Cost of Cancer treatment can leave your finances in mess.

A million new cases of cancer are reported every year in India. The number of cases is rising every year as a result of lifestyle changes, and increased risk factors like tobacco use, drinking and air pollution. Most common cancers in India are oral, breast, cervical, lungs, and colon cancer.

Millions of our countrymen are grappling with high cost of cancer treatment that are wiping out entire life savings and in many cases forcing people to borrow. The high cost of cancer treatment are a result of high cost of treatment equipment and drugs. Basic Radiation therapy equipment costs around Rs. 10 crore, a PET CT scan machine can cost anywhere from 4-6 crores and a CyberKnife used for radiotherapy which costs around Rs 30 crore. Add all this up and cost of setting up a 100 bed cancer hospital can run up to Rs 100 crores. Hospitals recover these costs from patients. Then there is the cost of drugs and treatment. Cancer drugs don’t come cheap. Targeted cancer treatment drugs are prohibitively expensive.

Type of Cancer	Targeted Drugs	Treatment cost
Breast Cancer	Herceptin	Rs. 75000 per course. Up to 15 course may be needed.
Colon, kidney, lung and gall bladder cancer	Avastin	Rs 80,000 to 1 Lakh per cycle. Patients may need upto 7 cycles
Colon and Rectal Cancer	Erbitux	Rs 1 Lakh per cycle. Patients may need upto 7 cycles
All Types of Cancer	Chemotherapy	Each session from Rs 10000 – 90,000. May need about 4 sessions

If the cancer is in advanced stages then costs will be much higher. Specialty cancer hospitals are very few and in addition to treatment costs, the patients and their often have to come from outside town to avail of the treatment. The costs of transportation, food and lodging can easily add another 50% to these costs. It is no surprise that 25% of all patients give up these treatment midway.

Most of the government schemes don’t cover cancer treatment and the general medical insurance policy wouldn’t be enough to cover all the costs. One option to cover for these kind of illnesses is a critical illness policy. A typical critical illness policy for 10L for a 40 year old would cost Rs 6000-8000 per year. A 20 L policy would cost about 12000-15000 per year.

Less than 10% of the people in the country have medical health insurance and still fewer have critical illness polices. These policies will pay a lumpsum equal to sum insured if the insured survives 30-90 days after detection of the cancer. It is well worth protection yourselves by buying one of these policies and avoiding financial ruin. Hope that you never have to use one but it is a great protection if ever you need it.

How to ensure that your Insurance Claims gets Paid.

When the time comes to pay the claim, the insurance company experiences the moment of truth.  That is the single most (or some would say the only) criteria that insurance companies are judged on. The customers have paid their premium for years and now had an unfortunate event in their life. They expect the insurer to help them. Treat a customer well during this time and you have him/her for life. What’s more, the customer will spread the good word. Treat them badly and you not only have an irate customer but also a negative amplifier for your business.

All insurers do want to pay legitimate claims. The difficulty for claims evaluators is that the moment of claims also presents the best opportunity for fraudsters to strike.  If you are too lax you are frittering away the premium of your customers. The claims evaluator faces a really difficult task. They typically look for patterns that seem to indicate a dodgy claim. The best thing you can do is not to get caught in that unintentionally. Here are some tips that will help you.

Declare all information truthfully

Insurance forms are lengthy and we often tend to skip or overlook sections. We fail to declare our previous claims history, pre-existing diseases, smoking habits etc. While insurers may accept these declarations at face value at the time of buying a policy, the claims adjustor would scrutinize these a lot more carefully. So make sure you declare everything and not hide anything.

Better to undergo tests.

Lots of people try to avoid medical tests while buying life or health insurance policies. Medical tests are a hassle, you need to fast, probably take a day off from work and it is not the easiest thing to do. But I would advise you that it is well worth the hassle to go thru a medical test.  Medical tests allow the insurer to be sure of what he is insuring and gives the insurer and more importantly the claims evaluator more certainty. Do not avoid medical tests and repent later.

Keep your documentation in proper order.

This is especially important for claims related to car and property. Ensure that you keep the ownership documents and purchase documents with you. In case of a car under insurance, ensure that you have the registration in your name and have a valid driving license. Lack of proper documentation is a big red flag for the insurer.

Take these three simple steps and ensure that your claims never get rejected. Remember again that most insurers do want to service you well at the time of claims. Make their job easy by declaring all information, undergoing a pre-policy test if needed and keep your documentation in order.

If you are still worried that an insurer may not pay your claim, check out the claims payment record of all the insurers in India before buying a policy.

The Beneficiaries in an Insurance Claim: Nominees and Appointees

The term “beneficiary” is defined as “a person who derives advantage from something, especially a trust, will, or life insurance policy”. In India rarely is the word beneficiary used.

In the case of a general insurance or a health insurance policy the person who can claim is usually the policy owner himself, because he is alive and capable of claiming.

In a life insurance policy, the policy holder is usually dead before claim occurs. (LIC of India uses the word “claim” for maturity proceeds and interim survival proceeds: in standard terminology these are not “claims” but contractual payouts). Here is a list of payees who can potentially receive amounts from claims on a life insurance policy.

1.  Nominee
2.  Appointee
3.  Assignee
4.   Trustee
5.   Joint Life Policy Holder
6.  Policy Owner
7.  Court Appointed Receiver
8.   Government Authorities

Nominee: This entity is almost unique to India and has an entire clause in the Insurance Act (S.39) governing his status. The name of the nominee is usually indicated at the start of the policy and normally is the close relative of the policyholder. Thus a spouse, children, brothers, sisters, and parents are the usual nominees. By convention, Insurance companies frown upon strangers being made nominees. It is almost impossible to nominate a friend. A policyholder can change his nominee any number of times during the currency of the policy at no cost. Only the name of the new nominee and a simple notice is required. Nominees have no role to play till the policy results in a death claim. Nominees do not have the right to retain the money, and their role is limited to giving the insurance company a discharge for the claim payment. Thus the cheque is made out in the name of the nominee although as per law, he may not have any right to use the money! But, since a vast majority of the nominees are also rightful heirs, complications are few. As a corollary, it is open to a non-nominee heir to challenge the nominee to give up the proceeds. It must be observed here that the rights of a nominee are most easily challenged amongst all beneficiaries.

A policy can have more than one nominee, but as will be seen the outcome of a policy with multiple nominees is complicated. Indian Law does not allow specifying shares for nominees (remember they are not entitled to use the money, they can just give a discharge to the insurer). Thus if any cheque is made out, it is made jointly to the nominees. Irrespective of the policy having a valid nomination, at the time of claim any person who is a legal heir can bring an order from a court to stop the claim being paid to the nominee. If such an order is received by the insurer after the payment has been made, no blame can be ascribed to the insurer, since he has acted in good faith and in accordance with S.39 of the Insurance Act. But even if a simple letter is received by the insurer after the death of the policyholder but before any payment is made, disputing the rights of the nominee, the insurer will refuse to pay till clear title is established.

Nominees can be major or minor in age.  Since minors cannot execute a valid contract, at the time of death of the policyholder, if the nominee is a minor, claim cannot be discharged by him. To avoid a sticky situation, the policyholder has to appoint another person called the Appointee.

Appointee: As described above the role of an Appointee is to give discharge to the insurance company on behalf of the minor nominee. He is appointed by the policyholder at the time of nominating the minor nominee. His role is extinguished when the nominee acquires majority. Interestingly, there is no restriction on who can be an Appointee. Anyone who is above the age of 18, and of sound mind can become an Appointee, even if he or she is not related to the nominee or the policyholder. The Appointee’s status is governed by the same S.39 of the Insurance Act.

We strongly advocate that if you are a policyholder you must unfailingly appoint a nominee. Please review your life insurance portfolio and check for missing nominations and nominate right away. There are terrible stories of people forgetting that their mother/father was nominated at the time of purchase of the policy and the wife at the time of claim was made to run from pillar to post proving her right to receive the policy monies. Whether you are nominating, or are a nominee, or are invited to act as an Appointee, it is important to know your rights and your limitations. There will be more on the other “beneficiaries” in a further blog. We at Policylitmus strongly believe that it is important to be fully informed to make the right choices while choosing your insurance needs and that the best policy for you  is just a click away.

Medical Tests in Insurance

Medical Tests in Insurance

“Doctors give drugs of which they know little, into bodies of which they know less, for diseases of which they know nothing at all”, said Voltaire.

Insurers are generally in the same position. They know little about the person they insure, his lifestyle, his place in society, his economic capability and least of all his health status.

Yet they are expected to cover risks and pay if there is a claim. This is the reason why insurers use medical tests to find out about your health status. Unfortunately medical tests can only reveal the current position. But insurers can make informed decisions based on your current medical status. This is the reason why medical tests are always pre-policy. No insurer is permitted to conduct a test after you have taken the policy, irrespective of how old you currently are or how bad your health status.

By and large insurers are interested in normal healthy individuals. Yet, if something is abnormal in your test reports, insurers will still accept your case by charging a little extra – provided the abnormality is not obviously life threatening. The trigger to conduct tests is different for health insurers as opposed to life insurers. Health insurers will conduct medical tests if you cross a certain age while buying a new policy: usually 45. The amount of cover has little role to play. Life insurers on the other hand may ask you to undergo tests based on age, size of cover or type of policy, or any combination of these factors. In fact some companies offer a lower premium if you are willing to undergo a medical test!

Medical tests are usually conducted free of cost by insurers and is usually conducted after payment towards first premium is made. They will deduct the cost of tests only if you refuse to consider taking the policy after the insurer has accepted your case. In the case of life insurers, even if the application is declined by them due to adverse health issues, they will not deduct medical costs while refunding your deposit. Some health insurers act differently and may not deduct cost of tests if the application is not accepted. In spite of these niggling issues, our advice to all customers is that it is in your interest to take these tests. You can insist on them providing you a copy of the reports. Further if any adverse reports emerge, and the insurer is willing to insure by charging some extra premium, grab that offer – a time may come when you may become uninsurable due to the adverse impact of your health condition.

Tests vary little across insurers. However premiums do and insurer performance varies widely. Before you choose to buy a policy it is important to make yourself aware of the choices that fit you the best.

Insurance and Tax all on a Single Sheet

The union budget announced new deduction for people buying insurance. If you are confused about what deductions you are eligible for. Here is cheat sheet on that deductions you can claim.

 Life Insurance Premiums:

Deductions ae available under Section 80 C of the Income Tax Act up to a maximum of Rs. 150,000. Premiums can be paid on policies held by you on yourself, your spouse or your children. No exemption is available on any premiums paid by you on policies held by your parents or in-laws or any other relatives. The amount of premiums, subject to this limit, is deducted from total income to arrive at the taxable income.

Life Insurance policies can be divided into 4 categories for tax purposes.

Policies purchased BEFORE 1^st April 2012 where Premium is LESS than 20% of Sum Assured: Tax Rebate available under Sec 80 C up to a maximum of Rs. 150,000 per annum. Maturity or surrender proceeds exempt from tax under Sec 10 (10) (D). A Death Claim is completely exempt from tax.

Policies purchased BEFORE 1^st April 2012 where Premium is MORE than 20% of Sum Assured: Tax Rebate available under Sec 80 C up to a maximum of Rs. 150,000 per annum up to the portion of premium that falls within 20% of the Sum Assured. Maturity or surrender proceeds NOT exempt from tax under Sec 10 (10) (D). TDS @2% will be deducted by the Insurance Company at the time of maturity claim payout, enabling tax trail for the Income Tax authorities. A Death Claim is completely exempt from tax.

Policies purchased AFTER 1^st April 2012 where Premium is LESS than 10% of Sum Assured: Tax Rebate available under Sec 80 C up to a maximum of Rs. 150,000 per annum. Maturity or surrender proceeds exempt from tax under Sec 10 (10) (D). A Death Claim is completely exempt from tax.

Policies purchased AFTER 1^st April 2012 where Premium is MORE than 10% of Sum Assured: Tax Rebate available under Sec 80 C up to a maximum of Rs. 150,000 per annum up to the portion of premium that falls within 20% of the Sum Assured. Maturity or surrender proceeds NOT exempt from tax under Sec 10 (10) (D). TDS @2% will be deducted by the Insurance Company at the time of maturity claim payout enabling tax trail for the Income Tax authorities. A Death Claim is completely exempt from tax.

Notes:

1.  The provision on tax liability under Sec 10 (10) (D) will not be applicable in cases where the proceeds from a life policy in a year are less than Rs. 1 lakh.
2. Maturity proceeds include any sum allocated by way of bonus.
3.  Where PAN card details are not available, the deduction shall be 20 percent. 
4. Policy loan is not a benefit. It's a repayable obligation. Hence it is not taxable.

Annuity Policies:

Premiums paid to keep in force a contract for annuity plans are eligible for a tax rebate under Sec 80 C and its sub-sections within the same cumulative limit of Rs. 150,000. Any amounts paid out as annuity is subject to tax as per your then income tax slab.

Health Insurance:

Tax exemptions on health insurance premiums are simpler in structure. Premiums up to Rs 25000 per annum are exempt from tax under Sec 80 D.  Premiums can be paid for policies covering self, spouse, dependant parents or dependant children. For Senior citizens, the limit is now Rs.30000. Senior citizens are defined as those who have attained an age of 60 years. The table below will explain these limits.

Item	Rs. Premiums Paid Eligible for Exemption under Section 80 D		Rs. Maximum Deduction Possible under Section 80 D
	Self, Spouse, Dependant Children	Parents (Need Not be Dependant)
All Below Age 60	25000	25000	50000
Purchaser and Family Less than age 60 but Parents are above age 60	25000	30000	55000
Purchaser and his parents are above age 60	30000	30000	60000

Notes:

1. The limits mentioned above for Health Insurance is proposed in the budget presented on 28^th February 2015 and will apply from FY 2015-16 onwards. The current limit is Rs. 15000. For senior citizens the current limit is Rs. 20000.
2. Premiums paid for parents-in-law are not eligible for tax exemption.
3. Premiums must be paid by cheque/net banking. Cash payments are not eligible for exemption.

Home Insurance: There is no exemption available on any premiums paid towards home insurance.

Group Insurance: Premiums paid by your employer on your behalf for group health insurance for you and your family is tax exempt.

Service Tax: Before we conclude, one additional point is to be remembered. It is proposed to raise Service tax 12.36% to 14%. This will impact all premiums that are paid.

Should I buy a ULIP

ULIPs or Unit Linked policies are a variety of life insurance where a part of the premiums you pay are invested in stock market instruments. To get a more detailed description of ULIPs please refer to our earlier blog .  The stock markets are rising and the SENSEX and Nifty are at never seen before highs. ULIPs are back with a bang and every insurer has more than one offering.

So should you buy a ULIP?

The simplest life insurance product one can buy is a term plan. However as everyone is aware if you survive the duration of the policy, nothing is returned to you. Because of the fact that ULIPs have a savings element attached to them, ULIPs can help a purchaser maintain a periodic savings habit. The risk attached to the savings portion is equal to the risk of investing in mutual funds. This being said there are several important caveats before you buy such a policy.

Caveat 1: The investment risk in the investment portfolio is borne by the policyholder. 

What this means is that while the chances of an upside in your portfolio exists because of a general rise in the stock market, or the savviness of the insurance fund manager, you stand an equal chance of not meeting your investment goals and ending up with less money than what you invested. This is unlike an endowment policy where bonuses are generally declared, though the rates may be meagre.

Caveat 2: The policyholder will not be able to surrender / withdraw the monies invested in linked insurance products completely or partially till the end of the fifth year.

It is important to be aware that there is no liquidity in the first 5 years, and though your obligations to pay premiums continue, you cannot withdraw any of your funds.

Caveat 3: The entire premium is never invested. 

There are several deductions that apply on your premium before it is invested. The first is allocation charge. This charge is primarily used to pay commission to the distributor and to defray some part of the initial expenses in issuing a policy. These can range from zero to a total of 15% in the first 3 years. Then there is a policy administration charge which is a fee deducted to manage your policy year on year. These can range from zero to a total of Rs. 100 per month. Each of the funds will carry a fund management charge (maximum of 1.35% of the investment amount). In all cases a mortality charge which is the amount of premium required to cover death risk is also deducted.

Caveat 4: Servicing is not free. 

Unlike other policies any transaction that you effect within your policy is chargeable. Such servicing includes switching between funds, partial withdrawals, premium redirections and so on.

Caveat 5: Fund performance can vary widely even within the Company for different funds.  

It is necessary for you to study fund performance before you buy such a policy. Average CAGR (Compound Annual Growth Rates) of funds can vary. Most policyholders are inactive fund managers, preferring to forget about any insurance policy once purchased. Lack of vigilance can give a nasty shock after 20 or so years at maturity.

This being said, ULIPs have been cleaned up considerably after Regulatory intervention. Charges are now reasonable and policy brochures are less complex. Earlier if a policyholder had lapsed his policy, hardly any amounts were returned to him. Currently if a policyholder is unable to pay premiums for the full 5 years, amounts are not lost, because companies have to mandatorily operate a Discontinued Policy Fund that provides a guarantee of 4% return. These amounts are paid the moment the policy completes 5 years.

Our view therefore is to buy a ULIP only if you are able to keep track of your funds, because you are responsible for your investment decisions and the company has already disclaimed responsibility for investment performance. If you decide to go ahead, you will find all the key information on www.policylitmus.com to help you choose the best policy for you.

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