In early May, when the prices of the stocks fell, the investors were hoping to see the market rise but the hope just got washed out when the market swiftly moved southwards. The prices fell furthermore and the stock market was in mayhem. However, the market has regained its lost charm steadily and the smile is back on the faces of the investors.

It is a known fact that investment in market requires an individual to have a good risk appetite. The yo-yo performance of the market a few months ago has led many investors to reconsider their investment portfolios. Interestingly, the downfall of the market has not had a negative impact on the Unit Linked Insurance Plan (ULIP) holders.

ULIPs, a result of recent innovation entered the insurance market with the private insurance companies and became a favorite in a short stint of time. Insurers were skeptical of introducing it since traditional policies were the taste and flavour of the laypeople. Endowment, Moneyback and Whole life policies were the safest choice that an individual could think of because of the maturity returns. But with ULIPs, investors found a new horizon and an avenue to explore. And when it hit the market, it took no time to become the most preferred choice among investors. Today, we have an insurance industry, which is more dynamic and vibrant in nature and perhaps for the same reasons one can expect more choices in the future.

Coming back to the working of ULIPs, it functions differently from traditional policies in which an individual pays premium and receives the proceeds in the form of maturity benefits. Unit linked plans also known, as investment plan gives one the much- needed insurance coverage along with the option to invest. An opportunity to invest in equities is an eye-catching element. According to the plan, the investor has the choice of investing in any one of the funds that is offered by the insurance companies. But you do need to keep in mind that the investments in stocks are subject to the vagaries of the market. The volatility in equity markets can keep you uneasy and disturbed since you wouldn't like to see your reserve being affected. So, depending on your risk profile, take the plunge in the market and invest in the fund that best suits you. It is always advisable to stay invested for a longer time. Entering the market with short-term investment goals is not really recommended. Following the flock blindly will not be of much help. Only after having done your homework and consulted the ‘experts’, take your decision. To get the best, make an analysis of the various insurance companies offering unit linked products.

There are a host of reasons why ULIPs rule over traditional policies. Sources point out that the NAVs of unit-linked products have performed better than mutual funds. ULIPs were found to be less risky as they maintained diversified portfolios and held stocks for longer time. Besides, while choosing unit linked plan, the policyholder gets to choose the fund in which he wants to invest. Secondly, the fund value is NAV based, the results of which are disclosed on a regular basis. Thus the policyholder can draw his judgment based on the performance of the funds. One of the best advantages of having a ULIP is that the policy has lesser chances of getting lapsed. Lets assume, for some reason, the policyholder fails to pay the premiums. In such a case, the cover under the policy will continue and the premiums towards the life cover will be debited from the unit fund. So, the only chance of the policy getting terminated is when the unit value is inadequate to cover the charges. The working of

ULIPs funds can be compared to that of mutual funds wherein the fund management charges are deducted from the premiums paid by the policyholders. However, the management charges get minimised with the succession of each year. Well, there is a certain set of laws that you need to be aware of. It is known that on the death of the policyholder, the nominee gets the entire sum assured or the value of the fund, depending whichever is higher. But you can avail this benefit only if you have paid your entire premiums. If the premium amount has been deducted from your fund units to keep your policy alive, what your nominee will get in hand is only the fund value. And if the market happens to perform disappointingly, the sum assured that your nominee will receive will be lesser than your fund value. Hence, it is always advisable to pay your premium regularly and on time. That’s what’s best for you to avoid atrocious situations.

In conclusion, ULIPs will continue to be a favorite option among investors. The downfall of the market did not have a negative impact on unit-linked plans and the strong approach of the people towards it proves that quite robustly. Probably, laypeople are finding it exciting to explore more options. After all it is worth to take a bit of risk to get those extra bucks!!

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Come January 2007 and non life insurance sector will witness detariffing. A lot of questions running in the mind of consumers seeking answers to how it will prove beneficial to them. Lets try and understand what detariffing brings to common people like us.

Detariffing, also called, as free pricing regime will bring motor, fire and engineering insurance under its ambit. It would mean that the range of cover, pricing, degree of customization, etc. would undergo major change as far as premium payment is concerned. The premium charges will be influenced by factors such as age, experience and even educational qualification. This will help in determining how much risk an individual is willing to take. And as far as free pricing of motor insurance is concerned, the premium charged will differ in line with the vehicles’ make and usage.

An example should make it easier to understand. Supposing that Mrs. Rao owns a car lets say Maruti Zen and makes use of it to commute to office and back home, which is an hour drive to and fro. The usage increases on weekends when she goes out with her family for pleasure trips. And on the other hand, Mr. Patil, a cab driver uses his cab for more than 15 hours in a day. The premiums in both the cases would differ. Mr. Patil will have to pay more premium compared to Mrs. Rao as the former runs more into the risk of meeting accidents.

The example cited above clearly shows that here onwards, the insurance companies would price the products depending on host of factors like mentioned above which would include age, make of the car, etc. Specifically speaking, the premium charges will reduce if the vehicle has air bags, warning mechanism on malfunctioning of the vehicle, automatic door locking system, etc. But on the other hand with free pricing regime, the third party liability premiums will also increase. Following which, car owners will have to pay premia, which will be comparatively less than the transporters whose premiums will shoot up to more than 150%. Insurance Regulatory and Development Authority (IRDA) has drafted a framework of premium rates that will be applicable to vehicles depending on the engine capacity.

IRDA has also introduced a pooling arrangement (similar to a terrorism cover pool) for the motor third party insurance business. It has asked general insurers and reinsurers to chip in keenly in the pooling arrangement that will even out the insurance business underwritten. If one had to take a look on the other side of the picture, industry sources point out that motor insurance industry is a loss-making portfolio and with the free pricing, the industry will have to compromise with the profits. On a large-scale scenario, detariffing has left the global reinsurers apprehensive about its consequences. It is expected that insurers will suffer from high loss ratios as witnessed in Germany when detariffing took place. The world’s leading reinsurer - Munich Re has indicated to withdraw its support to the insurance companies if the fall in prices is radical.

From the overseas past experiences, it is believed that the market may behave in an erratic manner once detariffing comes in, insurers will have to factor in pricing, claim handling, distribution, etc., which would change accordingly. Countries like Italy have not really benefited from the detariffing. However, the situation was vice versa in Japan that gained market share with different rates for motor policies when detariffing entered.

All said and done, the reasoning for paying premiums becomes rational and logical to a layman. The free pricing of fire, engineering and especially motor insurance is expected to do good and it is likely to work out in the favour of lay people.

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If one had to ask what is one differentiating factors between LIC and private life insurance companies, the reason could be a myriad but one imposing factor that separates LIC from the rest is that it is backed by the government.

A recent news had created quiet a stir when the government had suddenly decided to withdraw its guarantee cover. What does this government cover mean after all? It basically means a liability borne by the government to pay the sum assured and the bonus should something unexpected happen and the Corporation is not able to sustain its strength. However, realizing that too much would be at stake, the government decided to continue with its guarantee cover for its more than 16 crore policyholders.

Speaking about the origin of LIC, it is the oldest insurer and took off in the year 1956 and the much talked about government cover has existed ever since. Infact, the concept of insurance was conceived after the industrial era and it was the British who had introduced Life Insurance in India in the year 1818 and Oriental Life Insurance Company was the first life insurance company that was set off in India. The Insurance Act, 1938 was the first legal Act that was released which governed both life insurance and non-life insurance. The demand for nationalization of life insurance industry was made time after time but it was only years later that it gained momentum in 1944. A bill was introduced in the Legislative Assembly to amend the Life Insurance Act, 1938. However, it was much later when on the 19th of January 1956, life insurance in India was nationalized. And if there has to be any change in the strategy, functioning in present working structure of LIC, it may call for the amendment of this LIC Act, 1956.

However, if at all for some reason, the government decides to withdraw its guarantee cover, it would be applicable for the future policies and not the existing one. Besides, the corporation will have to infuse a good deal of capital, as the present capital base is just Rs. 5 crore only. On the other hand, the insurance regulator, IRDA had suggested to make changes in the LIC Act for doing away with government guarantees for LIC policies to give a level-playing field to private players.

Under the LIC Act, the Central Government guarantees to clear all the policyholders’ dues (sum assured and the bonuses accrued) in cash. This aspect is one of the unique selling propositions of LIC agents. And the private life insurers find this a daunting obstacle to make a place for themselves in the competitive market. The government guarantee is a comforting factor for the policyholders and is one of the strong factors that rules over private insurance companies.

All said and done, from the time it started to the present stage, LIC has crossed many milestones and has set itself as the choice of countless laypeople. LIC was and will continue to be one of the most trusted brands of India.

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It’s less than three months for the new financial year to kick-start and we are forced to think over our tax-planning regime perhaps more seriously this time. If you haven’t planned anything yet its time to evaluate your decisions on how you can go about a having a perfect tax planning in place.

What you would need to do is have a through look at the various schemes and try to see which is the most suitable to your requirements. Usually people make a last minute rush to invest in various schemes to get the tax benefits. But factors such as risk appetite, need, use of a particular scheme get overlooked and in the bargain you end in investing in schemes that match neither your needs nor requirements.

What you would need to do is plan it out effectively and better still if you do it right now. Under section 80 C, the government permits you to make investments upto a limit of Rs. 1 lakh and avail tax benefits of the said amount. So, you are exposed to the following options, which are:

1. Life Insurance
2. Public Provident Fund (PPF)
3. National Saving Certificate (NSC)
4. Equity Linked Saving Schemes (ELSS)
5. Provident Fund (PF)
6. Principal Home Loan Repayment
7. Fixed Deposit

The first step for individuals who have seriously thought of planning for their investments is to set their goals straight and clear. When you know your destination, the journey becomes easier.

The purpose of investing may differ which could be either purely for tax saving purpose or it could be for some specific goal. If you know the amount that you are investing is for a specific purpose, it becomes clear where you are headed. In case you still have blurred goals, a word caution to you- have something planned for that unexpected day. There has to be a cushion on which you can fall back upon.

You can relate this kind of planning to that of a ‘financial planning’ where you give equal consideration to all the important events in your life. It basically means that you plan for the unpredicted events in life. If you choose to overlook it, it can have serious strains on your finances. It is better if you invest your money in something worthwhile like property, gold, etc. It is a smart way of investing rather than letting you money lie idle.

If you do not have funds when you need them, you may find your other reserve set aside for your some serious objective getting used to fulfill that unexpected event. This can impact your finances significantly. To make it simpler to understand, let say you meet some unforeseen event and it demands quick expenditure of Rs. 500,000. Now, if you have set aside a decent amount for your child’s education, you may end up using that amount to meet the demand of that particular situation. What comes out clearly from this example is that you need to save and set aside an amount for a rainy day. When you set your objectives straight, you know the reason for saving money and its exact need.

Once your planning is in place, you know there is no need to ask favours from any other source besides your own. But no matter what the onus of a complete financial planning lies in you.

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Cancel the policy
The storage place at Mr. and Mrs. Malhotra burned down so Mrs. Malhotra, called the insurance company and said, "We had that storage place insured for fifty thousand dollars and I want my money."
Agent: "Well just a minute, Mam, it doesn't work quite like that. First, we will determine the value of the old store and provide you with a new one of equivalent value."
Mrs. Malhotra after a pause: "well, if this is the case, I'd like to cancel the policy on my husband!"

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