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What you should know before you sign on for a health insurance policy

Health insurance plays a pivotal role in combating the battle of finances, in case of unforeseen events.

 

In today’s fast paced life where all of us are trying hard to achieve targets or meet deadlines, we often tend to overlook nature’s precious gift to us – our health. Changing lifestyles and erratic work hours have given rise to many health issues and make us vulnerable to many ailments and lifestyle diseases.

With an increase in the number of ailments, the cost of medical treatment and advancement in medical technology is also increasing. Health insurance plays a pivotal role in combating the battle of finances, in case of unforeseen events. According to a survey on consumer behaviour, people want to invest their money in something which fetches them instant return, which is reflected in the fact that the decision of buying a health insurance cover is often postponed. However, people have begun to understand the need for buying health insurance as with health insurance, a person can remain hassle-free while considering the various treatment options available for every disease, ailment or niggling health condition.

There certainly are many more health insurance policies on offer in the market today than ever before. Cashless mediclaim, room rentals, sub-limits, family floater versus individual plans, exclusions, waiting periods – these are all terms that a person should not only be familiar with, but must understand its implications before signing on for a health insurance cover for oneself and his or her family.

One needs to be mindful while choosing a cover, as it is a long term decision. Here are ten easy-to-follow tips to help you while buying the perfect health insurance plan as per your needs.

Get insured at an early age: Health risks increase with growing age and to be applicable for the pre-existing disease coverage, you would need to spend at least three years as a waiting period. Hence, it is advisable to opt for an adequate health cover at an early age. An early start to a health insurance cover would ensure the completion of waiting periods when you may need it the most, following which you can enjoy the full benefits of your health insurance plan. At this stage you would be able to hedge a larger financial risk for efficient treatment at the best healthcare provider.

Coverage: Ensure that you are adequately covered keeping in mind your age, your family members’ ages, higher health care costs, etc. A person in the middle to young age group should have an indemnity cover of at least Rs. 3-5 lakhs. In case of a married individual, it would be wise to choose a family floater plan of Rs. 5-7.5 lakhs sum insured, covering an individual and the spouse.

Gradual increase in sum insured. It is advisable to increase one’s sum insured level at regular intervals to hedge against medical inflation. You should consider various policies available on the websites of different companies, or speak to your insurance advisor about a policy that is right for you and your family.

Fill up the proposal form yourself: You should always fill up your own proposal form and not depend on agents or any third party. The information shared through the form should always be correct and authentic. You should refrain from hiding any information or overwriting on the proposal form. Inadequate information or exclusion of medical conditions during the proposal time can lead to issues of delayed or non-payment of claims during times of need.

Know the limits and exclusions: You should carefully note the exclusions and waiting periods applicable by various insurance providers. All insurance policies would have broad exclusions and waiting periods for effective coverage. You should always ask for sample policy wordings and go through its benefits, definitions, terms, conditions and exclusions in detail, while comparing policies of different insurance companies.

Claims related limits. Look for treatment-respective limits in the products which basically cap the amount you can claim for a particular surgery under the policy. Such limits would cap your claim, even if you have a large sum insured under the policy. You need to weigh this in, before you sign up.

Read and understand the policy wordings: Always read the policy wordings and documents carefully. Once you take an informed decision and obtain coverage from an insurer, we suggest you read through the policy schedule and policy wordings document. Understand the claim process, document requirement, payment options, special conditions, coverage and exclusions.

Individual insurance policy Vs family floater policy: In comparison to an individual health insurance policy, the family floater option extends cover for the entire family for the sum insured level at a marginally incremental premium. A family floater policy enables and facilitates optimal utilization of the insurance policy.

Hospital network of the insurance company: You should spend time in obtaining the details of the hospital network of the insurance company. You should consider an insurer that has an extensive list of hospitals in its network across cities.

Choose a policy with no sub-limits: It is always advisable to choose a health insurance plan that has no disease specific or expenditure specific sub-limits to avoid situations at the time of claims.  This may be marginally expensive in some cases, but you will hedge larger financial risk and have freedom for efficient treatment at the best healthcare provider.

Opt for additional coverage: You should consider opting for additional covers such as Maternity and Critical Illness that are now  offered along with standard health insurance plans. A critical illness rider offers additional coverage for heart attacks, cancer, diabetes, kidney failure, organ transplant or paralysis. In case any of these ailments run in your family, you can benefit from these riders over and above your existing health insurance policy.

Clear all your doubts before taking the final decision: Before making the final decision, take time to read all the documents once again. Ask your advisor or the insurance company as many questions as you can to clarify all your concerns. It will clear any confusion or doubts that may exist.

Once you have ensured that you have carefully pondered over the above points, you will be in a positive position to choose your insurance provider.

Congratulations! You are on your way to a healthier and secure future for the years to come.

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Save Tax through Infrastructure Bonds

Sec 80CCF Infrastructure Bonds:

Since last Financial year these have emerged as an addtional tax saving opportunity for the investors. With a secured format of debentures and a guaranteed interest rate these can be very useful tool for tax saving for the persons in tax slab of 10% or more.

Tax Benefit: The benefit under section 80 CCF is limited to Rs.20000 in a year & this is over and above the 80C limit of Rs.1 lac.

Following are the details of currently available Infrastrure Bond issues.

1. IFCI Limited – Infra Bonds.

Nature: Unsecured, Redeemable, Non Convertible

Tenure: 10 years / 15 years.

Options: Cumulative, Annual

Coupon rate: 8.50% / 8.75%

Buy Back facility after: 5/7/10/12 years.

Face Value: Rs. 5000 per Bond.

Mode of Holding: Physical / Demat.

Issue closes: November 14, 2011

2. Power Finance Corporation Limited. (A Govt. of India Undertaking)

Nature: Secured, Redeemable, Non Convertible Debentures

Tenure: 10 years / 15 years.

Options: Cumulative, Annual

Coupon rate: 8.50% / 8.75%

Buy Back facility after: 5/7 years.

Face Value: Rs. 5000 per Bond.

Rating: AAA/Stable from CRISIL and “AAA with Stable outlook” from ICRA

Mode of Holding: Physical / Demat.

Payment in favour of: “PFC – Public Bond Issue A/c”

Issue closes: November 4, 2011


For your Healthy financial future

mediclaim_policy

It is almost a cliché to say medical costs have rocketed over the years. We all tend to spend a lot of time and energy to save money for the future to fulfil our various goals like children’s education, retirement, home purchase and others. We generally don’t give as much thought to medical exigencies as required.

Considering, if one does not have a proper medical cover, expenses on medical emergencies can drain out his savings and even put a person in debt. This means your entire future goals can get compromised by not having a proper medical cover. Medical emergencies don’t announce themselves in advance before striking. Therefore, the only thing to do is to be prepared.

For this, you must start by assessing how much cover would be required and look at the probability of covering most events. A Rs 5 lakh cover for an adult should cover 85 – 90 per cent of medical situations. The right approach would be to transfer risk by taking an appropriate medical insurance cover and being prepared to spend if expenses overshoot the same.  A normal medical insurance policy covers hospitalisation and also includes an exhaustive list of day care procedures. They also cover domiciliary hospitalisation and pre- and post hospitalisation medical expenses. In some cases even hospital daily cash and health check-up expense reimbursement may be included. These days most policies allow cashless settlement of all the claims.

Points to be taken in considerations:

  • Prior to buying medical insurance, start by assessing the cover needed and look at the probability of covering most ailments
  • Build a corpus to foot expenses if medical cover falls short
  • Choose a medical cover based on premium outgo, claim settlement record of the insurer and policy benefits
  • Riders such as critical illness cover, hospital cash and accident covers provide additional benefits

Premium alone cannot be the sole consideration for choosing the policy. Claim settlement is of paramount importance. If your insurer of choice has a history of processing claims fast and the policy benefits, too, are good, this insurer’s policy should definitely make it to your policy shortlist.

There are people who prefer floaters, which are comparatively cheaper. The benefits are similar, but there is one umbrella cover for the entire family. For a smaller premium, one will have to assume higher risks.

Many who are employed enjoy cover from their employers. This would be a group insurance cover, that generally tends to be more beneficial than a general medical insurance policy.  The premium in a group medical insurance policy are also lower as compared to normal policies.

There is one major downside to it though this cover ceases when one leaves employment. Today, when people are mobile and change jobs frequently, this can become a problem. When a person is in transition from one job to another, there may not be any cover at all. This is a pitfall of depending on a group medical cover.

Also, the next employer may or may not have a medical cover as comprehensive. Hence, it is always a good idea to have a separate medical cover, even if you already have one. The separate cover can be at an appropriately lower level.


BASICS OF INVESTING

SET YOUR OBJECTIVES


The starting point for achieving financial independence begins with a financial plan. Determine your current financial position, available resources and immediate fund requirements. Then set your long term financial goals: keep in mind your risk-taking ability, current lifestyle, occupational profile and family background. The number of dependents and their own financial status (a working spouse gives you a greater degree of financial freedom) should also be considered.
A financial plan helps an investor to lay out realistic goals and then work towards them over a period of time. Since each individual has a unique setup, this section only makes broad recommendations that should apply to everyone before embarking upon an investment program.
Estimate short term needs
Many investors jump into the stock market without assessing their short term fund needs. Faced with a crunch, they end up selling shares much earlier or book losses at the smallest sign of trouble. That clashes with the fact that the holding period in equities is crucial to meet the targeted return. By estimating short term needs and preparing for them, the painful decision of selling shares before time can be avoided.
Create an emergency fund
Emergencies happen when least expected, forcing you to alter your investment plan. Therefore, having a cash reserve to help meet situations like a medical emergency or a layoff, ensure that your fund requirements are met without affecting the investment plan. A cash reserve (money market / liquid funds, which can be easily converted into cash) of at least six months worth of living expenses or a medical or disability insurance is a must.
Repay debt
Increase your net worth by repaying debt. Start by repaying the most expensive debt usually credit card debts and unsecured personal loans are the most expensive. Keep some amount of debt, especially if you get a tax benefit, like on housing loans. If the return on investment is greater than the amount of interest paid on debt, invest. But if the risk-adjusted return is still less than the amount of interest being paid on the loan, you are obviously better off clearing the loan.
Set priorities in a chronological order
Classify your own priorities and that of your family members based on their time of occurrence. For instance, paying a lump sum donation for getting admission to school is a more immediate need, than providing for higher education. College education is still years away compared to school. Thus, school education can be provided for by investing in fixed income instruments like short term bonds or fixed maturity plans of mutual funds. For college education, a mix of equity and debt, with more in equity, can be taken to combat inflation and the higher risk is spread across a number of years.

Take in to account the effect of Inflation on your savings
You work hard to earn your money. It helps to meet your monthly expenses and the rest, you put away in a savings account for safekeeping. Keeping some money aside is a good habit, but by keeping a substantially large sum in a savings bank account, you may be actually losing the value of your money. Why? Because it is getting eroded by inflation….
Increase in prices ie. Inflation is responsible for reducing the value of the rupee. For instance, Rs.100 could have bought you movie tickets and pop corns for an entire family in 1990s. Today, for the same outing you may have to spend more than Rs.1000.

Practice Asset Allocation
No investment plan is complete without an asset allocation. Different types of assets exist; the most common ones are cash and bullion, the most liquid asset class. Then, there are fixed income instruments, like bonds and fixed deposits, which are less risky, but yield lower returns compared to equities, and are less liquid too. Mutual funds come next, their risk profile depends on the type of fund equity or debt or balanced and the investment philosophy. Sector-focused funds, for example, will be less riskier compared to diversified funds. Equities are the most aggressive investment option, with high returns and commensurate risk too.
Since there are various levels of risk associated with various assets, it makes sense to identify your own risk-return profile and then build an asset allocation strategy. There is no ideal asset allocation, a one size fits all plan. You have to make a plan that suits you best, allocating weights to various asset classes and then designing an investment plan accordingly.
After designing an asset plan, it is imperative to monitor it to ensure that changes in asset prices have not skewed your allocation. A sharp rise in equities, for example, may increase your exposure to equities, much more than you may want. So, selling down equities and increasing exposure to debt would be the right thing to do.

A LIFE CYCLE GUIDE TO INVESTING


Age plays a key role in determining your investment profile. Hence, constructing a portfolio that suits your age is essential. By mapping your age and your background, you can establish a portfolio that comprises of different asset classes, in differing proportion. For example, if you are five years away from retirement, with no major savings for a post-retirement life, then you would build a portfolio comprising fixed income instruments. Similarly, a 24-year old would focus on parking investments in riskier investments like equities, since time is on his side.
We have constructed profiles based on your age and some assumptions. Then we have constructed a break-up of investments that can be used as a guide. You may wish to fine-tune this to meet your own requirements.
While reading through these profiles, please note that these are typical attributes and are not absolute. Again, your risk profile changes depending on how you perceive yourself too. A senior citizen with no dependents, but with lots of savings, may find it perfectly okay to take on more risk. Similarly, a young person but with many dependents and lots of financial liabilities may be more conservative than other people his age.
We have assumed that tax liabilities have been provided for, and the suggested investment break-up is for the net funds available. Broadly, you can classify investments in to cash and bullion, fixed income instruments, equities and mutual funds. Cash and bullion are taken as one, as both are equally liquid and widely used as a means of savings. Savings would also include funds in your bank savings accounts.
Apart from pure equities and fixed income instruments, mutual funds are popular investment vehicles. We have classified mutual funds separately since the risk of investing in funds is relatively lower. Moreover, balanced funds juggle between debt and equity making an all-inclusive classification difficult.

Age : 22-30 years
Profile :
You are single or are married but with no kids. Dependents are not an issue at this stage and your focus is on creating a sizeable corpus of investments for the future. Incomes typically grow at a fast rate annually. The ability to take risk is high and losses in the short term are acceptable. You can invest in equities with a time frame of about 5-6 years which protects you from short-term fluctuations.
Category                                            %
Cash and bullion                                          10
Fixed income instruments                       30
Equity shares                                                 40
Mutual funds-equity growth                    20

Age : 31-45 years
Profile :
You are now married and your family size has expanded, with two kids. Your parents are now dependent on you for emotional and some financial support. The focus is on consolidating your investments, making them more secure. The ability to take risk is there but to a limited extent. Limiting losses is a priority. Building on a corpus of funds for children’s education becomes a priority now.
Category                                           %
Cash and bullion                                           10
Fixed income instruments                       40
Equity shares                                                 30
Mutual funds-equity growth                    20

Age : 45-60 years
Profile :
This is the age when retirement blues set in. Children’s college and higher education make demands on your funds. You must also ensure that your retirement plans are in place, if you have not done it already. Hence, risk taking ability as a whole diminishes considerably.

Category                                           %
Cash and bullion                                            10
Fixed income instruments                        50
Equity shares                                                  20
Mutual funds-equity growth                    20

Age : Beyond 60
Profile :
You are taking life easy, some introspection, spending time with the family and maybe doing some part time work. Or like some workhorses, you are still engaged as a full time consultant with your ex-employer. The ability to take shocks is extremely limited and you should lower your exposure to equities. Your prime criterion should be to have a higher proportion of fixed income investments and stay liquid to meet any medical emergencies.
Category                                          %
Cash and bullion                                            10
Fixed income instruments                        70
Equity shares                                                   10
Mutual funds-equity growth                      10

RISK ANALYSIS

Risk and returns are inversely correlated, barring rare occasions. Hence, knowing your appetite for risk is essential as your returns profile emerges from your risk profile. Your investments should be guided by the risk profile. A totally risk averse person is very conservative, does not want to losea penny regardless of how little his or her money earns. The compulsive risk taker is at the other end of the spectrum, willing to risk a huge amount of money on a risky bet, hoping to reap a windfall in the process.
Risk tolerance can also be measured by volatility. How much of volatility in an individual’s portfolio is acceptable. Apart from an individual’s psychological makeup, various other factors also play a crucial role in determining one’s comfort level with risk.

Evaluate yourself against the following parameters :
Current income or net worth
If a significant portion of your current and future financial needs can be met by income from non-portfolio sources like a job or maybe even an inheritance- you can take more risk with your investments. Likewise, higher your current net worth greater is the investing flexibility. In such cases, a portfolio may be geared to achieve capital appreciation through greater risk. When current income is insufficient, investors would want the portfolio to be focused towards generating income and preserving capital, rather than generate capital gains.

Age group
Age is a key factor in influencing comfort with risk, given a current income level or net worth. An investor’s risk tolerance is expected to increase with income and wealth, but after a point, diminish with age. Check the life cycle investment approach, which uses age as a starting point for determining risk tolerance.
Time horizon
If your investing time frame is longer, you can choose a potentially more rewarding, even if riskier and less liquid investment. That can give you better capital appreciation. If you have a shorter time frame, you are better off with less risk investments, since losses are difficult to recover in a short period of time. For instance, a 30-year old investor has more time to recover from initial portfolio losses than an investor who is 58-years old and is nearing retirement. Hence, as the time horizon shrinks, more importance is attached to how the investments yield returns in the short term than in the longer run.

Occupation profile
Your occupation can also shape your risk appetite. A person who is more in his or her occupation, will be emboldened to take more risks without fearing for the future. The converse will be true for someone who is not very secure about his or her future. The nature of the profession too may have a role to play. A businessman for example may feel more comfortable with a higher degree of risk, since his main profession itself involves risk. A salaried employee may on the other hand be accustomed to a smaller degree of risk. There may be a contradiction visible here, that a businessman whose future is not very secure may be willing to take more risk too. This is a fact of life, whatever the occupation profile may be each individual’s psyche will determine his world view of things and in turn, his ability to manage risk.