Ranjan wrote about LIC’s Jeevan Saral last Sunday, and I thought this was an interesting product to look at and review here. The unique thing about LIC’s Jeevan Saral is that they allow you to set your own monthly premium and then they cover you for 250 times that amount.

This is a money back plan so that means you get the sum assured at maturity, and when you think of these two things together (250 times sum assured and money back) – it piques your interest.

250 times monthly premium sounds impressive so I went to the sample term insurance quotes page to see what the term plan numbers are like.

LIC’s term plan costs you Rs. 15,540 per year to insure Rs. 50 lacs, and Met Life’s cost only Rs. 5,800 for Rs. 50 lacs. So, that works out to about 3,861 times for LIC and 10,352 times for Met Life!

You can go to LIC’s premium calculator page and look for premiums on term plans yourself and I think you will see that they are over 3,000 times your monthly premiums.

Comparing LIC Jeevan Saral’s cover to pure term life insurance covers is not a fair comparison because you do get money back in this policy, but the 250 times number raised my curiosity and the first thing that occurred to me is to look at how many times term life policies insure you for monthly premiums. Now, that I have the 3,000 times number anchored in my mind, I won’t get this excited next time.

So, let’s compare this with some of the other plans we have looked at here - LIC Whole Life Limited Payment gets you a cover of Rs. 10 lacs for Rs. 26,000 per year, so that’s about 500 times premium. LIC Bima Bachat was a one time premium payment policy so I don’t think you can compare these two, but clearly 250 times monthly premium is not that big of a deal.

Now, let’s move to the returns of the Jeevan Saral policy, and this follows the theme of the other plans discussed here with some returns guaranteed  and some variable based on how much LIC themselves make. Based on their benefits I see the return to be in the 6% range considering the conservative and more reasonable assumptions given in the LIC benefits page.

This was an interesting policy to look at because of the unique 250 times aspect, but nothing  I discovered here changed my mind that you are better off with a term plan and with keeping investment and insurance separate.

What do you make of it?

Update: Rajesh Kwatra emailed with the following information that I wasn’t aware of. 

Somebody forget to mention one more interesting feature about this is that, during the untimely death of the policy holder he will get sum assured + loyalty additon and all the premium will be return to his/her nominee except first year ( Loyalty addition he will be given only if policy completed 10 years. This is the special feature available in this policy only.

I just forget to add one more important point that in this policy if anybody want to exit after 10 years he/she will be allowed to do that and in that case LIC will treat the policy that for the last completed year and policy  holder will get the premium of the all the year along with the Loyalty addition too,while on other policy LIC is treating it as a surrender.Because of this features this policy was awarded with Golden Peacok Awards for innovative Produst/Service Award-2009.

LIC Whole Life Limited Payment plan is an insurance policy that covers your life, and then at the time of maturity it pays you out a certain amount as well.

Technically the policy doesn’t mature because it is whole life assurance (and by this I mean I’m just repeating what their website says) but you get the sum assured plus all the bonuses 40 years from the date you start the policy provided you are 80 years old at the time.

So, if you are 39 years or younger you will only get the sum assured when you are 80, and if you are 40 or older then you will get the money in 40 years time.

You have the option of different premium payment terms in this plan – you can pay the premium just once at the beginning of the plan, pay it annually, pay it for 10 years or structure it in some other manner.

The insurance will last throughout the life time of course, and at age 80, you are guaranteed to get the sum assured back plus some variable returns based on the returns that LIC themselves generate.

These are variable and depend on what LIC earns way into the future.

I created a Google Spreadsheet to look at the IRR of these returns based on the illustrations of LIC and they range from 3.66% to 6.47% for the two options with periodic investments and from 4.5% to 7.5% for the one time investment.

These are of course all examples, and nothing is guaranteed in this. Here is the spreadsheet that you can look at and modify as well. Now, these are actually not bad returns when you think about the other products that we have reviewed here, but the trouble is with the relatively low sum assured, and how far out in the future the payment is made.

Vishal who brought this product to my notice said that his agent sent in a quote for a Rs. 35 lakh term insurance for Rs. 13,500 for 35 years, and he asked Vishal to take a look at this LIC Whole Life Payment policy where you pay Rs. 26,000 for 40 years to get a sum assured of Rs. 10 lakhs, and get Rs. 80 lakhs at the end of 40 years. That 80 lakhs is of course based on assumptions and for us I think it’s fair to think that the returns will be within the 3.5% to 6.5% range for this policy.

From the quotes that Mr. SM Gupta had shared on various sample term insurance plans, we know that you can easily get a policy of Rs. 25 lakhs from private players for a little more than Rs. 5,000 and you can then combine that with a policy from LIC to get additional coverage.

If this is the only insurance you’re going to get then that’s a bad idea, but if you have an insurance with a private insurer and want to supplement that with something from LIC then you may consider this keeping in mind the factors that we have talked about above.

This post was from the Suggest a Topic page

LIC Bima Bachat is a single premium money back policy which gives you insurance cover as well as some returns on your money.

Now, don’t fool yourself and buy LIC Bima Bachat if you want it for the insurance. A 30 year old will have to pay Rs. 67,058 to get a cover of Rs. 1 lakh and that’s actually one of the better scenarios.

So, if you’re buying it – you’re buying it for the returns and the 80C exemptions that it gets you so let’s look at those factors.

LIC Bima Bachat Covered Under 80C

The premium paid under LIC Bima Bachat policy is covered under Section 80C and what that means is the premium you pay will reduce your taxable salary by that much, and that will then reduce your tax liability.

Since you pay the premium only once – the uncertainty caused by the Direct Tax Code implementation doesn’t affect this.

LIC Bima Bachat Premium and Benefits

The policy can be for 9, 12 or 15 years, and the way it is structured is that you pay the premium, and then they will return you 15% of the sum assured every third year, and then the initial premium at redemption.

So, for a 9 year term policy:

• 3rd year  – 15%
• 6th year – 15%
• 9th year -  Premium

A 12 year policy:

• 3rd year  – 15%
• 6th year – 15%
• 9th year – 15%
• 12th year -  Premium

A 15 year old policy

• 3rd year  – 15%
• 6th year – 15%
• 9th year – 15%
• 12th year – 15%
• 15th year -  Premium

They pay you some loyalty additions at the maturity as well, but there isn’t any documentation on what this addition could be. Based on what some agents have said – the loyalty addition could be around Rs. 35 per 1,000 premium paid, but there’s really no guarantee on what they might be.

The premium itself depends on the age and the term of the policy, and they give  you certain rebates in the premium as well.

This table lists down the rebate.

Now, let’s look at the returns you can expect from this policy.

I created a simple spreadsheet to calculate the IRR of the three illustrations given in LIC’s website, and you can find that Google Spreadsheet here. You can edit this document as well so please be careful of what changes you make as it will affect everyone.

Now, let’s look at the details of the 3 maturities with the same kind of age and sum assured.

As you see the premium goes higher as you increase the maturity period, and the returns from all three of these policies are around the 5% mark if you don’t consider the loyalty additions.
Even if you do consider the loyalty additions of Rs. 30 or 35 per Rs. 1,000 premium paid – it’s not likely to make much difference in the returns.

As a point of reference there are quite a few tax saving fixed deposits that fetch you over 9% right now.

I’m not sure if the 15% they pay or the final payment is taxed  – so that’s one thing I still need to find out.

I see that they also offer you a loan at a rate of interest of 9%, so maybe that’s something that might be of interest as well.

This is all I wanted to cover in the LIC Bima Bachat policy review, and you can use the spreadsheet to calculate returns based on your age and premium.

ICICI Pru iAssure Single Premium Plan is a product that lets you pay only one insurance premium, and in return gives certain guaranteed returns as well as provides a life cover.

The iAssure plan is covered under section 80C, and while the brochure says the deduction amount is limited to 20% of the sum assured – I think this is another way of saying the amount of the premium you pay will be eligible for deduction.

I think the 20% figure comes from the fact that you can either get 125% of your premium as sum assured, or you could get 500% of your premium as sum assured.

This is an important point, and if you happen to buy the policy you should confirm with the people who are selling this.

This plan doesn’t get any tax benefit under section 10(10D).

ICICI Pru iAssure Single Premium Life Cover

This policy gets you a life cover and that depends on your age. If you are less than 55 years of age then the policy gives you a life cover of 5 times the premium, and if you are more than 55 years of age then the policy covers only 1.25 times the premium.

You can’t take the policy if you’re 80 or older and the policy comes with two maturity periods – 5 and 10 years.

You should be at least 18 years of age when the policy matures so based on the policy you take – you should be either 10 or 13 years of age.

The minimum premium is Rs. 20,000 and while I didn’t see any mention of a maximum limit – since one of the key characteristics of this plan is that you get 80C benefits – I think it will probably not make sense to take a premium that makes you go over the limit.

ICICI Pru iAssure Single Premium Guaranteed Maturity Benefit

At the time of maturity you get an amount which they call the guaranteed maturity benefit. The guaranteed maturity benefit is a number / factor that’s multiplied with your premium to decide how much money you will get at maturity.

This number / factor depends on the following things:

Maturity term: Other things being equal the factor will be higher for a ten year maturity period than a 5 year one.

Age: They have 3 different slabs for age – completed 35 years, 45 years and 55 years, and the younger you are – the higher is the factor.

Premium: The premium you pay also affects the factor – and the higher the premium – the better it is.

Reference Rate: They calculate a reference interest rate based on the prevailing interest rate, and the higher the rate – the better it is.

They must have some tables, or an equation of some sort that uses all these factors and gives you the factor to multiply the premium, but I couldn’t find this on the website.

So, you will need to ask about this factor if and when you purchase the policy. The brochure did have an illustration so let me take that as an example here.

ICICI Pru iAssure Single Premium Policy

• Premium: Rs. 1 lakh
• Entry Age: 35 years
• Term: 10 years
• Reference Rate: 6% or 8%

The document shows that for this kind of policy the guaranteed maturity benefit will be Rs. 1,47,000 if the reference rate is 6% and Rs. 1,79,000 if the reference rate is 8%. Now, keep in mind that I don’t know if the current reference rate is actually 6% or 8% or a number lower or higher.

The next step is to see what rate of return you need to get to this amount yourself. I find that you need 4% compounded yearly to generate about 1,47,000 and 6% compounded annually to generate Rs. 179,000.

These returns look quite similar to the ICICI Guaranteed Savings Insurance Plan we looked at yesterday, and when I think about these two plans  – the thing that strikes me is that in this plan you have to pay the premium only once a year so you know that you will get the 80C benefit. Under the other plan, if Direct Tax Code kicks in then you may not get any tax benefit at all.

Also, in this plan you know the guaranteed maturity benefit well in advance so at the time of talking to them you can ask them what the numbers are at various premium levels.

Then you can easily compare that maturity benefit to how much return you need to generate on your own and find out if this interests you or not.

This is another post from the Suggest a Topic page, and today I’m going to look at some features of the ICICI Prudential Guaranteed Savings Insurance Plan.

The ICICI Pru Guaranteed Savings Insurance plan is an endowment life insurance plan, and it gives you life insurance cover plus a certain amount at the maturity of the plan.

This plan falls under Section 80C tax saving schemes which means the premium payable will be applicable for deduction from your taxable salary under section 80C.

I find that the easiest way to explain how this plan works is to take an example of one option with certain figures and go through it. Let’s use the same example that they use in their benefit illustration page.

Let’s say you choose the 15 year term policy and decide on a premium of Rs. 25,000.

First thing to keep in mind is that in this option you have to pay premiums for the first 7 years, but you get the money at the time of maturity which is at the end of the 15th year. The good part about this is that your insurance cover lasts for 15 years as well.

So, how much is the insurance cover?

Insurance Cover = Annual Premium x Number of Premiums

In this case – 25,000 X 7 = Rs. 175,000.

From the sample term insurance post – you know that this is not much and you can get a cover of as much as Rs. 50 lakhs with an annual premium of Rs. 5,000 or so.

However, this is one benefit you do get – so keep that in mind.

Now, the next and slightly trickier part – how much money do you get back?

You will get your money back at the time of maturity so in this case at the end of 15 years, and they have split how much you get in three buckets.

1. Premium Payment: This is simply the sum of premiums that you have paid, so your own cash, and this forms part of the guaranteed payment they talk about.
2. Regular Additions: Every year, they will declare a certain percentage of the sum assured that will be added to how much you receive back from them. From the past numbers – I see that this is around the 4% mark, so in our case 4% of Rs. 1,75,000 or Rs. 7000 will be added to what you get at the maturity. This will be added throughout the term of the policy, so in our case – 7,000 x 15 = Rs. 1,05,000. This is also part of what they consider the guaranteed payment. So, the guaranteed total is Rs. 1,75,000 + Rs. 105,000 viz. Rs. 2,80,000.
3. Maturity Benefit: On top of the two amounts above – they will also give you a maturity benefit, but this doesn’t fall under the guaranteed category. I think this means that they are not obliged to pay this amount, however in their illustration they have shown this to be Rs. 74,292.

If you sum up these three amounts – you will get a value of Rs. 3,54,292.

So, under the ICICI Guaranteed Savings Insurance plan, if you were to pay Rs. 25,000 for 7 years, you may get Rs. 3,54,292 according to the illustration that they have shown. Note that the only number that you can be certain of in this calculation is the premium because that’s an absolute, and they will return that.

For the Regular Additions amount – they will pay you a percentage that’s at least half of the 10 year G-Sec and so far that’s hovered around the 4% mark, and from their documentation I couldn’t find anything about the maturity benefit, but at least for this illustration they have used the same rate as the regular addition so let’s just assume that you will get that.

Now, that I have this number – I want to know at what rate should I invest my money myself to reach this target. Let’s choose a conservative number and say that I can only grow my money at 6% per year.

Now, I use the compound interest calculator at MoneyChimp and find out that if I were to invest Rs. 25,000 every year and grow it at 6% – at the end of 7 years I will have about Rs. 2,20,000.

I also used the RD calculator to see how much I will get if I were to get a recurring deposit for 7 years with Rs. 2083 (25,000 / 12) every month for 84 months (years) and that gives me about Rs. 2,16,000.

So, let’s say using these conservative numbers you invest your money for 7 years. Then take Rs. 2,20,000 and do a fixed deposit at 6% for the remaining 8 years. The same calculator shows that I will get about Rs. 3,50,000 at the end of the term.

This shows me that even this conservative interest rate of 6% earns you enough to match the returns indicated by the ICICI Prudential Guaranteed Savings Plan, and in my opinion a cover of Rs. 1,75,000 is not a big enough amount to sway your decision.

Having come this far – the last thing to see is what happens if you want to cancel the policy mid way because that seems to happen a lot.

The brochure says that if you pay the premium for at least 3 years then the policy acquires surrender value, which I take to mean that if you cancel before that time period you don’t get anything at all.

Then to calculate the surrender value – you have to see the higher of the two:

• Guaranteed Surrender Value: This is 35% of the base premiums paid minus the first year premium. So if we go back to our example and say that we want to cancel after the 4 installment. Then 35% of 1,00,000 is Rs. 35,000 and if you reduce the first premium from that then you are left with Rs. 10,000 only.
• Non Guaranteed Surrender Value: This is the present value of the paid up sum assured discounted at the gross redemption yield at the review date immediately preceding the date of surrender, plus 2% annum. Quite frankly, I don’t know how to calculate this or even what this means, I can only hope its close to the money you have already paid but that’s probably not how it is.

I’ve covered all the features that caught my eye, and tried to be as comprehensive as my understanding permitted. If you’ve come this far going through the whole article – the decision makes itself.

If you see any inaccuracies or mistakes in understanding then please let me know, and of course as usual everything that you have to say is welcome.

This is another post from the Suggest a Topic page, and in this post we’re going to take a look at top up medical insurance policies.

Before I start, I must admit that I came to know about the existence of this product only after the comment was left here, so I’m still learning about them.

What is a Top Up Medical Insurance Policy?

Top Up Medical Policies are offered to supplement your existing health insurance, and kick in where the current medical insurance policy stops.

So, if you have medical insurance for Rs. 4 lacs, and take a top up policy of another Rs. 6 lacs, then the insurance company will pay you anything over the initial Rs. 4 lacs that you insured for.

If you get a hospital bill for Rs. 6 lacs, then you will get Rs. 4 lacs from your first insurance, and Rs. 2 lacs from the top up medical insurance.

Top Up Medical Insurance in India

Every top up medical insurance policy comes with a “Threshold Limit”. The threshold limit is the limit after which the policy starts paying you. In the case I took above the threshold limit was Rs. 4 lacs – this means that your top up policy will only start paying you if your hospital bill is more than Rs. 4 lacs or the threshold level.

In the case of the top up medical insurance – you should reach the threshold every time to be eligible for payment.

So, if you have a second hospitalization, and you get a bill of only Rs. 3.5 lacs, you will not be eligible for claiming the top up insurance because each bill should exceed the threshold level.

There is however, another version of top up medical insurance called the super top up medical insurance which sums up what you have already paid in your multiple treatments, and then considers that value. So, if you went to the hospital twice, and paid Rs. 2 lacs each time, then it will consider that you have already paid Rs. 4 lacs, and if that was your threshold level, then you will start getting paid from the super top up policy from the next time. The time frame for this is usually a year after which the clock resets.

Now let’s take a look at some other points about them.

Top Up Insurance Policy Covered Under Section 80D

The top up policy is also covered Section 80D. It covers hospitalization expenses, and generally excludes things that aren’t covered in your primary insurance policy.

You Can Buy Top Up Insurance From Any Company

You don’t have to be a customer of the same company’s primary insurance to buy a top up insurance. This means that you can buy top up medical insurance from United India even if your base medical insurance is from some other company.

It is not clear to me if you need any base medical insurance at all or not, but from what I read it seemed to me that you can buy top up insurance even if you don’t have primary medical insurance. That doesn’t sound right, but based on what I read this is what I think is the case.

Rationale Behind the Introduction of Top Up Medical Policy

They were introduced in India in 2009, and the rationale was fairly straightforward. Not many companies offered a big amount of medical insurance, and the top up policy gave you a way to get medical insurance in addition to what you already have.

Since then, the limits have been raised, and to the best of my knowledge the top up products still remain relatively lesser known.

The reason for this could be their lower premiums, which means that they are not pushed by agents as much as other products, or it could mean that it is cheaper to buy a Rs. 10 lac medical insurance policy than it is to buy a Rs. 5 lac medical insurance policy, and then top it up with another Rs. 5 lacs.

I don’t know the answer to that, and it’s probably not even a right comparison because of the way the threshold limit works.

The premiums that I saw on the prospectus of a few sites seemed low, but that’s just based on a cursory glance, and I haven’t done any research about them.

My initial feeling about this product is that it can be a good idea for someone who has a somewhat low medical insurance like say Rs. 5 lacs. Most of you are probably covered by your employers to some level, but it might make sense to beef that up if that’s the only medical you have, and especially if your parents or kids also come under the same thing.

List of companies offering Top Up Insurance

This is probably not the complete list, and if you know of other companies that offer this type of insurance then please do leave a message and I’ll update the post.

United India Top Up

United India Super Top Up

Star Health Super Surplus

ICICI Lombard Health Care Plus

Your thoughts?

Finally, I’ll be interested to hear if any of you have a top up medical insurance policy, and want to share your rationale, experience, or anything else that may be of benefit to others.

In my last post about how much insurance you need – I wrote about my thoughts on how you could go about calculating your life insurance needs, and both Sumant and Hema brought out a significant limitation with the way I went about the calculation.

I was taking into account the annual expenses, expected rate of return from investment and liquid assets, but ignored liabilities completely. For someone who has taken a home loan for 15 lacs that their spouse or parent will be responsible for – that’s a pretty big miss.

Thanks to both of you for pointing that out, and I thought I’d try my hand at making a small little life insurance calculator that will take into account all these things, and then calculate a number for you.

You will need to input the annual expenses that your family will incur, input the liabilities that they will have to pay off, enter a rate at which you expect them to invest this money like 8% if you’re thinking bank FDs, enter assets that they can en-cash, and this calculator will then calculate an apt cover for you.

The way this works is that it will take the annual expense, and use the expected rate of return to see how much capital you should have to generate that much money annually. Then it will add the liability number to that, and subtract the asset number from it.

Here is the calculator – play with it and let me know what you think.

Insurance Needed

As always – feedback from you smart people is welcome, and thanks to Sumant and Hema again!

A few days ago I posted the premiums charged by different term insurance companies, and as a follow up to that post I shared the claim settlement data of some insurers last week.

Today I’m going to share the claim settlement ratio of all 23 life insurance companies in India for the December 2010 quarter. Rejections are simply claims that the insurance company has refused to pay, and lower the rejection – better it is for you.

This is very interesting data, and the one thing that jumps out at you is the low rejections by LIC.

Here is the first chart which shows the percentage of claims rejected by all the insurance companies for the December 2010 quarter. (Exceptions in time period are noted in the last table which has the raw data.)

Rejected as a percentage of new and outstanding

(click for larger image)

Now, when I looked at this two questions came to my mind:

1. How much difference does the relative volume make to these numbers?

2. Are these numbers skewed because of the 2 year rule?

Let’s think about the question of relative volume first. The new plus outstanding claims of Religare was 47 for that period, so even if they rejected 2 claims that would be a rejection rate of close to 5%; that they rejected 20 doesn’t exactly inspire confidence, but you can easily see why this number can’t be compared with LIC which has about 2.3 lac policies for that period.

The 2 year rule is that insurance companies can’t reject policies that are older than 2 years unless they can prove fraud. Loney – who is easily the most prolific commenter here has dug up the relevant act as well, and here is how it quotes:

Section 45 of Insurance Act, 1938 states: In accordance with Section 45 of Insurance Act, 1938, no policy of life insurance shall, after the expiry of two years from the date on which it was effected, be called in question by an insurer on the ground that a statement made in the proposal of insurance or any report of a medical officer, or a referee, or a friend of the insured, or in any other document leading to the
issue of the policy, was inaccurate or false, unless the insurer shows that such statements was on material factor or suppressed facts which it was material to disclose and that it was fraudulently made by the policyholder and that the policyholder knew at the time of making that the statement was false or that it suppressed facts which it was material to disclose.

So, are these rejections influenced by the fact that some insurers have been around for much longer,  and most of their claims are from policies that are older than 2 years.

So, let’s look at the data only for rejected claims that are less than 2 years old across life insurers.

Rejected Claims less than 2 years as a percentage of new and outstanding

The numbers don’t seem to change much, and finally let’s take a look at the ratio of claim rejections between claims that are more than 2 years old and less than 2 years old.

Proportion of Rejected Claims

As expected, the claims that are less than 2 years old are rejected more often than claims that are older than 2 years, and obviously that will weigh on some of the newer insurers.

However, no matter what way I look at it LIC’s low claim rejections jump out at me. That they are expensive when compared with others makes the choice of a term plan difficult, but this is certainly something worth keeping in mind – especially for people who smoke socially or have minor health problems that can later become a cause for denial of your claim if not declared properly.

I’m enclosing the raw data in this table below, so you can use it if you want, and the sources are the same as mentioned in my earlier post, so I’m not pasting those ugly links again.

One of the questions that came up a few times in the last term insurance post was how much insurance should you get and Hema wrote a comment with a rule of thumb that states you need about 10 times your annual salary.

That sounds reasonable enough to me and I wouldn’t want to get into an analysis paralysis with determining how much insurance I need because term insurance can be bought without spending a lot of money, but I did want to share the way I thought about it, and see what feedback I can get.

Do I Need Insurance?

The first thing to do is to determine if you need term insurance at all or not. The answer to that is straightforward – if you have people who are financially dependent on you then you need term insurance, else you don’t.

If your parents are not financially dependent on you, your spouse is working, and you don’t have kids, then I don’t really see a need for insurance.

But, if someone is financially dependent on you then you need to take out insurance.

How much insurance do I need?

How Much Insurance Do I Need?

So, once you determine that you need insurance, the next step is to think about how much insurance you need. One way of thinking about that is to think of your dependents and their annual financial needs, then buffer it up by 20% or so.

For example, say you determine that their annual expense will be 5 lacs, so at a 20% buffer you need 6 lacs per annum. To generate 6 lacs per year you need capital of 60 lacs assuming the investment can generate 10%.

Then think about the assets you already own – your savings for retirement, any real estate (apart from the house you live in), jewelery, or whatever you think can be practically cashed in.

Subtract that from the capital amount, and you will get a number that you should have cover for.

I expect that most people will be able to do this calculation mentally and it shouldn’t take more than 5 minutes or so. In my opinion this will be a good ball park in terms of  your term insurance need and can get you started.

This kind of thinking is better than having no framework at all, but the only thing I’d caution you against is that this calculation doesn’t take into account escalating costs.

So, you could say that your family’s expenses will rise significantly once your children start going to school, and this method doesn’t take that into account. Or if inflation continues to be high then this method doesn’t protect your family many years from now as well.

If you feel that’s the case, then get more cover – how much more depends on how much more in premium you’ll be able to afford. No point in talking about cover without thinking about premium – just like risk and return.

One last thing about this is to bring to your notice this insurance calculator I found which allows you to input a lot of parameters and seems quite exhaustive. You can play with it and see if it gives you a reasonable number.

How many insurance policies should I buy?

In my last post I expressed my preference on buying two different insurance policies, as a means to hedge risk and quite a few of you pointed out that it doesn’t make sense because there is no chance of a claim getting rejected if all the information provided upfront is accurate and honest.

I understand this point of view, but would rather stick to two policies because there will always be some things that you don’t know that you don’t know.

There are things that you know you don’t know, and then there are some things that you don’t know you don’t know.

For example – you buy an oil ETF that tracks oil prices by buying future contracts because you are bullish on oil. You know that this ETF will not be able to track oil 100% due to expenses or other tracking errors, so this is a known – unknown, but you don’t know that you don’t know big institutional traders can game the system because they know this ETF has to square off its positions every month end, and that eats your profits big time.

So you are hit by a factor that you didn’t even know existed.

That’s primarily my reason for buying two policies – what if the cheaper company goes bust, who is liable then? What other things don’t I know about this?

Obviously not everyone is so risk – averse (or cynical?), but that’s my rationale for two insurers.

Those were my thoughts on whether you need insurance, how much you need, and how many policies you should buy. Time for your thoughts now.

As expected, there was a phenomenal discussion on yesterday’s post about term insurer’s sample quotes, and among the many great comments there – Salil left a comment about Form L-40, which is a mandatory disclosure that all life insurers have to make about the number of outstanding claims, new claims filed with them, number of claims they settled, and the number that they repudiated.

I went to the IRDA website, and sure enough it had links to the disclosure pages of all the insurers, and I was able to consolidate the data from those links.

I chose December 31st 2010 quarter because I wanted to compare a recent quarter and that was one which most insurers had info about. In a few cases where I didn’t find information about that quarter I took another quarter and that is showed in the table header.

I left the insurers that had no quarterly data available but there were just 3 of those.

The next thing I did was to consider data only for deaths because that’s what we’re interested in.

I have split the data into 3 tables because that is easier to read.

Now, the claims repudiated are further reported as claims repudiated that were less than 2 years old, and claims repudiated that were greater than 2 years old. Insurers that have been around for longer like LIC will have a lot of claims that are more than 2 years old, and they can’t ordinarily challenge those claims. However, the fact that there are claims repudiated that are more than 2 years old shows that there are some exceptions to this – most probably where you can establish fraud. If any of you know what this is then please do leave a comment. In the case of LIC – out of the 506 claims they repudiated 443 were of less than 2 years, and 63 were greater than 2 years, so about 12.5% of the claims they repudiated were older than 2 years – not an insignificant number.

This makes for great reading along with the sample quotes because this shows you the volume of business each insurer is doing, and how they fare in terms of paying out claims.

Here is the next table.

Here is the last one.

Finally, here is a chart on the claims settled as a percentage of new plus outstanding claims for the quarter of December 31st 2010 (in most cases). (Click twice to magnify).

Claims Settled by Life Insurers

Now you have quote data, and you have volume data, so you can take a look at that and see how that stacks up. I’ll not give any opinion on these numbers because I’m still not very certain what to make of them myself, and feel that we need to look at some more data.

In the meantime, please leave your comments on what you make of all this data, and also on how to build to this post.

This is turning out to be the best reader driven discussion we’ve had so far, and it’s only appropriate because a lot of you have much more knowledge on insurance than I do.

Finally here are the links to the sources, and apologies for not responding to comments – had limited time and thought this exercise was more meaningful.

http://www.aegonreligare.com/financials.php

http://www.bharti-axalife.com/pdf/Q3-L-40_Claims_data.pdf

http://www.bajajallianz.com/Corp/aboutus/financial-info.jsp

http://insurance.birlasunlife.com/AboutUs/PublicDisclosure/tabid/386/Default.aspx             http://www.canarahsbclife.com/lifeapp/portal/canh/financialStatement

http://www.dlfpramericalife.com/PublicDisclousres.aspx

http://www.futuregenerali.in/LifeInsurance/LifeOther/LifeOtherPages/PublicDisclosure.aspx#  http://www.hdfclife.com/AboutUs/AboutUsFinancialHighlights.aspx

http://www.idbifederal.com/Pages/FinancialStatement.aspx?Year=null

http://www.indiafirstlife.com/web/indiafirst/public-disclosure

http://www.inglife.co.in/aboutus/financialstatement.aspx

http://insurance.kotak.com/about-us/corporate-overview.php#

http://www.reliancelife.com/rlic/AboutUs/Financepage.aspx

http://www.saharalife.com/temp/viewreport.asp

http://www.sbilife.co.in/sbilife/content/37_4190

http://www.shriramlife.com/formslist6.jsp;jsessionid=04B83A3EB4E5C4834D20C039209DEA79           http://www.tata-aig-life.com/public-disclosure/public-disclosure-2011-q3.html

http://www.licindia.in/publicdiscloser/2010-2011/122010/index.html