every time they hear the market has scaled a new high, they rue the fact that they have not invested in stocks. But they soon recover by consoling themselves that they are better off since they don’t understand anything about the market. However, if they bother to glance through the returns offered by various equity schemes in the last one year, they would repent their decision not to invest in stocks via the mutual funds route.
· To illustrate, equity diversified schemes offered an average return of around 40% in the last one year. Even index schemes, the most passive form of investment in stocks, averaged around 37.40% returns last year. If you turn your attention to sectoral schemes (schemes which invest predominantly in a particular sector), you would see that banking schemes have given a return of 60.15%. Other speciality schemes—telecom, financial services sector, media and entertainment, global theme among others—have also given impressive returns of around 51.17%.
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