Prathiba Girish | Finwise

Budget 2015: How does it affect your personal finances?

Prathiba Girish Budget March 3, 2015October 15, 2018 2 Comments

The Budget is something most of us look forward to with excitement. Our top most concern with the budget is to see if there are any changes in tax slabs which could affect us positively, leaving us money to spare. This year we are done and dusted debating the budget and registering the fact that there are no changes in slabs for us tax payers. Though, while the slabs have not changed, there are some announcements which could impact your personal finances.

1. Deduction for INR 50,000 p.a. for investments in National Pension Scheme (NPS)
This budget has provisioned for deduction of INR 50,000 for investments in NPS, under section 80CCD. This is over and above the deduction of INR 150,000 already available under section 80C. One must note that while investments in NPS are exempt from tax the proceeds are not tax exempt. Currently part of the corpus accumulated through NPS can be withdrawn as lumpsum on maturity and the rest will be given as annuity post maturity; both of these will be taxable.

2. Increase in limit for medical insurance from INR 15,000 to INR 25,000. For senior citizens the limit has increased from INR 20,000 to INR 30,000
You can now claim a higher deduction for premium paid towards medical insurance under section 80D. While deduction allowed for non-senior citizens has been increased from INR 15,000 to 25,000, for senior citizens the limit has been raised from INR 20,000 to INR 30,000. Therefore if you are paying a premium for both your family (spouse, children & yourself) & your parents who are senior citizens, the total deduction available to you would be the lower of INR 55,000 & actual premium paid.

3. Transport allowance increased from INR 800 to INR 1600 per month
If your salary structure has an allowance called transport allowance, INR 800 per month totaling to INR 9,600 per year was exempt from tax. This amount has been doubled to INR 1,600 per month ie. INR 19,200 per annum.

4. Interest paid to beneficiaries in Sukanya Samriddhi Scheme will be tax free
A scheme to encourage savings for the girl child Sukanya Samruddhi was launched in January this year. This was a welcome option paying 9.1% interest (interest to be fixed on an yearly basis like PPF) aimed at encouraging long term savings for the education and marriage of the girl child. The interest to be paid was earlier taxable. This budget has made interest to beneficiaries in Sukanya Samriddhi account non -taxable which makes it an very interesting investment option.

5. Wealth tax abolished
The number of people paying wealth tax may have been very small but the law required anybody having assets in excess of 30 lakhs to pay wealth tax. Many people who did not pay wealth tax were on the wrong side of law, and in such cases, ignorance cannot be a defense. This budget has abolished wealth tax to be replaced with a surcharge for the super-rich. This has done more for our peace of mind than for our finances.

The finance minister during the course of his budget speech said that relief to the tax payer will be to the tune of INR 4, 44,200. The calculation he was referring to is as follows
1) INR 1,50,000 under section 80C
2) INR 2,00,000 for repayment of interest on a home loan for self-occupied house (For a house which is let out on rent, entire interest paid can be set off against house rent received )
3) INR 25,000 under section 80D for premium paid towards health insurance (if you have parents who are senior citizens whose health insurance premium is paid by you the deduction will go up to INR 55,000 as mentioned above)
4) INR 19,200 towards transportation allowance

Few more points which need to be noted are

The increase in service tax from 12.6% to 14% is an indirect hit since service providers transfer this cost to the end customer. This can be a substantial hit.
If you are a salaried person you can now choose between investing in EPF & NPS.
Employees with salary below a certain level will be allowed to choose if they want to continue their contributions to EPF or stop the same; the employer will still be obligated to continue his contributions.
Gold scheme to be introduced, where you can deposit physical gold (except in jewelry form) and earn interest on it.
Gold bonds to be introduced where the movement of price of bonds will mirror gold prices.
While interest paid on Recurring Deposits were taxable, TDS was not being deducted from the same.

Looking at buying a term life policy online or offline? They now come with a whole lot of frills, do you actually need them?

Prathiba Girish Insurance February 24, 2015February 20, 2019# Accident death benefit, # life insurane, # return of premium policies, # Single premium, # term life insurance 0 Comment

We attempt to uncomplicate life insurance and give you a brief on why you should or should not opt for the many add-ons which have now become a part of term life insurance.

Thanks to the media and the financial planner fraternity, most of you aware that marrying your investment needs with insurance is not a wise option. It is best to separate both and go for plain vanilla term plans when it comes to life insurance.

At the cost of adding to the clutter of various articles being written on the above subject, let me reiterate the reasoning behind this. Life insurance is meant to buy you peace of mind so that in case of an untimely death your dependents are spared the financial burden of having to get on with life without the bread winner!

When it comes to life insurance, most of us ask “While I pay premium what do I get if nothing happens to me?” The answer to this is simple – “You paid for the peace of mind that you would be providing for your family even if something were happen to you”. Well, this answer just doesn’t suffice and we are happier with a product which pays us if there is loss of life and pays something even if we were to live up to a ripe old age and survive the policy period. Money-back and endowment policies endeavor to do just that and give you a policy with a bit of insurance and a bit of investments. The problem is the insurance offered is often so small that it’s meaningless andthe investments rarely give you returns in excess of 7% inflation. The matter gets further complicated since these policies have huge penalties attached, should you realize your folly later and try to cut your losses short.

We all agree on the virtues of a simple online term plan. Term plans however are not as simple as they used to be. Various clever ways have been now designed to increase your premium to offer you perceived benefits. Let us take a look at some of these iterations/add-ons and give you our thoughts on these

Tenure of insurance beyond retirement age: Term insurance is a risk transference tool by which you transfer the risk of loss of income for dependents due to your untimely death. Since there is no income post retirement the entire purpose of term insurance is defeated and it normally does not make sense to continue your term insurance post retirement.
However unlike health insurance, in life insurance the premium is fixed for the entire tenure of the insurance. The premium is primarily dependent on the age at which you take the insurance apart from factors like smoking, general health, etc. This premium will remain the same throughout your insurance period and does not increase with age. Say if you were to take insurance for Rs. 1 crore at age 40 and your premium is Rs 20000. The premium will remain 20000 even at age 65. Meanwhile the value of the 20000 would have diminished to close to Rs 4000 in 25 years at an average inflation of 7%. Therefore with reduced value of money, the premium will actually seem very small and insignificant in 25 years from now. If the insurer is willing to insure you why forgo it after so many years? The sum insured could form part of estate of the deceased.
In view of the above we believe longer insurance term actually makes sense!

Accident Death Benefit: With this feature as an add on, the sum insured is doubled or increased on death due to accident for payment of a small additional premium.
The amount of life cover you require depends on current expenses, financial goals and assets in hand. When you arrive at the amount to be insured in a scientific manner you can be rest assured that your obligation will be met irrespective of your presence.
What one needs to bear in mind is irrespective of the reason for death, the amount required to fulfill your obligation will remain the same. An exception would be the hospital expenses incurred in case of an accident.
We suggest you do not combine accident insurance with term life primarily because the purpose of an accident insurance is to protect you in case of disability and the ensuing loss of income due to the accident. In view of this we suggest that you go in for a separate accident insurance to cover you in case of disability whether permanent or temporary.

One time premium payment option: This option lets you pay premium one time and have insurance cover as per the tenure selected. Considering the value of your money keeps diminishing due to inflation and you are losing out on the opportunity cost, this is not such a good option in our opinion.

Limited premium pay option: This option allows you to pay premium for a restricted number of years and enjoy the tenure for a longer time. Essentially you could pay higher premium for say 20 years even though your tenure is 25 years. The argument against this is the same as the previous point since as the value of money keeps diminishing, financially it is a better option to pay less today rather than pay more now to avoid paying at a later date especially so since the premium does not increase later.

Sum assured paid as part lump sum and part annuity: In this option the insurer offers to pay part of the sum insured upon death and rest as annuity spread out over specified number of years. This may suit survivors who do not have the ability to earn basic return on investment or the discipline to set the insurance proceeds aside to take care of life’s emergencies.
By and large it is advisable to take the entire sum insured and outsource the job of earning decent returns without undue risk to a qualified financial planner like a CFP, in case the nominees do not have the band width to do the same.

Return of premium
When you buy a term plan with return of premium, the sum assured is paid to nominee in case of death and the premiums are returned to the life insured in case he/she survives the entire tenure. This gives you the illusion of free insurance. You need to factor in the potential of the premium paid to earn interest and reduction in value of money due to inflation. This option does not seem attractive.
For example normal term plan with ICICI prudential for a 35 year old male for 10 lakhs sum insured and tenure of 10 year would cost you 2878 but return of premium plan will cost 37,193. If the difference in premium were to be invested in a safe instrument giving 8% returns post tax it would build you a corpus of 5,36,874 which is far in excess of return of premium which would be 3,71,930. This difference is taking a very conservative return of 8%, given the long period for which you stay invested, you could easily better this returns increasing the gap wider. Plain term insurance is therefore better than return of premium plan.

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

7 Things to keep in mind while planning for Retirement

Prathiba Girish Retirement February 12, 2015# retirement, Comprehensive Financial Planning in Mumbai, Financial advisory services in Mumbai, Financial planning and women, Investment planner and advisor in Mumbai 0 Comment

While we make elaborate plans for the vacation round the corner or a wedding in the family many of us don’t take the pains to make a plan for retirement. Quite naturally so, considering retirement to most of us seems far away. We refuse to acknowledge it. Retirement is a reality just like death and taxes. It will happen to us whether we want it or not.

Your parents took care of the first one-third of your life and left no stone unturned to ensure that you had the very best! You slog it out and try to make the best of the opportunities for the second one-third. What about the last one-third of your life? Do you want to be left in a lurch at the mercy of others when you truly deserve to enjoy the fruits of all the hard work put in?

1) Have a plan
Most of us would agree that nothing happens by chance or by itself. Putting away money randomly and believing it should suffice could be a grave mistake. Retirement is a long term goal for most of us. It would be prudent to remember though that time is a luxury when it comes to investing and we must take full advantage of it. The first step in planning is to estimate what is likely to be your expenses post-retirement. Make sure you list your current expenses correctly. Next discard expenses incurred towards children’s education, life insurance premium, EMIs, investments and other expenses which will not exist during your retirement. Once the task of classifying expenses which will be carried forward to your retirement is done, factor in inflation. A good rule of thumb would be expenses would double every 10 years at a inflation rate of 7%. Next would be to calculate the corpus required to sustain you through your retirement. Once you have done this and knowing how much time you have on your side, you will be in a position to choose best fit products which will maximize your returns without taking undue risk.
2) Don’t under-estimate life expectancy

With medical science making advances every day, life expectancy of a moderately well-to-do person is only going up. When asked how long their post-retirement life would be, most people under-estimate their life expectancy by as much as 10 years, sometime even more. If you have to err, than let it be on the side of caution. If you plan to retire at 60, I would recommend that you must plan for a minimum of 25 years post retirement.

3) Start early
The importance of starting early when you are investing for retirement can never be emphasized enough. Starting early and staying focused can make a huge difference in the quality of your retirement. Start small if you must, but the key is to start now!! If you start with a small amount and diligently increase your contribution towards retirement you will be amazed at the magic compounding will weave to make an enviable corpus.
4) Don’t dip into your retirement corpus
Temptation to dip into your retirement corpus will be many and frequent, given that retirement is a long way off and cannot even be visualized and will compete with a need that might offer you instant gratification. But beware! Stay away from dipping into your corpus unless it’s a matter of life or death. Nothing, not even your child’s education should come in the way of your retirement (after all, your child can easily take a loan to fund his or her higher education, reap tax benefits and pay it comfortably considering he or she has a long working life ahead). Also remember that people who willingly loan your child money for higher education will not do the same for your retirement!
5) Don’t be mis-lead into investing in anything with the name retirement attached to it!
There is a trend is to include retirement or child education to the name of insurance or investment products as marketing ploys. Don’t be lured, the product with the name retirement attached to it may not suit your requirements at all and may have very divergent goals. What’s in a name? When it comes to investments, whats important is choosing the right one for your goals.
6)Don’t wait till you retire to take your health cover.
Take a health cover when you are healthy and young even if you are in employment and you are covered by your employer. If you insist that two health covers are a waste, then go for an add-on cover which will offer you cover above a deductible (say 2 lakhs). These types of policies are very inexpensive as compared to normal health covers. This will ensure that should you become uninsurable due to any lifestyle disease like diabetes or hyper tension at a later age, you would have capped the amount to be borne by you towards any post-retirement hospitalization-related expenses.
7) Stay invested in equity
Retirement is not a single stage and neither is it short; it could last one third of your life time! Just because you are retired (or about to), it does not make sense to withdraw completely from an asset class like equity which gives long-term returns which is unmatched by any other asset class. After all, assuming that you retire at 60, you still have 15 years for your expenses when you are 75. That’s a long time and short term volatility should not bother you given the time frame. A word of caution though, take both your risk capacity and risk tolerance into account before deciding on percentage of corpus which will remain invested in equity.

Six urgent personal finance actions you must take as a woman!

Prathiba Girish Financial Planning, Personal Finance February 5, 2015October 15, 2018 2 Comments

1) Invest don’t save
While most people use both words interchangeably there is a world of difference between the two. We women are considered to be very good savers. That is, we do put away a part of our income for a rainy day very effectively. When it comes to Investing which is ensuring that the money put away is fetching us appropriate returns that are commensurate with risk taken we fall woefully short. One of the main reasons for the same is extreme risk averseness and lack of interest in finances, which we don’t consider our domain. There are a lot of resources available for you to explore different options before you invest do take complete advantage of the same
2) Indulge your love for gold.
The very thought of gold brings a sparkle to most of us. Indulge in gold it can be a very good hedge against currency. Ensure gold forms 5 to 10 % of your portfolio. Investing in the right form is very important. The making charges a, wastage etc. levied on jewelry does not make it a desirable choice. Consider gold coins and better still gold ETF. Invest in gold on an ongoing basis and avoid buying them during Akshaya Tritya and Dhanteras and such other auspicious occasions where the gold price is at its highest.
3) Befriend Equities
Investing in equities is no rocket science. When you are investing for the long terms there are very few asset classes which can match the returns given by equity. Learning the basics of investing in equities is an absolute must. If you find it too cumbersome to invest directly choose the mutual fund route. If you need to take advice on which funds to invest in, take advice of a professional who is not motivated by the commission he/she receives from the mutual fund company but has your best interest at heart. If this means you need to shell out a fee for the advice don’t scrounge, it will stand you in good stead
4) Take an health insurance
This is something you absolutely must do, with spiraling costs of hospitalization being left with no health insurance is not an option any of us can afford. I would go a step further and say take a personal insurance even if you and your family are covered by your/spouses employers. This will cover you when you/spouse are in between jobs. Further when you decide to take insurance at the time of your retirement you may not be insurable due to pre-existing illnesses and will be deprived of the facility when you need it the most. Look at a pure term life insurance if you contribute substantially towards the expenses and definitely opt for a critical illness cover.
5) Ensure you have a will in place
No matter how young you are it is critical to have a will. Accidents and unforeseen sickness is not something which you read about in papers and happens to unknown people any more. You would be surprised and shocked to know the laws applicable to women who die intestate. Making a will gives you peace of mind and costs you very little (anywhere between 7500 and 15000 depending on the complexity). You live all your life catering to every whim and fancy of your child would you like to leave them in a lurch in case of an unfortunate unseen event such as loss of both parents? Make sure you give a serious thought to who should be their guardians in such a scenario. Ensure your nominations and bequeaths are in line with each other. Get your spouse to make a will too.
6) Don’t put all your money into your business (this point is specific to self employed women)
List your goals and ensure you have a plan to achieve them. When you invest all your surplus into your business, which by the way has a never ending thirst for funds you may create a good company and net worth but you may not have the liquidity which you need. Once you have listed your goals start setting aside some money for your goals and don’t dip into it unless it’s a matter of life and death.
If you can juggle a family and business/job all by yourself this is fairly simple and straight forward. Wear the personal finance hat, believe me it is very liberating! Go for it now!

Shopping for consumer electronics? Here’s how to save 5% of your purchase cost over and above the best price offered to you!!

Prathiba Girish Personal Finance January 29, 2015October 15, 2018Comprehensive Financial Planning in Mumbai, Financial advisory services in Mumbai, Investment planner and advisor in Mumbai 0 Comment

As a Financial Planner or a prudent investor one would be very reluctant to take on debt, it’s the right approach in a majority of the cases. But imagine if you have accumulated the amount required for a big ticket purchase and when you land up to buy it, somebody offers you an interest free loan! Should you grab it? Or continue as planned and pay upfront for your purchase?

I suggest grab the offer with both hands, provided there are no hidden charges and the processing fee is really small, like in the case of Bajaj Finserve. You have an opportunity to earn 8- 8.5% p.a. while paying 0% interest on the borrowed sum! What could be better!

Let me explain further on the thought process behind writing this article. A dear friend of mine who is setting up home wanted me to accompany her to help decide on the brand, model, etc. Once we were done with the nitty gritty of picking the model, the person at the cash counter asked her if she would like to avail of interest free EMI. She being a prudent person said no without checking the offer. With great skepticism I asked about the offer and was amazed to find that the offer was indeed interest free and included a small processing fee which was negligible given that she was buying goods worth two lakhs. The icing on the cake was the process was very simple with very basic documentation.

I suggested that she invest her corpus in liquid funds, and withdraw each month, from the liquid fund to pay for her EMI. I explained that investing in liquid funds (a type of debt mutual fund) is very simple with a Dmat account and you could invest your surplus even for 2 or 3 days, and earn interest on it. Further, when you want to withdraw the funds you can do so at the press of a button and the funds hit your bank account the next working day. She saw merit in my recommendation and opted for the EMI, parking her funds as suggested. On a purchase of Rs.200,000 she would end up earning Rs12,000 post tax in a period of 2 years!

Why hire a financial planner?

Prathiba Girish Financial Planning September 26, 2014October 15, 2018 0 Comment

As clichéd as it may sound, Failing to Plan is Planning to Fail. While we take great pains to plan for small events like vacations round the corner or a birthday party for our child, we do not have a plan for our finances. Therefore, does that mean all of us who do not plan, live life king-size with no worries for tomorrow? No! Of course not, we Indians have an extremely healthy savings rate, currently pegged at 34% of GDP as against 17% of GDP for the US.

Now you would wonder, if we Indians do save such a huge chunk of our income, where is the problem? Why bother with financial planning? Before we answer that, let us look at exactly how we go about investing our money.

How do we go about investing our savings?

• Luckily for us, culturally many of us have been brought up with the belief that one must invest in Gold and Real Estate whenever one has surplus. Contrary to what media and many finance experts have you believe, these asset classes have generated fabulous returns over the last 7 to 10 years. So, pat yourself on your back if you had invested in these asset classes 7 to 10 years back, you have done well.
• We invest in mixed needs products where the performance is just about average and end up not taking care of either of the needs completely or optimally. Examples which have been debated at length would be money-back and endowment insurances. These give you the emotional satisfaction of having catered to both insurance and investment needs.
• A lot of our decisions to invest in a particular product or asset class are driven by the fact that people in our social circle have invested in these. They are almost always ad-hoc and do not follow a particular plan and definitely are not done with the end objective in mind.

Points to ponder

• Gold and Real Estate – Do you understand the risks associated with these asset classes? Wouldn’t it be risky to put all your eggs into these baskets? Will they give you the same kind of returns in the future?
• As you embark on the second half of your corpus accumulation phase, how aligned are your investment decisions to your end goals? While you have got your big decisions right, what about those 20% of your financial decisions which will finally decide if you have an average plan or a good one?
• While you have got your investment decisions right till now by being in the right asset class at the right time, will you be able to repeat your performance going forward? Timing your entry and exits can lead to wonderful results if you get it right and it can just as easily erode your capital when you get it wrong. Are you willing to gamble or would you prefer to take risks which are more planned and thought through?

What is Financial Planning supposed to do for you?

• To start with, take a look at where you stand in terms of your financial health currently. This is done by examining your assets, liabilities, income and expenditure, investments, tax and estate plan.
• You set realistic personal and financial goals. These would include goals like children’s education, retirement, second home, etc.
• Make a comprehensive financial plan to meet your goals. The plan should address your financial weaknesses and build on your financial strengths.
• The most important part is to implement – to put your plan into action and monitor its progress.
• Last but not the least, review the plan periodically to course-correct as well as align to changed personal objectives.
Financial Planning as opposed to a plan is a continuous process and needs to be reviewed regularly to account for changes in personal circumstances, tax laws and introduction of new products.

Where does a financial planner fit in?

• A financial planner would bring in her/ his expertise.
• Will help in instilling financial discipline and focus to follow through on the plan once made.
• Will give you a third party unbiased perspective on what are often emotional, difficult decisions.

Managing your personal finances is ultimately your responsibility. However, you don’t have to do it alone. A qualified financial planner, such as a CERTIFIED FINANCIAL PLANNER (CFP) professional, can help you take decisions that make the most of your financial resources. A Financial Planner is someone who combines the technical expertise of a doctor, the discipline of a traffic policeman and the unbiased connect of a friend, to help manage and regulate your financial well being.

8 things you must know regarding health insurance policy

Prathiba Girish Insurance September 26, 2014October 15, 2018 0 Comment

1. Exclusions:

Almost all health care policies come with exclusion i.e. no cover for treatment for a specific period or a specific time frame or a combination of both
• All treatments within the first 30 days of cover except any accidental injury are excluded
• Preexisting disease by definition are those disease which are in existence prior to opting for a health care policy and have to be mentioned in the proposal form for the policy to be valid. Treatment for preexisting disease is not covered generally for a period of 36 to 48 month from the time of taking the policy. The waiting period differs from policy to policy
• 2 years waiting period for specific diseases like cataract, hernia, joint replacement surgeries, surgery of hydrocele etc.
This list is indicative and not exhaustive, westrongly recommend you go through the exclusions in detail before opting for the policy

2. Cashless

Insurers or the third party administrators who facilitate insurers have to tie up with hospitals for cashless hospitalization, the list of hospitals where the insurance company have tie up is available easily and it is important to check the list to ascertain if there are adequate number of hospitals in the list and to find out if the hospital you are most likely to go it in case of a planned procedure is part of the list. While a hospital could be covered for cashless hospitalization at the time of taking the policy it is not necessary that this arrangement continues. It is quite possible that cashless facility with a particular hospital is discontinued at a later stage, therefore it is essential to check the list of hospitals for cashless facility on a periodic basis. While treatment is possible in hospital where the tie up does not exist, it comes with separate terms and conditions. The bill needs to be paid first and claimed later

3. Sub limits

Some policies have sub limits i.e there are predetermined maximum caps for certain procedures, room rent etc. This essentially means no matter what the cost of the procedure or room rent is, the policy will reimburse upto a predecided maximum cap. Example if you pay Rs. 5,000 per day for room charges and your policy has a sublimit of 2,000 per day for room charges you will only be reimbursed Rs. 2000 and the remaining Rs 3000 will have to be borne by you. It is desirable to have a policy which does not impose such limits. In case you have an existing policy this would be good time to understand the limits considering you are not in the midst of an emergency.

4. Renewability

Some policies have maximum coverage age beyond which they do not renew insurance. Since medical insurance is a yearly contract it is imperative to check this aspect. It has greater relevance given the fact that companies shy away from insuring an older person with preexisting diseases.

5. Adverse Loading

When there are claims against your policy some companies increase premium to compensate them for increased claims. Which means you may end up paying higher than normal premium charges for your age if you have claimed the previous year. Some do not indulge in such practices. Once your policy is accepted without any special conditions or additional loading, premiums are purely based on age.

6. No Claim Bonus

The reverse of the above is also true and all companies incentivize you for a claim free year, majority of them offer no claim bonus which is an increase in the sum assured this can range anywhere between 5% and 50% per year. Example Suppose X has a policy for 3 lakhs and does not have any claim in a particular year , in case of 5% NCB the sum insured will be 3,15,000 for the next year in case of 50% NCB the sum insured become 4.5 lakhs for the next year. The amount of no claim bonus depends on the policy opted for.

7. Co payments

Policies sometimes have Co -payment conditions. That is a certain percentage of the expenses incurred will have to be borne the insured. Example a 10000 policy with 20% co-payment rule requires that incase of claim of Rs.10000 you bear cost of Rs.20000 while the insurance company bears Rs.80,000 While some policies make this optional and give discounts in premium for opting for such a facility others have a mandatory rule.

8. Add on policies

As per many newspaper report medical costs are increasing at an alarming rate every year. If you have a basic insurance and now feel you are not adequately insured you can go in for an add-on policy which covers with a deductible. The premiums by virtue of design of these products are very low and affordable. It may be economical to opt for two polices one for basic and one with deductible to keep your premium at acceptable levels.
Deductible are amount beyond which the insurance company will entertain claims. Example if your policy is for 10 lakhs with a deductible of 3 lakhs it would mean that the company will entertain claims beyond 3 lakhs upto 13 lakhs. These policies also have terms and conditions and it is absolutely essential to understand them before you choose to go for it.
Should you have any further queries on the same feel free to drop in an email to prathiba.girish@finwise.in will be glad to be of assistance to you

5 things you must know about your car insurance

Prathiba Girish Insurance September 26, 2014October 15, 2018 0 Comment

Buying a car insurance has indeed become a breeze, thanks to online presence of General insurance companies you can switch, renew or buy afresh within minutes. Is the premium charged the only criteria for your choice of insurer? Cheapest premium does not necessarily mean value for your money. Hear is why.

Car insurance typically has two components to it
Third party liability insurance: this covers liability for injuries and damages to others that you are responsible for
&
Own Damage Cover: damage to the vehicle due to perils like fire, theft etc are usually covered under own damage section of the Motor Insurance policy:

While third party liability cover is compulsory as per the law, own damage cover is not. However it is advisable to go in for a policy which covers both. Policies covering both own damage and liability cover are normally referred to as Comprehensive package/ Policy. While the premium charged for third party liability is decamp by IRDA. The own cover premium is fixed by the insuring company.

1) The company charging you the cheapest premium may not necessarily mean value for your money

The premium charged for own cover is dependent on a lot of factors like IDV “Insured’s Declared Value”. IDV reflects the maximum amount payable by the company in case of a total loss of the vehicle. It is possible for a company to charge you a lower premium and provide you a lower IDV thereby limiting their liability in case of own damage.

Other factors which you should take into consideration for making an apple to apple comparison are deductibles and coverage. Deductible is the amount over and above, which the claim will be payable. There is a normal standard/ compulsory excess for most vehicles ranging from Rs. 50 for two wheelers to Rs. 500 for Private Cars and Commercial Vehicles which increases depending upon the cubic capacity/ carrying capacity of the vehicle. However, in some cases the insurer may impose additional excess. Higher educible reduce the premium.

2) You can port your policy from one company to another and carry forward your no claim bonus

Porting your policy from one company to another is actually simple, all you have to do is initiate the process a fortnight in advance, this is to ensure you have enough time to compare and renew without letting your existing policy lapse. No claim bonus is the discount give to you on your own damage premium for claim free year. The percentage of discount increases with every claim free year and is a maximum of 50%. No claim bonus will be carried forward to the new insurance company.

3) No claim bonus for your old car can be carried forward to your new car

This is something which most of us is unaware of, if you are upgrading you would be having insurance on your existing car which in all likelihood would be sold off. The no claim bonus that you have accumulated on your existing car can be carried forward to the new car.

The procedure is as follows. You can transfer the policy in the name of the buyer of the car and get a no claim bonus certificate or no claim bonus reservation letter from the insurance company. On producing this letter you can earn a discount on the premium. When you upgrade your car the price is substantial and transferring your no claim bonus could lead to good savings

4) Your policy can be transferred in the name of the person who buys your car from you.

The insurance can be transferred to the buyer of the vehicle, provided the seller informs in writing of such transfer to the insurance company. A fresh proposal form needs to be filled in. There is a nominal fee charged for transfer of insurance along with pro-rata recovery of NCB from the date of transfer till policy expiry. It may be noted that transfer of ownership in comprehensive/ package policies has to be recorded within 14 days from date of transfer failing which no claim will be payable for own damage to the vehicle

5) If you let your policy lapse you stand to lose out on benefits and face huge inconvenience in renewing the same.

If you let your policy lapse due to oversight or any other reason you could face a lot of inconvenience. If a lapsed comprehensive motor insurance policy requires renewal you need to fill up a fresh proposal as if you were insuring a new vehicle. The insurance company will offer the insurance only after a physical inspection of the car to check for pre existing damages which needless to say will not be covered by the insurance company. They may also charge you a higher premium or downright reject your proposal. If the policy is in lapsed state for 90 day and above you will lose out on the No claim bonus accumulated thus far. It is against the law to drive a vehicle without insurance and hence you will not be able to use your vehicle in the period when your lapsed policy has not been renewed. Any loss whether due to theft or natural calamities will not be covered in this period. It is therefore prudent to keep a close watch and renew insurance well in time to give you peace of mind.