As much as it is important to make plans for your family, it is equally important to ensure that they are achieved even if you are not there.
And Term Life Insurance is the only financial tool to protect your family and your plans for them in your absence. Hence, it is an absolute necessity for every earning individual of a family.
However, while buying a term life insurance or if you have one already, there are a few things that you need to be mindful of.
1. Not buying enough coverage to replace income
While buying term life insurance, the topmost question in our mind is – How much cover do I need? Though a very popular number these days for term life insurance policy is Rs 1 crore, it is a random number without any proper math behind it.
The things that need to be considered while arriving at an amount of coverage are – future household expenses (minimum36 times your current monthly expenses), your liabilities, important goals, and life events, and if married, then a retirement corpus for your spouse.
First, calculate the total amount your family would need considering all the factors mentioned.
Next, if you have any financial assets – mutual funds, provident fund, fixed deposit, etc. – deduct that from the amount needed. This is the easiest way to come to a number while determining your term life insurance coverage.
Do not pick a random number no matter how big it sounds, instead, do your math correctly to find out how much coverage you would need.
2. Not reviewing term life insurance cover
You might believe that the term life insurance policy coverage that you have is enough for life, but that’s not the case. What may sound sufficient today, might not be adequate for your future needs.
Hence, it is necessary to review your term life insurance every 3rd year, to check whether it still matches your requirement.
Then if you feel your life insurance needs are more than the coverage, you can buy another policy to fill that gap.Situations when you need to review your term life insurance policy:
• When your parents or spouse stops working
• When you take a big loan like a home loan
• When you get married
• When you have a child
• Change in your income level
If anyone in the family (other than you) has contracted a major illness and household expenditure goes up due to treatment.
3. Getting term insurance for too short/long period
If you buy term insurance for too short or a too-long period it completely loses its purpose. Let’s see how.
Let’s assume you buy a 20-year policy at 30, and its tenure would end when you are 50. At that stage, you still would have several milestones to be achieved like children’s higher education, their marriage, a sufficient retirement corpus for your spouse, etc. These goals need to be protected until they are achieved.
Similarly, buying a term life insurance policy for too long a tenure is also pointless. Suppose you have bought a term life insurance policy that will provide you cover till you are 80, but you retire at 60.
There are two points to consider here. Considering the life stage, most of your life goals would have been achieved by then, hence the life insurance requirement is not high. Second, you have to keep paying the premium amount for 20 years, even though you will stop working.
Conclusion:
At every life stage of an individual, the requirement may vary but having a term life insurance cover is a must. But if one is not careful enough, it might not provide enough benefit to the family in his/her absence even though he/she might have bought the right product.
Hence, to ensure that your family is financially protected when you are not there, be mindful of a few things regarding your term life insurance – like buying early and also enough cover, its tenure, and reviewing it when necessary.
Of late, ELSS (Equity Linked Savings Schemes) or “Tax Saving Mutual Funds” have gained tremendous popularity. More and more investors are starting to believe that for saving taxes, ELSS Mutual Funds Sahi Hai!
And why not? As a category, Tax Saving Mutual Funds have grown investor wealth at nearly 18% per annum between 2013 and 2020 – nearly twice as fast as traditional choices such as NSC and PPF, and almost three times faster than traditional Life Insurance.
Their shorter lock-in period of three years has added to their allure.
All the obvious advantages of ELSS Funds as an 80(C) instrument notwithstanding, they possess a few all too common pitfalls too. Here are three of them that you must avoid at all costs.
1.Not understanding the risks
Unfortunately, there are no free lunches in the investment world. Increased return potential will invariably be accompanied by an increased risk of capital erosion. Being equity-linked, ELSS funds are high risk in nature – during the crash of 2008 & Covid’19 crisis many ELSS funds fell to nearly half their value!
As an investor, you would do well to understand the risks associated with ELSS funds before taking a final decision.
If you’re very risk-averse, you may want to consider splitting your tax-saving amount between ELSS funds and other lower-risk instruments such as PPF or Tax Saving FD’s – lower returns notwithstanding.
Respecting your unique investment preferences and risk tolerance levels and critical for long-term investing success.
2.The Investing in one shot
A common ELSS Mutual Fund related mistake – is to hold back until the last moment and make a lump sum investment into a tax saving mutual fund and the very end of the fiscal year.
While this approach would benefit you if you luckily end up catching a market bottom; it could work against you if you end up investing at a market peak (neither of which can be predicted).
A much smarter approach would be to start a Mutual Fund SIP (Systematic Investment Plan) in an ELSS Mutual Fund at the start of the financial year, after computing your projected deficit for the year.
For instance – start a monthly SIP of Rs. 12,500 in 12 months will make 1,50,000. In doing so, you’ll be benefiting from a mechanism called “Rupee Cost Averaging” which greatly mitigates the risks associated with the stock markets.
In the long run, your returns will be a whole lot smoother and less volatile, and you’ll worry about your investments much less.
3.The Fixating on the 3-year lock-in
By fixating on the three-year lock-in, many investors harbor the mistaken belief that three years is a sufficient time horizon to invest in ELSS Mutual Funds. In reality, a time horizon of five to seven years is a lot more appropriate, since a Tax Saving Mutual Funds is essentially a 100% equity-oriented investment.
In situations where lump sum investments are made when market valuations are already stretched (such as today’s scenario), it is quite likely that ELSS returns could be flat to negative over a three-year period, with a couple of rough-rides thrown in during the course too.
In such situations, investors need to be willing to extend their time horizons by a further three to four years (beyond the mandated three-year lock-in) to really reap rewards. While you can derive a degree of comfort that the mandated lock-in will finish within 36 months, you need to mentally commit yourself to a longer investment horizon if you’re opting for a Tax Saving Mutual Fund.
Several reasons why you should start investing and also get insurance at a young age. But, at the time when we start our career, with a little income and too many expenses, the dilemma that we often face is should we invest or insure first?
Through this blog, I will try to help you get over this dilemma, i.e. whether to invest or insure first.
Before I get it into explaining whether to invest or insure first, it is important to understand why it is important to start investing and also buy insurance (health and life) early in life.
2 reasons why you should start investing early
Starting your investments early improves your spending habits
At the time when we start earning, our income is quite low. And if we want to save from that little amount of salary that we get, then we have to put restrictions on our spending by creating a budget. Over the years this simple practice becomes a habit, eventually improving our spending habits.
To adopt the simple habit of saving/investing, put away the part of the salary at the start of the month. And, then make a monthly budget with the rest of the money you have in hand.
Say you earn Rs 30,000 monthly and out of that you want to save Rs 10,000 every month. So as soon as you get your salary, put Rs 10,000 away, and then create a monthly budget with the rest Rs 20,000.
You enjoy the benefit of compounding For starting your investments early, you stay invested for longer, which automatically increases the benefit of compounding. Let’s understand this with 2 simple examples.
Say you want to save Rs 5 crore for your retirement. Now, with that goal in mind, you start investing in an equity mutual fund from the age of 22. For this, you will have to keep investing Rs 5,500 for the next 38 years, and your total investments would be Rs 25 lakh.
In the second case, the goal remains the same but you start investing in the goal much later, let’s say at 45. For this, you would need to invest Rs 1 lakh every month for the next 15 years and your total investment amount would be Rs 1.8 crore.
This is how compounding works in favor of money over the years.
After looking at the reasons why one should start investing early, let’s understand why it is equally important to get insurance at a young age.
Here as we speak about insurance, we mean both health and life insurance. Speaking about health insurance, no matter what your age is you should always have health insurance.
Sickness or some health emergencies can come at any time and if you do not have health insurance, medical expenses can burn a huge hole in your pocket. So you should never delay the process of getting health insurance.
However, we often delay the process of buying a term life reason for very simple but foolish reasons. The common notions are since we are young and healthy or at this stage, as the responsibilities are less, we do not need term life insurance. However, contrary to the popular belief, buying term insurance early on is always favorable.
2 reasons why you should buy term life insurance early
The premium amount is low The biggest advantage of buying term life insurance early on is the premium amount that you pay is much less as compared to what you would pay if you buy it at a later stage in life.
For example, say you want to buy a policy of Rs 1 crore that would give you coverage till 75 years. If you buy it at 25, the premium amount would be Rs 8,000 annually. At 30, it would be Rs 10,000. And at 45, the premium for the same policy would be Rs 30,000.
Your family gets covered early on The sooner you buy the term insurance, the sooner your family gets covered. Even if you are not married, your parents might be dependent on you or you might have a loan (vehicle loan, student loan),
In case you die early then your family will have to bear that burden. Having term insurance ensures your family will not have to go through financial hardship in case something happens to you
So finally, whether to invest or insure first? So, this is typically a chicken and egg situation – who came first. To put more aptly, here it would be which one to do first, buy insurance, or start investing? Now, the best thing to do is to do both things simultaneously.
For example, let’s suppose Rajeev is a 25-years-old, and given his monthly income of Rs 40,000, he can take out Rs 10,000 each month, i.e. Rs 1.2 lakh annually, for savings/investments/insurance. So what should he do?
Here is how you can allot the money towards insurance and investments
Health insurance: It is a good practice to have at least 6 times your monthly salary as your health insurance coverage. By that logic, since Rajeev’s monthly income is Rs 40,000, his health coverage should be between Rs 2.4 to Rs 2.5 lakh. At the age of 25, the yearly premium amount for Rs 2.5 lakh health insurance would be about Rs 5,000.
Term life insurance: Since Rajeev doesn’t have a lot of liabilities, a term cover of Rs. 1 crore would be enough. Say the term life insurance cover that you need at this stage is Rs 50 lakh. The premium for a Rs 1 crore term policy would be around Rs 8,000 annually.
Investments: The rest of the Rs 1.1 lakh you can invest in Mutual Funds. Since Rajeev is young, he can take risks, and therefore you should invest in equity mutual funds. He can consider large-cap mutual funds or multi-cap funds and start a monthly SIP in these funds.
Now, as and when the income increases, he should also increase your investment amount. Rajeev should also review his health and term cover at regular intervals to ensure the cover is sufficient.
National Pension System (NPS)
Launched by the Government in 2004 and opened to the public in 2009, NPS is a voluntary retirement scheme. By investing in it, you can create a retirement corpus and also get a monthly pension for life after retirement.
It is regulated by Pension Fund Regulatory Development Authority or PFRDA, and any Indian national between the age of 18 and 65 can join it.
Since it’s a retirement scheme, an investor can’t redeem his money before the age of 60. However, partial withdrawal is allowed in specific needs like children’s education.
Now let’s look at its tax benefit:
You can claim a deduction against your NPS investment only for investments done in Tier 1 account, so while investing do take care of this.
The Tax Benefits under Section 80CCD (1B)
This is an additional tax benefit given only to NPS investors. Under this section, you can claim tax deductions for your investments up to Rs 50, 0000. This is over and above the deduction that you can claim under Section 80C.
So, you can claim tax deduction up to Rs 2 lakh simply by investing in NPS – Rs 1.5 lakh under Section 80C and another Rs 50,000 under Section 80CCD (1B). That means if you fall under the tax bracket of 30 percent, you can save Rs 62,400 in taxes.
The Tax Benefits under Section 80C
NPS is one of the listed investment options in which you can invest and save tax under Section 80C. The deduction limit for this section is Rs. 1.5 lakhs, and you can invest the entire amount in NPS if you wish and claim the deduction.
The Tax Benefits under Section 80CCD (2)
This benefit can be availed on the contributions made by the employer; hence, this one is meant for the salaried individual and not self-employed.
Government employees can claim 14 percent of their salary tax deduction under this section. Meanwhile, for private-sector employees, it is capped at 10 percent of their salary.
Let’s see the benefits of NPS through an example:
Suppose a corporate employee earns Rs 7 lakh as the basic salary and another Rs 3 lakh as Dearness Allowance.
So he can claim Rs 1, 00,000 (10 percent of Basic + DA) on his employer’s contribution. Besides, if he adds the deductions under Section 80CCD (1B) and Section 80C, he can claim deductions up to Rs 3 lakh.
NPS Tax Deductions for a Salaried Individual
Basic Salary ₹ 7 lakh
DA ₹ 3 lakh
Deductions under 80C ₹ 1.5 lakh
Deductions under Section 80CCD (1B) ₹ 50,000
Deductions under Section 80CCD (2) (10% of Salary + DA) ₹ 1,00,000
The total deduction that can be claimed ₹ 3 lakh
The Tax benefits on returns of and maturity amount
Tax benefits of NPS don’t just end at the investment amount. As an investor, you don’t have to pay any tax on the returns or the maturity amount also. This kind of tax treatment is called EEE i.e. exempt-exempt-exempt. In India, this tax treatment is available only on a selected few financial products.
Conclusion
NPS with its tax benefits can help you reduce your taxable income by quite a bit. However, it shouldn’t be the only reason for you to invest in it. It is a great product to build a corpus for your retirement thanks to its low cost and flexibility. So invest for the right reason.
FDs are normally a fixed deposit and a saving instrument, which gives a higher rate of interest than a regular savings account.
It is a term deposit in which we invest in a lump sum amount and we get interest on it till maturity.
FD’s are normally offered by the bank. But NBFC’s (Non-Banking Financial Companies) also offer the FD’s and it is known as Corporate Fixed Deposits. They are the same as bank FDs.
Corporate Fixed Deposit (CFD) is a term deposit that is held over a fixed period at fixed rates of interest. The maturities of various corporate fixed deposits can range from a few months to a few years.
Their functioning is somewhat similar to Bank FDs but they are offered a higher rate of interest. The risk involved with corporate FDs is significantly higher. If the company hits a recession or goes bankrupt then the returns cannot be provided at the maturity of corporate FDs.
The medium of the deposit is a certificate of deposit. The corporate FDs are not insured, that means, in case of default you will not get Rs 5 lakh as in the case of bank fixed deposits. It gives high returns as compared to Bank FD’s as they involve high risks.
Key benefits of Corporate FD’s :
Higher returns – Enjoy greater returns from Corporate FDs as compared to the bank FDs.
Flexibility – Choose Corporate FDs as per your preference from a variety of tenures such as monthly, quarterly, half-yearly, or yearly.
Liquidity – Enjoy better liquidity with Corporate FDs with a lower lock-in period than Bank FDs
Premature Withdrawals – Opting for premature withdrawal in FD means depositors can withdraw their amount and close the account before the term ends.
Safety – Company deposits are carefully inspected by credit rating agencies. These agencies check whether such FDs are safe and stable.
Tips for choosing a Corporate FD:
Credit Rating: Opt for higher-rated corporate FDs based on its credit rating which indicates the underlying risk of the company.
Company Background: Assess a company’s business viability by referring to its Financial Statements, Management Discussion, and Analysis (MD & A).
Repayment History: Companies’ repayment history helps to determine the company’s credit score, credibility, and stability.
Risk profile: Make sure that the company you pick is financially healthy and helps you rule out any default risk during the fixed deposit period.
Terms of FD: A cumulative scheme could be better than a regular income option as the interest earned gets invested in other avenues. At the end of the day, you’ll have a lump-sum amount in your hands. But not if you’re looking for a regular income from the FD.
Here are the top NBFC’s recommended by our expert. 1. HDFC Ltd (Housing Development Finance Corporation Ltd) 2. PNB Housing (Punjab National Bank Housing Finance) 3. Mahindra Finance (Mahindra & Mahindra Financial Services Ltd)
The Marine Insurance policy can be taken by buyers, sellers, import/export merchants, contractors—or anyone engaged in the import and export of goods or transportation of it within the country.
Cargo insurance is advantageous to the business organizations in which the goods are being transferred.
The contract of sales would decide who can purchase the policy.
Here are some of the most common contracts: • FOB (Free on Board) • C&F (Cost & Freight) • CIF (Cost, Insurance & Freight) In FOB and C&F contracts, the buyer is responsible for insurance. However, in CIF contracts, the seller is responsible for insurance.
Here are some common reasons why marine insurance claims get rejected:
1. Inadequate Insurance Cover Chosen Just like any other insurance product, marine insurance has specific inclusions and exclusions. While the primary insurance features are included in all the policies, the insured needs to buy additional coverage depending on the nature of his business, the goods to be transported through ships, and similar other aspects.
If you file a claim of an amount beyond what your marine insurance policy covers, you won’t get the expected claim amount. So, it is vital that you select a plan with adequate coverage. Also, keep in mind to review your policy wordings that refer to its inclusions and exclusions. It will help you change the policy coverage as per the changing business needs.
2. Inappropriate Packaging of Goods While marine insurance safeguards the goods to be transported, packaging them properly to avoid damage while on the route is essential. If they are not packaged in the right manner before being transported, there is a higher risk of damage during the journey. Improper packaging of goods is one reason that can lead to the rejection of marine insurance claims.
3. Transporting Goods That Cannot Sustain Long Journeys With marine insurance, you can prevent the risk of financial losses that may happen in case of unexpected events during goods transportation. However, you cannot expect the insurer to pay you in case you transport perishable goods through cargoes.
A transporter cannot ask for claims of damages to the goods that are perishable in nature. It would be best not to choose water transport mode if the goods are likely to get damaged by delays while en-route to their destination through ships.
One way to ensure your marine insurance claim won’t get rejected is to ask yourinsurance company about the specific list of goods covered under the policy. It will help you avoid any misunderstanding that may arise later about the inclusion clauses of the policy.
As detailed above, many instances come up where transporters and shipping corporations do not get the expected claims related to the marine insurance they have bought.
Even small mistakes you make at the time of filing claims, purchasing a policy, and similar others can lead to claim rejection, thus ultimately leading to financial losses.
If your business involves getting goods transported through ships to distant lands regularly, it is crucial for you to choose the right marine insurance policy.
In case you find it challenging to do this, you can ask for help from us.
Financial setbacks are like uninvited guests – they always turn up unannounced at the wrong time and derail your plans. A lot of us imagine this scenario in our heads and create hypothetical funds or options that we are sure will help us in case of such an eventuality.
Many of us might not have that fund ready and need to fall back on options that are always not so pleasant – like taking a loan from a relative or a friend.
So how do you arrange for money at these times of crisis? Let’s take a look at one of our recommended options- the loan against property.
We are all aware of the high interest of personal loans but often we find ourselves out of choices. This is where a loan against property (LAP) becomes a viable option.
Also known as Mortgage Loan, LAP is categorized as a secured loan and disbursed against the security/guarantee of the borrower’s legally owned property.
Although loans against property are not at par with housing loans as far as competitive interest rates are concerned, they are definitely cheaper than personal loans.
In case of loan against property, lenders have conditional ownership over the borrower’s property until the loan is repaid in full.
Therefore, the borrower can obtain a loan amount commensurate to the value of the property less than the lender’s margin. Additionally, these loans offer larger sums at lower interest rates and longer repayment tenures.
The borrower still remains the lawful property owner throughout the loan tenure and can choose to repay the loan at a pace in line with his/her financial standing and situation.
Further, unlike home loans, loans against property can be used as the borrower’s wishes. With constantly escalating real estate values, this loan helps raise big sums, while they are also suitable for short-term needs like medical treatment/emergencies, children’s education/marriage, starting/expanding business, etc.
If you are considering taking a loan against property, here are some important things you must know:
Property evaluation
Loan against property can be taken against a self-occupied property or a residential property that has been rented out, as long as the borrower is the lawful owner.
Real estate that qualifies for a LAP includes a house, a commercial property, or a piece of land. Further, if a property is owned by more than one person, all legal owners need to jointly apply for the loan against the co-owned property.
On receiving an application for a LAP, the lending institution sends an appraiser to evaluate the plot or home’s market value. Non-banking financial companies and banks typically sanction only a specific percentage of the property’s total market value, usually 40-60%.
Before quoting a final figure, financiers also take into account the property’s age and overall condition.
To ensure that the loan is approved, it is advisable to ascertain that the property is free from previous liens and is completely owned by the applicant(s).
Loan-to-value (LTV) ratio
To secure a good deal, it is imperative to compare various lending institutions in terms of the loan-to-value (LTV) ratio offered by them. Private sector banks may offer up to 75% of the property’s value as a loan, while public banks offer up to 65%.
This variation is attributable to the way in which the property is evaluated by financial institutions or their internal rules, and this restricts the offered LTV.
Further, if the borrower pledges his/her commercial property as collateral, the LTV offered is usually lower than in the case of a residential property.
This is because banks opine that borrowers are more dedicated to saving their residential property rather than commercial, and this naturally lowers the bank’s perceived risk.
LAP Eligibility criteria
Though this may vary from bank to bank, some common factors that all banks consider are the borrower’s income, debts, savings, repayment track record (for credit cards, previous loans, etc.); and the market value of the mortgaged property.
Apart from this, the borrower’s employment status, age, financial standing, and credit score also play a key role in determining the loan amount that is sanctioned.
Lenders prefer that the borrower is paying off the debt while still employed – this is precisely why the maximum age for the maturity of LAP for a salaried individual is set at 60 years (retirement age in India) and for self-employed individuals, it is 70 years.
Interest rates, Tenure, EMIs
The interest rate on a LAP ranges from 9-15% per annum depending on the lender. The tenure of a loan against property can be between 7-15 years.
The borrower can choose between a lump sum and an overdraft facility. Financial institutions usually have an online LAP eligibility calculator, using which you can calculate the exact EMI amount based on your loan repayment schedule.
Documents required
The key documents required by most banks/financial institutions offering loans against property are usually the same, however, there may be some minor variations from one lender to another. Common documents are mentioned below
1. KYC documents of the borrower
2. Income proof of the borrower
3. Legal documents of the property
Did you know?
Loan against property (LAP) provides no tax benefit to the borrower and the liability of interest payment starts as soon as the loan is disbursed.
Moreover, loan against property requires quite a few checks to be made by the lender, therefore, the processing time is almost as long as in the case of a home loan.
Concluding
A loan against property is one of the best ways to raise money especially when the property market is bullish. However, if the borrower is unable to pay off the loan on time in full, the financial institution is authorized to take possession of the mortgaged property and auction it off to recover the loan owed.
Like any other loan, repayment defaults also negatively impact the borrower’s credit/CIBIL score, not to mention the penalty that will be charged on loan repayment. It is therefore prudent to thoroughly assess one’s repaying capabilities and understand all associated conditions before opting for a loan against property.
Fires and other related perils, i.e. events that cause a financial loss, have become a common cause of losses in recent times. These perils cause unspeakable loss to property as well as goods.
That is why having a fire insurance policy becomes important. The policy covers the financial loss that you face when assets are damaged due to fire or other covered perils.
You can buy a fire insurance plan under the following circumstances
• If you are an owner of goods and/or property
• If you are a mortgagee/financer
• If you are the assignee official receiver of assets where insolvency proceedings are involved
• If you are a warehouse owner and goods are stored in your warehouse for which you are responsible
• If you are an individual who has lawful possession of any goods or property
Coverage under fire insurance policies
Fire insurance plans not only cover losses suffered by fire but also losses suffered by other perils. The common perils which are covered under fire insurance policies include the following –
• Fire, explosion or implosion
• Lightning
• Damage due to an aircraft
• Strikes, riots, or any other type of malicious acts which cause damage
• Storm, typhoon, flood and inundation which is collectively called STFI
• Impact damage which occurs on impact with road or rail vehicles, animals, etc.
• Subsidence, rockslides or landslides
• Overflowing or bursting of water tanks, pipes, and other apparatus
• Missile testing operations and the damages caused thereof
• Water leakage from automatic sprinkler installations which causes damage
• Bush fire
What is not covered under fire insurance policies?
Despite covering a number of perils besides fire, fire insurance policies also have some common exclusions. These exclusions include the following –
• Losses by fire which was caused due to earthquakes
• Perils like war, invasion
• Perils like martial law, insurrection, or rebellion
• Underground fires and the losses that they cause
• The loss suffered when the insured property is burned on the directives of a public authority
• Theft related losses suffered during or after the fire
• Spontaneous combustion
• Losses faced because of nuclear perils
• Losses suffered because of pollution and/or contamination
• Any type of consequential losses
Types of fire insurance policies available in India
Different types of fire insurance plans are offered in India depending on the coverage need of different individuals.
The policies can be for fixed assets like building, plant, and property or for goods and stocks of the business. The commonly available types of fire insurance plans include the following –
For fixed assets
1. Replacement value policy
As the name suggests, this policy works on the concept of replacing the asset which is damaged due to a covered peril.
The insurance company pays the replacement value of the asset which is damaged. The replacement value is calculated as the market value of the asset minus depreciation based on the asset’s age.
If the property is insured, the cost of construction of the property is covered under the policy. In the case of other assets, their replacement value is calculated and paid as a claim.
2. Reinstatement value policy
A reinstatement value policy is nothing but an added clause under the replacement value policy. As per this clause, the insurance company undertakes to replace the damaged property to its original condition which was prior to the loss.
The reinstatement clause is applicable only for fixed assets like buildings. Other assets cannot be covered under this clause.
Moreover, you get coverage on a reinstatement basis only if you choose the reinstatement clause in the fire insurance policy. If the clause is not selected, claims would be paid on a replacement value basis only.
For goods, stocks, and other non-fixed assets
1. Floater policy
This policy is ideal for assets that are located at different locations. A single policy can be taken for all the assets and the assets would be covered on a floater basis. However, to avail coverage, every location and the value of the assets at each location would have to be specified.
2. Declaration policy
A declaration policy is suitable for assets whose value changes during the year, like stocks in a business. Under this policy, a provisional sum insured is taken and the premium is paid for the same. The sum insured would represent the maximum risk of the insurance company. Once a month completes, the highest value achieved by the fluctuating asset is recorded and declared. Thereafter, the average of the declared value is calculated and it becomes the actual sum insured of the policy. If the actual sum insured is lower than the provisional sum insured, you can claim a premium refund.
3. Floater declaration policy
This policy is the combination of floater policy and declaration policy. Assets stored at different locations whose values fluctuate over the year can be covered under a single policy through this cover.
4. Specific policy
This policy covers the loss up to a specific amount. The specific amount is the sum insured of the policy which is usually lower than the actual value of the asset.
5. Comprehensive policy
As the name suggests, a comprehensive policy has the widest scope of cover and covers the asset against the maximum number of perils.
6. Valued policy
Assets whose market value cannot be assessed can be insured under a valued policy. Under the policy, coverage is allowed for an agreed value of the asset which is the best estimate of the asset’s market value.
7. Valuable policy
Under this plan, the sum insured is not decided at the time of buying the policy. The claim amount is calculated at the time of loss. To calculate the claim amount, the market value of the asset is taken into consideration.
8. Average policy
The average policy is a fire insurance policy that works on the principle of the ‘Average Clause’.
An average clause is applicable if you avail a sum insured which is lower than the actual value of the good. In that case, when a claim is made, you don’t get the full amount of the claim. You get an average claim which is calculated in proportion to the sum insured that you have taken.
For instance, suppose the value of an asset is INR 1 lakh and you avail a sum insured of INR 80,000. Since you have insured only 80% of the asset’s value, you would get an 80% claim settlement. So, if the claim is for INR 50,000, the insurance company would apply the average clause and pay a claim of only INR 40,000.
9. Consequential loss policy
This policy covers the loss of profit which you can suffer when fire disrupts your business.
Which type of fire insurance policy should you buy?
Given the different types of fire insurance plans which are available in the market, you must feel confused as to which policy you should buy. To clear this confusion, there are some factors which you should consider when choosing the right type of fire insurance plan. The factors which should determine your choice of the policy include the following –
1. The type of risk that is being covered
Choose a policy based on the type of risk that you face. If you have to insure assets at multiple locations, choose a floater policy. If the value of your assets cannot be accurately ascertained, a valued policy would make more sense. So, choose a policy based on the type of risk that you face
2. The nature of the asset which you want to insure
As stated earlier, different types of assets can be insured under different types of plans. For property and fixed assets, you can choose replacement value or reinstatement value policies while for other assets there are other policies. So, choose a policy suiting the asset which is to be insured.
3. Exposure risks
Assess the types of risks to which the asset is exposed and then choose the best policy.
4. Coverage duration
It is important to know the period for which you need to take the coverage before you select the most suitable fire insurance policy.
Documents required for claim registration in fire insurance
In case of a claim, you should submit the following documents for registering your claim with the insurance company –
1. Copy of the policy bond which should also include the schedule of benefits as well as any clauses which have been attached therein
2. The fire insurance claim form which should be completely filled and signed
3. Newspaper cutting where the instance of the fire has been reported (If available)
4. Previous claim records, if any
5. Photographs of the damages suffered
6. Police FIR
7. Report of the fire brigade
8. The forensic report, if available
9. Final investigation report
Once the claim is registered, the insurance company would get the claim surveyed and then the claim would be settled.
Fire insurance is a very important coverage for protection against the loss of assets. Losses cannot be avoided but you can insure against such losses if you are smart and buy the right type of fire insurance policy.
Frequently Asked Questions
1. Can I change the type of fire insurance policy after I have bought it?
Yes, you can change the fire insurance policy after the coverage period of the original policy is over.
2. Can I increase the scope of coverage under fire insurance plans?
Yes, fire insurance plans allow various coverage extensions which you can choose to increase the scope of coverage. Some common extensions include the following –
• Forest fire
• Damages suffered by the stock when they are stored in cold storage
• Cover for earthquake-related damages
• Damages resulting from leakage and contamination
• Terrorism
• Cost of debris removal which exceeds 1% of the claim amount
• Architects, surveyors, or engineers fees which exceed 3% of the claim amount
• Omission to avail coverage for alterations, additions, and extension
• Rent paid for an alternate accommodation
3. How is the premium calculated?
Premiums of fire insurance plans depend on the type of policy bought, the risks covered, the sum insured, the value of the asset, usage of the asset which has been insured, expected risks, and the policy extensions took.
4. If the sum insured is higher than the value of the property would the claim be higher?
No, the claim would be paid on replacement value or reinstatement value clause even if you choose a higher sum insured level.
The seventh(7) series of Sovereign Gold Bond Scheme 2020-21 will open for subscription today (12th Oct 2020). The price of the latest SGB issue has been fixed at Rs 5,051 per gram of gold.
Investors applying for the issue online will get a discount of Rs 50 per gram. So the price for them will be Rs 5,001 per gram. The issue will remain open for one week through October 16.
The latest SGB issue comes at a time when gold prices have corrected over 12% from its August high of Rs 56,200 per 10 grams.
9 things to know about Sovereign Gold Bond
1) Gold bonds have a maturity period of eight (8) years with an exit option after the fifth year. However, if an investor is eyeing an exit before the lock-in period of 5 years, they can always get out of the bonds by selling it on stock exchanges. The redemption price is based on the then prevailing price of gold.
2) Price of the issue has been fixed taking the simple average closing price for gold of 999 purity of the last three business days of the week preceding the subscription period. The price published by the India Bullion and Jewellers Association Ltd is used for this purpose.
3) One can apply for a minimum of 1 gram gold in the issue. An Individual and a HUF can invest up to four kg in SGBs in each financial year. Other eligible entities can invest up to 20 kg in a year. These bonds can be bought from banks, Stock Holding Corporation, post offices, and recognized stock exchanges.
4) Any resident under Foreign Exchange Management Act (FEMA) can invest in SGBs. An individual, HUF, trusts whether a public or private and university can invest in SGBs. Even investment on behalf of a minor can be made by his guardian. An NRI cannot invest in these bonds but is allowed to hold these bonds received as a nominee of a resident investor.
5) If you hold SGBs till maturity, there will be no capital gain tax on the investment. Further, you will get an interest of 2.5% annually, which will be paid on a semi-annual basis.
6) SGBs are a superior alternative to holding physical gold. Also, there is no risk of theft, and the costs of storage are eliminated in the case of SGB.
7) SGBs are issued by the Reserve Bank of India on behalf of the government.
8) Documents that are required for applying these bonds are Voter ID, Aadhaar card/PAN, or TAN /Passport.
9) Unlike in physical gold, GST is not levied on SGBs.
SGBs should be a part of your investment portfolio as it helps in diversification. According to us, 5-10% of an individual’s portfolio should be invested in gold.
Rejections, of all kinds, can be disappointing. If the rejection is related to car insurance, it can affect your bank balance. Insurance doesn’t offer instant gratification. It is a promise based on certain terms and conditions.
It is natural for a policyholder to feel offended if the insurance company doesn’t live up to the promise of claim settlement. But there are two sides to a coin. And the car insurance company has its reasons for claim rejection.
1) Don’t Increase Consequential Loss
Consequential loss occurs when you try to run the car after an accident. This is a major loss in terms of damage. For example, if your car is submerged in water and you try to start the engine.
The car had already suffered water damage. But because you tried to start the car, additional water has affected the engine due to which the hydrostatic lock got activated.
In this example, your insurer will pay only to cover the initial damage caused by the water and not the expenses related to the hydrostatic lock. This consequential loss claim will be rejected.
2) Respect the Law
An insurer will honor a claim only when unintentional damage has occurred. When you break the law, your intentions are not in the best interest of you or those around you.
Thus, your claim will be rejected. Always make sure that you respect the law. For example, make sure your driving license is valid.
3) Follow the Claim Process
Each insurance company has a set of rules when it comes to their claim process. To get your claim honored, you need to follow your insurer’s claim process. This could include intimating the insurance company within stipulated time under the right conditions, or submitting the required documents, or coordinating with the claims team.
4) Be Honest
In case of an accident where multiple parties are involved, only the true claim will be honored.
Your claim will be rejected if you are found to be guilty of falsification. Remember that insurance companies carry out a thorough investigation of the incident via various means. Thus, always be truthful about what exactly caused the damage or injuries.
5) Renew in Time
Always make it a point to renew your car insurance policy in time. A claim will be rejected without any investigation if you raised it against an expired policy. Renew your policy and go through the inclusions and exclusions thoroughly if you want your claim to be honored.
Remember that reading the fine print will help you get a clear idea about the policy. You need to be sure that you raised the claim in a correct manner and against a corresponding inclusion.
6) Inform about Changes
One of the most common reasons for a claim getting rejected is that the insurer is not aware of the changes made to the car. For example, installing a CNG kit in your car.
Your claim may be rejected if the fuel type on your car insurance policy does not match the actual fuel type of your car. The same goes for any modification. You need to inform your insurer about all types of car modifications.
7) Don’t Repair without Informing
Last but not least, do not send your car for repairs without getting a go-ahead from your insurer. This is because, after an accident, your car will be surveyed for the extent of damage it has suffered.
Your insurer will give an approximate estimate of the expenses related to repairing this damage. Your claim can be rejected if you get your car repaired without a survey.
8) Co-operate
You need to raise a claim within a specified period and cooperate with the claims team regarding details related to the event against which the claim is raised. For example, the claims inspector might ask you some questions if you have raised a claim for a car accident. You need to answer those questions honestly.
If you fail to provide an honest narrative (don’t rely on the garage) or if you do not provide supporting documents (if needed), the insurance company might follow up with you for a while but eventually will reject your claim based on non-cooperation.
