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.

ULIPs: An Introduction

ULIPs are an acronym for Unit Linked Insurance Policies. As the name suggests these are life insurance policies. A life insurance policy covers the risk of death, by paying a pre-decided sum of money to the policyholder who has purchased the policy by paying a premium. This simple transaction is called a term insurance policy. In its simplest version if the policyholder dies, the insurance company pays the claim but if the policy holder survives, he gets nothing back.

Perceiving that this “get-nothing-back” is not appealing to a vast majority of people, insurance companies introduced a savings element, in such a way that while the policyholder’s family would get the claim amount on his death, if he survived he would still get some amount back. There are 3 versions of this theme:

Term Return of Premium Policies:  Varying proportions of the premium are returned to the policyholder on survival. Amounts can range from half of the total premiums paid to twice the total premiums paid.

Endowment Policies: 

A portion of the premiums paid by the policyholder is invested by the company in various interest bearing instruments like government bonds. A minor portion is also invested in stock markets. Investment policies are tightly governed by IRDA (the Regulator). The policyholder has little control over the kind/type of investment made. Since safety is a primary concern, companies sacrifice risk for returns. Thus earnings are fairly low. These earnings (net of company expenses) are returned to policyholders in the form of bonuses. The upshot of this control and rigidity is that while earnings are almost certain, they are quite meagre in comparison to most investment instruments.

ULIPs: 

Here too a portion of the premium is set aside for investment. The difference is that the policyholder has greater control of the type and kind of investment she can make.  Investments are made in the stock market through designated funds by purchasing units at the current price.

Let us say a company has created 2 Funds called Fund A (High Risk) and Fund B (Low Risk). Each Fund’s objective is to purchase shares and stocks and trade in them for a profit. (The technical difference is that High Risk Funds are more Equity oriented and Low Risk Funds are more Debt oriented. The higher the risk the higher are the chances of making a good profit, but you stand an equal chance of making a loss, and vice versa for a low risk proposition – but let us move on). Initially the company seeds both funds by putting in some money. A policyholder can participate in the trading actions of the funds thereby participating in the loss or profit that may occur. He participates by purchasing portions of the fund arbitrarily designated as “units”.

By convention when a fund starts all units are available at a price of Rs 10/unit. This is called the Net Asset Value (NAV) of each unit. After several sessions of trading (over weeks/months/years) the NAV can be higher (say Rs 15.60/unit) or lower (say Rs 9.65/unit) based on whether the fund manager has been wise and made profits or been unlucky/incompetent and made losses. Let us say a policyholder purchases a ULIP and pays a premium of Rs 1000. The insurance company will keep Rs 100 for death risk, which leaves Rs 900 for investment. Say the policyholder divides this equally between Fund A and Fund B. This means he invests 450 in Fund A and 450 in Fund B. If he invests at Rs 10/unit, he will get 45 units of Fund A and 45 units of Fund B.

Total Investment/NAV of 1 unit, i.e. 450/10 =45 units.

Let us say after a year NAV of Fund A is 15.60 and Fund B is 9.65. The value of the units with the policyholder is:

Value of Units in Fund A: No. of Units X NAV, i.e. 45X15.60 = 702

Value of Units in Fund B: No. of Units X NAV, i.e. 45X9.65 = 434.25

Thus:

Original Investment: Rs (450 + 450) = 900

Value after 1 year: Rs (702 + 434.25) = 1136.25

If another policyholder buys a similar policy today and follows a similar investment pattern as the earlier policyholder, this is what will happen.

Premium - Cost of Death Risk = Premium available for Investment.

1000-100 = 900

He wishes to invest half in Fund A and half in Fund B, i.e. 450 in Fund A and 450 in Fund B.

He will now get:

Total Investment/Current NAV of 1 unit, i.e. 450/15.60 =28.846 units of Fund A

Total Investment/Current NAV of 1 unit, i.e. 450/9.65 =46.632 units of Fund B

The new policyholder has to buy units at current cost.

It is important to note that a policyholder can buy either or both funds and in any proportion that she chooses. Thus, for example, she may choose to invest 100% in Fund B and nothing in Fund A, or 20% in Fund A and 80% in Fund B. It is important to read the objectives of the fund and see if they match your risk profile. If you are close to retirement it may make better sense to invest in a debt oriented fund. If you have just embarked on your career, equity oriented funds may be your choice. Companies have anywhere between 2 and 13 funds, each with differing objectives – hence choice is usually not an issue. Companies also allow you to move your money between funds if you perceive an advantage in such movement. We do not recommend active management unless you are proficient to make such movements. Many companies also have options that restrict such active management in the interest of more stable returns. If you have questions talk to our experts at www.policylitmus.com.

As a general rule ULIPS provide a better investment return than endowment policies. But this is not guaranteed. All the rules and caveats that apply to stock market investments in general, apply to ULIPs. Thus, if units were purchased in a rising stock market and if the market goes down for a prolonged period, unit values will drop. There are 2 factors that may be considered.

Maintaining a steady investment pattern by paying regular premiums does help in getting fair returns.

Insurance fund managers are instinctively conservative. While this may depress earnings somewhat, the losses too will not be dramatic.

Note: The insurance company deducts some charges from the policyholder for managing these investments.

All figures are illustrative and not in relation to exact values or proportion.

This is how ULIPs work. In my next post we shall debate on whether one should buy a ULIP and if so what needs to be the basis for such purchase.

Car Insurance: No claims bonus – All you wanted to know

If you are a safe driver do you must be wondering if you deserve a break on your car insurance premium? If you think that way you would be right. Insurers give you a discount if you haven’t made a claim in the preceding years. This is called No Claims Bonus (NCB) in insurance parlance and can lead to substantial savings.

How much do you get?

The table below describes the discount you get on your own Damage (OD) premium.

Number of Preceding years with No Claims	Percentage Discount on own Damage (OD)  Premium
1 Yeas	20%
2 Years	25%
3 Years	35%
4 Years	45%
5  or more Years	50%

The discount is on the own damage premium. There is no discount on the third party portion of the premium. Even then the discounts are quite hefty and rewards for good driving are huge.

Can you carry it to another insurers?

What is more is that you can carry your NCB from one insurer to another should you decide to switch insurers. All you have to do is to ask your current insurer for your no claims bonus (NCB) certificate. Present you certificate to the new insurer and you can get a discount with the new insurer as well. Most insurer will also give you couple of months to present the NCB certificate.

Can I transfer my NCB to my new car?

Here is an even better news that most people don’t know about. While most people know that they can carry their NCB to a new insurers, what most people don’t know is that you transfer your NCB to a new car you buy. As the premiums for new cars tend to be high, this is a lot of saving in premium.  What you need to make sure is that the policyholder on the old car and the new car. NCB follows the fortune of the policyholder.

How can I protect my NCB?

There are generally two ways to protect your NCB. If you a damage that requires only a small amount to rectify then consider if it is worth while paying for it yourself. Compare the amount insurers will pay for the claim with the amount you will save in no claims bonus before taking that decision.  Repair costs can add up very quickly so be very careful before deciding not to file a claim.

Off late some insurers have been providing an option to protect your NCB from one accident a year. You will need to pay an additional premium to avail this benefit. 

Car Insurance: What you must pay in case of claims.

When it comes to insurance people assume that the insurance company will pay for all the expense that the insured incurs.  This causes lots of consternation and heartache. It is always helpful to know beforehand what will paid by the insurer and what you have to incur on your own. Furthermore what are the ways to minimize your out of pocket expenses?

Mandatory Deductible

In case of Car insurance, there is mandatory deductible that you must pay before Insurers will pay a single paisa. The mandatory deductible depends on the type of car you own.

Cubic Capacity	Mandatory Deductible
<1500 cc	Rs. 1000
1500 cc or higher	Rs. 2000

There is no way you can avoid this cost. Mandatory deductible is there so that insurance company is not burdened with lots of small claims that the owners can afford themselves

Depreciation

This is probably one cost that catches out most people.  Insurers take into account aging of the car while paying for replacement parts. While you will get a new part to replace a damaged part, the insurers will pay only a depreciated value instead of the full cost of the replacement.  The depreciation for car parts is as follows:

Age	Percentage Depreciation
6         to 12 Months	5%
1 – 2 Years	10%
2 – 3 Years	15%
3 – 4 Years	25%
4 – 5 Years	35%
5- 10 Year	45%
More than 10 Years	50%

Some insurers offer the pay full replacement value for the parts in lieu of an additional premium. This additional cover is known as Zero or Nil depreciation cover. This is typically available on selected models and for vehicles which are less than three years old.

Towing Charges

While towing charges are generally not payable, Insurers will often include limited towing charges as part of the insurance policy. The towing is often limited to say 10 kms and Rs 1500. Anything more than that is incurred by the owner.

Loss of Use

When your car is in the garage, you have to arrange for alternate means of transport. Insurers will typically not pay for these expenses under normal course. Some insurers however pay you a daily cash amount while the car is undergoing repair. The amount that you are paid is typically capped. You will need to shell out additional premium to get this facility.

What will never be paid?

In addition to this insurers will never pay for regular wear and tear due to normal operations. Examples of these are replacement of tyres or brake pads. Insurers will also not pay for any existing damages that were there before you took insurance.

Did you know?

There is one aspect of Car insurance that is not widely known. In addition to mandatory deductible, one can opt for a voluntary deductible. Voluntary deductible can significantly reduce your premium. However the insurer will pay only if the claims cost exceed the total of mandatory and voluntary deductible.

Voluntary deductible	Reduction in own Damage  premium
2500	20% subject to a maximum of Rs 750.
5000	25% subject to a maximum of Rs 1500.
7500	30% subject to a maximum of Rs 2000.
1500	35% subject to a maximum of Rs 2500.

You can find the best Car insurance Quotes for your car at Polictlitmus.com.