Cheapest Term Insurance Plan

In our analysis of top life insurance companies based on claim processing efficiency, we shortlisted 4 insurance companies, viz, LIC, HDFC Life, ICICI Prudential and SBI Life which has the most efficient claim processing mechanism and where the probability of your claim getting settled and paid quickly is more than for other insurance companies.

In this post, we shall compare premium amount for term insurance policies from these companies and check which one out of the four is the cheapest.

Premium Amount

Tabulated below is the premium of term insurance policy for sum assured of Rs. 1 crore with term of 30 years for an individual aged 30 years:

Insurance Company	Plan Name	Premium Amount
LIC	Amulya Jeevan – II	23,300
HDFC Life	Click2Protect	10,600
ICICI Prudential	iCare Term Plan	13,800
SBI Life	E Shield	11,690

Note: Premium amount is in rupees and excluding taxes.

Based on the above it can be seen that HDFC Life’s Click2Protect term plan is the cheapest term plan available, followed by SBI LIFE E-shield.

However, HDFC Life’s Click2Protect term plan do not have an option for accidental death benefits which is available with plans of other companies at an additional premium. Further the premium amount may vary differently amongst various policies depending on the term period and age of an individual and the above ranking may not hold true.

Also note that HDFC Life’s Click2Protect plan is cheapest amongst the four insurance companies which we have shortlisted.  It may not be cheapest amongst all the insurance companies.  For eg:  Similar term plan from Aegon Religare is available for Rs. 5,800/-.

Conclusion

Based on our analysis in this as well as previous post, we can conclude that HDFC Life’s claim processing is most efficient and it has one of the cheapest term insurance plan.

Top Life Insurance Companies based on Claim Processing Efficiency

It is always difficult to choose life insurance companies for insurance cover.  There are various parameters which one needs to go through.  One of the most important parameters out of this is claim processing efficiency of life insurance companies.  Remember, for term life insurance, claim arises after your death.  Hence your family members need to make a claim and follow up with life insurance company for settlement.  Thus you need to ensure that their experience is hassle-free.

With this in mind, Bachhat has analysed claim processing efficiency of all life insurance companies for last 4 years (from 2009-10 to 2012-13).  While there is lots of data to play around with, presented below are key charts and takeaways for the readers.

Best 5 companies in settling claims

This is ascertained from low claim rejection rates.  Lower the rate, the better.

The largest player, LIC has the lowest rejection percentage as compared to all other insurers.  HDFC Life (erstwhile HDFC Standard), Star Union Dai-ichi, ICICI Prudential and SBI Life follows in that order.

Worst 5 companies in settling claims

Edelweiss Tokio has the highest claim rejection rate.  This is followed by Aegon Religare, Shriram Life, India First and Future Generali.  Pertinent thing to note here is that new companies have high claim rejection rate in initial years.

Time taken to settle claims

Another aspect to look is the time taken to settle once the claim has been filed in all proper respect with the insurance company.  Lesser the time, the better.

Based on FY12-13 data, DLF Pramerica has the worst record in this with only 3% claims settled within 1 month and as much as 58% taking atleast 6 months to get settle.  Similarly, Sahara, Star Union Dai-ichi, Edelweiss Tokio and Canara HSBC have substantial delays in settlement.

Let us also take a look at claim settlement record of best 5 companies which were shortlisted based on claim rejection rate above.

All companies, except for Star Union Dai-ichi, have good claim settlement record.

Outstanding Claim Analysis

Another way to look at delays in claim settlement is by analysing the ageing of claims outstanding.  Lets look at the ageing of claims outstanding for above 5 companies as of 2012-13.

From the above, it can be seen that out of total claims outstanding at the end of 2012-2013, for LIC 60% of  claims were outstanding for more than 3 months and almost 1/4th were outstanding for more than a year.  ICICI Prudential and HDFC Life fared better in this with only 17% and 4% of claims respectively outstanding for more than 3 months.

Conclusion

Based on the above, it can be concluded that ICICI Prudential, HDFC Life and SBI Life are most efficient in claim settlement process.  LIC also has decent record of claim settlement, but at times claims may get stuck.  In our subsequent analysis, we shall compare the competitiveness of the term plans of these companies.

PS:  Kindly note that above analysis has some inherent limitation such as (i) new insurance companies having sub-optimal claim settlement ratios, (ii) the analysis covers not only term plans but all life insurance plans (settlement ratios for term plan may drastically vary from this, but specific information for term plan is not available), etc. 

What has been your claim settlement experience?  Kindly share it with other readers in the comment section below.

Withdrawal of bank notes issued prior to 2005 by RBI

Update:  Read the updated news on pre-2005 notes here.

RBI has advised that it shall completely withdraw from circulation all bank notes issued prior to 2005 after 31^st March 2014.  Public shall be required to exchange such notes with banks from 1^st April 2014.  This facility of exchange shall be provided by the banks for customers as well as non-customers.  However, from 1^st July 2014, non-customers shall be required to furnish proof of identity and residence to the bank where the exchange is taking place, if such exchange is for more than 10 pieces of Rs. 500 and Rs. 1000 denominated notes.

How to identify bank notes issued prior to 2005

Bank notes issued prior to 2005 do not have year of printing on the reverse side.

The reverse side of the above bank note (click on picture to enlarge) do not have the year of printing.  Such notes shall be withdrawn from circulation after 31^st March 2014.

    

However, the reverse side of the above bank note states the year of print as 2011 (bottom middle).  Such notes shall continue after 31^st March 2014.

Things to be kept in mind

One needs to keep the following things in mind:

1. Withdrawal applies to all denomination of notes and is not restricted to Rs. 500 or Rs. 1000 notes.  Thus even if one has Rs. 10 or Rs. 100 note which is issued prior to 2005, then such notes need to be exchanged with banks.
2. Though such notes shall continue to be legal tender for the time being and can be used, it is advisable to exchange it with the bank at the earliest possible.
3. To avoid hassles, if one is exchanging the notes after 30^th June 2014, it is advisable to exchange it with the branch where one has account.  Otherwise proof of identity and residence needs to be furnish if the exchange is for more than 10 pieces of Rs. 500 and Rs. 1000 denominated notes.

RBI has provided short period to exchange such notes.  However, since this is an ‘advise’, there is a possibility of the deadline getting extended.  RBI needs to provide proper communication to all participants and to public at large to ensure that there is no panic on the street and adequate time is available to exchange such notes.

Photo Source: RBI Website

Tax Free Bonds – who should invests?

This seems to be the season for tax free bonds.  We have already seen issues from REC, HUDCO and IIFCL; and now, PFC and NHPC have join the bandwagon.  Significant efforts are spent by media in analyzing all the issues i.e. what they offer to investors and which is the best one to invest.  In this article, we shall not look into that but focus more on who should invest in such issues and what aspects the investor needs to take care of before investing in tax-free bonds.  Before that, a synopsis of the ongoing PFC and NHPC bond issue.

PFC and NHPC issue

Bond issues for PFC and NHPC are open right now offering bonds for 10, 15 and 20 years for similar tenure.  Below are the brief details about both the bond issues:

The issue is priced at attractive rates which is same for both PFC and NHPC issue.  These being tax free bonds, any interest received on these bonds is tax free. Accordingly, if one considers pre-tax returns, they are higher than what long term debt mutual funds have provided in last 5 years (7.83% p.a. pre-tax returns as per Value Research).

Pre-tax Returns on PFC and NHPC tax free bonds

Interest Rates	Tax Bracket
	10%	20%	30%
8.43%	9.37%	10.54%	12.04%
8.79%	9.77%	10.99%	12.56%
8.92%	9.91%	11.15%	12.74%

Who should invest in such bonds?

The interest rates are excellent, risk is at the nadir and tenure is long term.  So whether all and sundry should invest in such bonds?  The answer obviously is no.  One needs to take care of following aspects before deciding to invest in these and any other tax-free bonds:

1. This is a long term investment.  Though the bonds are listed and can be traded, one needs to assume that they will not get back the money before the tenure of investment.  Even if there is 1% probability of you requiring the money anytime during the tenure, then one should not consider this investment. 
2. The pre-tax returns decreases for investors falling in lower tax brackets.  So in case you are in 30% tax category bracket, the investment makes more sense to you rather than for people falling under 10% tax category bracket.
3. If you have any loans outstanding, whether it is credit card loan, personal loan, car loan, home loan, etc, the money should be utilized in paying back the loan rather than investing in tax free bonds.
4. These bonds offers good returns as compared to debt mutual funds.  In case you are looking for long term investment in debt funds, tax free bonds are also an option to invest.
5. People on the verge of retirement can replicate this as a pension plan with regular income.
6. PPF returns are almost at par with returns on tax free bonds, however PPF offers more flexibility in withdrawing the amount when required (e.g. by way of loan) and returns on PPF are cummulative.  Hence one should exhaust PPF investment limit before investing in tax free bonds.

The above list is not exhaustive, but one should take the same into account before investing in tax free bonds.

Are you investing in tax free bonds? Share your reason for investing in the comments section below.