Covid Kavach Insurance Policy

IRDAI had recently mandated insurance companies to offer short-term health plans that will cover hospitalisation expenses related to the treatment of COVID-19 . This will help individuals to buy specific health cover for meeting hospital costs due to coronavirus .

Covid Kavach is an indemnity plan which pays for hospitalisation .

FAQs

1) I already have health insurance cover , then do I get any benefit by opting for this separate Covid Kavach Policy ?

It is more comprehensive policy on COVID  because it covers homecare, PPE and treatment of co-morbidities when hospitalised which is not covered under normal health insurance policies.

2 ) Should one go for individual or family floater policy ? 

Considering the cost towards covid treatment , it is better to go for individual policy as the maximum sum assured in this policy is Rs 5,00,000/- only  (Rs Five Lakhs only ) .

Secondly , Covid is very contagious and the entire family may be affected.

If one member of the family gets infected , then chances of getting infection transmitted to immediate family member is high and both ( more family members ) may need hospitalisation .

3 ) Which company policy should one go for ?

Since it is standardised policy, the features are the same across all the insurance companies . There is hardly any difference between the premiums amongst all insurance companies . As of now , 29 insurance companies are offering the Covid Kavach plans .

We suggest Star Health & Allied Insurance Co Ltd considering their wider presence across Maharashtra State as well as at nation level. They are number one medical insurance company in terms of individual policy holders ,focused only on health and its related insurance .

4 ) Is home care treatment expense covered ?

Yes but maximum upto 14 days and when the Medical practitioner advices the Insured person to undergo treatment at home . It should have daily monitoring chart , medical practitioner continuous active line of treatment . Refer the brochure attached below for detailed wording .

5 ) Policy Period and waiting period for Covid Kavach ?

Policy Period : Three and half months (3 1/2 months), six and half months (6 1/2 months), and nine and half months (9 1/2 months

Waiting Period : 15 days from the date of commencement of this policy .

6)  How much is the Hospital Cash Amount payable under optional cover benefit  ?

The Company will pay 0.5% of sum insured per day for each 24 hours of continuous hospitalization for treatment of Covid following an admissible hospitalization claim under this policy.

Please refer the brochure for more details and premium amount by clicking on below link

https://mcusercontent.com/af529c40e3f98b76ae87e393b/files/c0b32b98-2e61-4c20-8b36-6a64387630f8/Corona_Kavach_Insurance_Brochure.01.pdf

Please drop the mail to us for further queries .

Stay Home and Stay Safe !

Team Pentagraph 

Do You Need Life Insurance ? If Yes , Then How Much?

– By Meghashyam Sinkar
We have discussed about wealth protection in our earlier blog ( Click here to read it : Have you protected your non-material wealth ? ) . Life insurance is one of the part in wealth protection but the most important part of it . Off course it can’t replace emotional loss but can protect financial loss .

It is very usual for people to put off life insurance discussion . We come up with all sorts of excuse to avoid it or postpone it . Often , we see and realise that it is important but not urgent especially if our health is good .

Do you need Insurance?

Let us address below questions

  • What keeps you going to job or business every day ?
  • What keeps you think about the future ?

If it is your family , your love ones who are dependent on you . Then you need to answer “ what will happen to your family if you are not there ?”

Thinking deep on above question will give you the answer whether you need an insurance or not .

How much you need ?

This is mostly unaddressed question as lot of people simply take Rs 1cr or Rs 2cr of life cover without actually calculating how much they need .

There are different approach to arrive at the insurance amount .

1) Income replacement Value Approach 

Its say that you should take life insurance cover of 10 to15 times of your annual income. E.g. If someone is earning Rs 10,00,000/- of annual income then he/she should have the insurance cover of Rs 1,00,00,000/-  to Rs 1,50,00,000/-  .
Extended version is to add outstanding loan amount to above figure . Suppose there is a housing loan of Rs 35,00,000/- and car loan of Rs 5,00,000/- then Rs 40,00,000/- should be added to above cover amount .

However such random number or rule of thumb may not be the right way to calculate the insurance amount . It does not take person’s financial goals & responsibilities into consideration.

2) Human Life Value Approach 

It is most commonly used method to calculate life insurance amount . This calculation works on a simple formula of time value for money. Basically, it’s a present value of all the future income that you are expecting to earn in rest of the years till you retire.

e.g.  The person at an age of 34 who wants to retire at an age of 60 has net income ( salary/business) of Rs 25 L . The income growth rate is an average of  6% over these 26 years ( Retirement age minus current age ). Assuming his personal expense of Rs 5 L and the portfolio growth rate is 8% , the human life value would be calculated in excel with the function called ‘PV’ ( Present Value ) as below .

PV(rate,nper,pmt,fv,type)

Now  Rate = [( 1+g)/(1+r)-1] x 100

wherein g = Growth rate of portfolio in the event of death = 8%
r = Growth rate of Income = 6%

So , Rate =[(1+ 8%)/(1 + 6%) – 1] x 100 = 1.887 %

nper = Period for which his income is going to come which is Retirement age minus current age = 26 .

pmt = Income which is going to come to his family i.e. Net income minus his personal expenses = Rs 20,00,000/-

FV = 0 and  type = 1

If you put all these figures , then you get the PV as Rs 4,07,99,997/-. The person should deduct the existing life cover and financial assets which are liquid to arrive at actual life insurance amount . In absence of it , the life insurance amount is required as Rs 4,07,99,997/- .

This method still has its limitations as it is not easy to predict the income for next 20 – 30 years .

3) Goal Based or Need Based Approach

It is the most effective way of finding the right amount of life insurance . One can find it difficult to predict the future income but can be certain  about the cash flow requirement of his goals . It actually calculate the Net Present Value ( NPV ) of all the goals outflows which he / she wishes to cover . It is up to an individual to cover its which goals because goals can be mandatory , lifestyle or aspirational .

E.g.Mr. A has below goals

  1. Child 1 & Child 2 : Graduation goal and post graduation goal with an inflation of 10%
  2. Child 1 & Child 2 : Marriage goal with an inflation of 8% .
  3. Vehicle : Replacement of car every 8 years with an inflation of 5% .
  4. Household expenses :  increasing at an inflation of 8% every year .
  5. International vacation : planned at defined interval with an inflation of 5% .
  6. House refurnishing : planned after 6 years and inflation is taken at 7% .

Now the current expected value ( Today’s cost ) of these goals should be taken to their respective year of occurrence with mentioned inflation rate which will look like as below ( Please refer the table )

Then Mr.A needs to answer the coverage ratio of all these goals. e.g. Mr A wants to cover child education and marriage goal completely and vehicle replacement to 50% . Household expenses would be covered to 75% as Mr. X’s personal expense is taken as 25% .  Aspirational goal of international vacations is not covered by Mr. A . Similarly he needs to find out what & how much of the goal amount needs to be protected

Goals Calendar
Coverage
100%
100%
100%
100%
100%
100%
50%
75%
0%
50%
Calendar Year
Mr. A Age
Marriage
Vehicles
Others
Child 1
Child 2
Child 1
Child 2
Replacement / Upgrade
Household expenses
Internation Vacations
House Refurnishing
Graduation
Post Graduation
Graduation
Post Graduation
2018
40
-1496712
2019
41
-1631416
2020
42
-869219
-1778243
2021
43
-1938285
-534000
2022
44
-2112731
2023
45
-2302877
-647891
2024
46
-2510136
2025
47
-2736048
2026
48
-2982292
-437000
2027
49
-3250698
2028
50
-1670899
-1258309
-3543261
2029
51
-1837989
-3862155
2030
52
-2021788
-4209749
2031
53
-2223967
-1141247
-4588626
2032
54
-3057955
-1255371
-5001602
-984000
2033
55
-3363750
-1380908
-4281372
2034
56
-1518999
-4581068
2035
57
-2088624
-4901742
2036
58
-2297486
-2428770
-1859096
-5244864
2037
59
-5612005
2038
60
-2662648
-6004845
2039
61
-6425184
2040
62
-6874947
2041
63
-7356194
2042
64
-7871127
2043
65
-8422106
2044
66
-9011653
2045
67
-9642469
2046
68
-5158721
2047
69
-5519832

Now , the entire year wise cash outflows should be discounted to present (current )year with expected rate of return which will give the  Net Present Value ( NPV ) . This value is the actual amount of life insurance required to cover all the goals which Mr. A wants to achieve or fulfil whether he is there or not .

Note : 

  1. Insurance is not an investment . Its a protection . So don’t mix Insurance with investment or don’t confuse insurance over investment.
  2. Insurance is an expense and not an asset or savings. You are essentially renting insurance for the period of time ( insurance term ) your have chosen.

Remember that “you don’t buy life insurance because you are going to die, but because those you love are going to live” .

Happy Investing !!!

Learn from it or Run from it….

By Nikhil Shah

People often think they can’t change their past, but I disagree. Perhaps we can’t change every mistake in our past, but we have to remember that the past is a moving target. Every day that goes by us becomes a part of our past history. Whatever we do today will become a part of our past tomorrow, which means we do have the power to change our past by doing the right things today.
This lesson is taught best in the Disney movie “The Lion King.” There is a point in the movie when the young lion Simba is feeling sorry for himself for his past mistakes. The wise baboon Rafiki takes a stick  and hits Simba on the back of the head. Simba yells, “Geez, what was that for” and Rafiki replies, “It doesn’t matter, it’s in the past.” Simba says, “Yeah, but it still hurts.” Rafiki then says “Oh yes, the past can hurt. But the way I see it, you can either learn from it, or run from it.Rafiki then swings the stick again to hit Simba on the head and Simba ducks down in time to avoid the stick. Rafiki says, “You see.”  I love that example! It’s the perfect reminder that this principle should not be a difficult one for us to grasp. Yes, it hurts to mess up, but it’s in the past, so learn from it and move on.

Loss-Aversion Bias in Investment Behaviour.

It explains why despite deciding you’ll hate a movie ten minutes in, you’ll stick it out for the whole two hours in misery. You’ve already paid for the ticket, so you don’t want to waste money by not seeing the movie. But you won’t get that money back if you stay, so why do you feel like you have to? The reason we’re inclined to throw good money after bad (which economists call the sunk cost fallacy) is a perfect example of loss aversion in action. If we’ve spent resources on something—whether it’s as small as a ticket to a bad movie or as large as the billions of dollars spent in a war or social program that’s not working out—we’re inclined to stay the course so as not to waste what we’ve already spent. In other words, we want to avoid feeling the loss of what’s been spent, so we stick with our plan, hoping for a gain, even when sometimes that just leads to a bigger loss in the long run.

Similarly, in investment products many times how it is beneficial by correcting mistakes.

Let’s understand by example case of Mr. Swami. who bought Traditional Endowment Insurance Plan.

Mr. Swami is dynamic Software engineer, at the age of 30, he decided to save for his Retirement Goal AND TAKEN Traditional Endowment Insurance Plan for 20 years premium paying term with 1 Lakh Annual Premium.

Mr. Swami was upset after seen 5 year returns of only 6.5% p.a.(CAGR) , Now, today at the age of 35 when he got his Financial Health Checkup done from an Advisor.

Advisor recommended him below “CHANGE”:

  • He asked him to stop paying further premium and get the policy paid-up first.
  • Get term plan for self which will cost very less in annual premium and high in life cover.
  • Start investing in Hybrid Equity MF or Diversified Equity MF for next 15 years period.


** Note: Above calculation is considered without taxation.

What have you done if you are at the place of Mr. Swami ?

There is no question that making mistakes is a necessary part of our growing process, but I do believe there is a way we can still learn and grow without making quite so many mistakes and in a way that can be far less painful. And when you do make your next mistake, which all of us most certainly will – own it, fix it, and for heaven’s sake when that stick comes swinging toward the back of your head, hopefully you have learned enough to duck like Simba !!

Happy Investing !!

Have you protected your non-material wealth ?

Most of the investors don’t pay enough heed towards first and most important part of financial planning  / Wealth management process i.e. Wealth Protection . Many times  , it is procrastinated or on ‘things to do’ list but not as a priority or urgency .

You may argue that I don’t have enough wealth . Because , all we focus is on material wealth like car , gold , real estate etc and forget or ignore to look at non-material wealth which is nothing but ‘YOU’ for your family and dear ones .

We are sharing  three real life cases on each of the aspect of Wealth Protection.

Case I :-

Things were really going good for Mr. Sachin Rane ( name changed ) . Sachin was very hard working and earnest young boy from tier III city of Maharashtra . He joined HDFC securities as an executive on contract basis .Both Anil and I worked with him during our HDFC Bank tenure . One day , he came to our office with sweets and was very happy to share that the company promoted him and offered him a job on company pay roll . He then continued to talk on seeking tax savings advice and other investment related guidance  . After understanding his entire personal and family liabilities , we advised him to go for SIP in Tax Saving mutual fund and a pure term plan of Rs 25L with quarterly premium of Rs 1500/- as he had to take care of his retired parents and twin sister marriage expenses . 

Then the tragedy hit to the family . He met with an accident and could not survive. His parents,who shifted to Pune due to his permanent job and for better job opportunities for their daughter, got a shock of their life . They were completely shattered . We found it very difficult to face them during the claim settlement . A mother’s grief for Sachin will last as long as her love does – forever . However , some financial support through term plan got available for Sachin’s old parents and his sister’s marriage which he always concerned for .

Case II :-

Charu Khandal, animator with Shah Rukh Khan’s Red Chillies Entertainment had just celebrated after her team won a national award for the special effects in the movie Ra.One. As she was headed home, she was hit by a speeding car. 

The cervical bones in her neck got fractured and there were severe injuries to the spinal chord. Doctors have termed her as ‘indefinitely paralysed’. Charu was full of life; is extremely talented and loved her job. She didn’t take any breaks while working on Ra.One. Bad things can happen to good people.

Then started the long ordeal of medical bills for Charu & her family . Shah Rukh helped initially but then family had to manage immense financial distress .

She would have taken the accidental disability rider of Rs 50 lakhs which would have costed not more than Rs 620 /- per month . Think about it . We spend Rs 1000 on dinner these days in ordinary restaurant .  If Charu had both mediclaim and PA , she could have claimed for both the policies .

Case III :-

Rohan Hinge ( Name Changed ) , was a branch operational manager at one of the largest private sector bank and achieved good accolades and position in the bank over a period of 10 years . 

But destiny had something else in its mind . He was having some pain in the stomach for which he did regular check up .  However , the pain persisted for couple of months . He then finally decided to do thorough  check up . To his bad luck, he was detected with cancer cells . He had to go through number of painful radiation and chemotherapy treatment . But , the worst part is that Doctor had to remove his body part –Intestine where human wastage is stored. Due to this , he had to give up his full time banking profession and had to take up a job which is paying him much lower than his potential earning caliber . 

However when he took a home loan , the sales person had forcibly sold him a critical illness policy which had actually come to rescue him . He contacted the insurance provider who immediately paid the balance outstanding loan of Rs 23,00,000/- to home loan company and his loan got closed and hence the EMI .It took off huge burden on this head . 

Critical Illness policy helps during the huge medical expenses by paying the beneficiary in advance the lump sum policy sum assured after diagnosis . It takes away significant financial burden off for initial painful period. Again it costs nothing compared to its benefits .

You see lot of such news every day in newspaper but you need to assess the risk and protect it .Lifetime savings meant for a retired life can drain away rapidly with just one such accident.The chances of anything going severely wrong may be minuscule, but if it happens, there is a 100% financial impact.

We, at Pentagraph , strictly follow the financial planning process wherein risk planning comes first and then followed  by tax, retirement and wealth creation planning . 

We believe that it is far better to have personal protection and not need it, than to need it and not have it !

Happy Investing !!!!!

Insurance Facts which you must know

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January -February -March , popularly known as JFM  are the crucial months for the insurance industry due to tax saving season . Lot many investors rush to buy tax saving products and fall prey to insurance agents ,distributors and buy the insurance policies without understanding its tax implication .

Here we are jotting down the changes which has happened in last 5 years in insurance sector and its implications on policy holders .

  1. The Finance Act, 2012, had made it mandatory for policy issuance, effective April 2012, that the sum assured should be 10 times the annualised  premiums for the life insurance policies to enjoy the tax benefits on contributions under Section 80C and on maturity under Section 10 (10D). The earlier limit was five times for policy issuance ( from April 2003 to March 2012 ).
  2. If the insurance cover is less than the minimum amount specified in point no 1, the amount that can be claimed for tax savings under Section 80C reduces proportionately. For example, if you buy an insurance policy today with life cover of five times, the amount that can be claimed under 80C will be only Rs. 50,000 for Rs. 1 lakh premium paid. But you will not get any tax benefits on maturity under Section 10 ( 10D ) . The life cover has to be at least 10 times the premium for it to be tax free. 
  3. We were surprised to see why some investors putting lakhs in Single premium products like LIC Bima Bachat .Are these investors under the impression that they can just show the returns from the products as tax-free?” . Most of the investors were told that maturity proceeds are tax free. When we requested them to check with their agents , most of them replied  with comment ” all insurance proceeds are tax free”.
  4. The Finance Act, 2014, has introduced a 2% TDS (tax deduction at sources ) on the maturity, surrender or partial withdrawal amount of life insurance policy, if it does not qualify for tax-free returns clause of 10(10D). If the PAN ( permanent account number ) cards details are not available, the deduction will be 20%. This new section 194DA of the Income Tax Act, 1961, that took effect on 1 October 2014, envisages TDS on life insurance policy payouts which are not exempt under section 10 (10D)
  5. Pension / retirement plans are easily among the worst financial products with respect to taxation. If you surrender a pension products anytime before maturity, you will have to give back the tax deduction you had claimed under Section 80CCC. The surrender value has to be added to your income and taxed as per your slab in the year of surrender.
  6. At the time of maturity of Pension policies , you have an option to withdraw one-third amount which is tax free and balance amount gets converted into annuity ,which is again taxable.( Refer our blog Retirement Plan or Plan for retirement ….Think over it )

There is the ‘insurance for investment’ myth. The very idea of insurance is to protect you from the risk of loss, damage or casualty. Insurance is worth dying for. However, for living, you require investment solution.

We ,at Pentagraph , always advise that insurance and investment should be kept separate. 

 

Happy Investing !!!!!

INVESTING IN INSURANCE

INSURANCE is one of the key factor in financial planning but followed it wrongly .Thanks to insurance agents to make it possible.

In India, 90 % of insurance business is sold and not bought. We have huge insurance agent population and so called “Relationship Manager /Wealth Manager” from big banks, financial institutions spreading the general awareness about insurance. Everybody talks about innovative products, feature etc but sadly no one talk about the pure term insurance.

I would like to brief on how things have happened in insurance sector in last 5 -7 yrs

  • When family is blessed with a child in India, their insurance agents feel happier than them. Yes, it is time to sell child policy for agents .One of my friend called me the other day (he also blessed with a baby girl and asked me “I want to take a policy for my daughter”. It has become a trend because of policies like LIC Komal Jeevan,  HDFC youngstar. In most of the cases, life is assured for child not the parents, they are just the proposer .So it does not make any sense to buy such policy.
  • The most common trap is during financial year end i.e. during the tax filing .March is like Diwali season for Insurance agents. Our “Big Daddy” in insurance sector always launch new product for salaried and business class people during this period. People buy it for tax saving purpose rather than investment purpose hence does not know what they are buying.
  • In 2004, Insurance industry got the fantastic product called “ULIP”. It was sold in the market like hot cake “Sir, 3 saal hi bharana hai (need to make the payment for 3 yrs only). Market was also performing so fabulous return. Even for a unit linked pension plan, it is 3 yr and people also bought it. I do not how one can have retirement corpus generated for age 60 to 85 yr by making a payment for 3 yrs.

Today also I get queries about what should I do as I have paid it for 3 yrs. Ideally one should continue the policy now as in initial Year, Company and agents enjoy the benefit .Now, it is investors turn.

If you have got an agent or advisor asking you to make minimum 5-8 premiums payment and asking you to stay invested for 10 -15 yrs then you got a right product.

There are “n” numbers of sells stories wherein insurance products are sold on investment basis rather on insurance basis.

But still we have insurance companies making incremental numbers in ULIP quarter on quarter. It is like cigarettes business which is getting sold even with cautious note “Smoking is injurious to your health”.

Infact , investors are ready to pay insurance premium for his car without any return but sadly not for his own life .

Since ULIP are in news under unfavorable products  .People are aware about the cost structure and IRDA has made lot of changes and tried to make it more simpler .But according to me , it is still very costly as compared to Ulips in developed countries .

Now Agents are busy in selling traditional plan where company does not disclose any charge structure but it can be more dangerous to the client as it is debt product with high charge.

One should first consider buying a term plan and then look for some other insurance options if any.