Mediclaim: Things to keep in mind before buying health insurance

Rajiv’s dad got hospitalised for sudden chest pain.  Rajiv had a health insurance cover (popularly known as mediclaim) for Rs. 3,00,000 and admitted his dad to one of the best hospitals having cashless facility for treatment.  At the time of settlement of bill for Rs. 2,00,000, he was surprised to know that the cashless claim was passed for only Rs. 1,40,000 and he need to pay the balance Rs. 60,000 before discharge.  On inquiring with the insurance company, he came to know that as per his policy, his room eligibility was twin sharing occupancy of up to Rs. 1,500 per day whereas he had opted for single room having daily room rent of Rs. 2,500.  Rs. 20,000 was rejected for this reason.  Balance Rs. 40,000 was rejected on the basis of ‘co-pay’ condition of 20% in his insurance policy.  Co-pay condition means that the customer needs to bear 20% of the hospitalisation bill and hence in this case, Rajiv have to bear Rs. 40,000 out of his total bill of Rs. 2,00,000.

Let us look at another example.

Sameer had purchased one of the cheapest health insurance policy available from a private company 3 years back.  He was regular in paying his annual premiums and had no claims history.  He was shocked to see that his 4th year premium was increased by 200% by way of ‘loading’.

Above two are not the examples of an insurance company cheating its customers.  The clauses such as co-pay and loading are clearly specified in the terms and conditions of the policy documents given to the customer.  However, Rajiv and Sameer were not made aware of the existence of such terms by their agent at the time of the purchase of health cover.

There is no denial of the fact that every individual should have health insurance cover due to the rising cost of medical treatment and the increasing risk of lifestyle diseases.  However, one should evaluate all the features and conditions of a health cover to help him understand the insurance cover.

Courtesy: Олег Олешкевич from Picasa

Listed below are certain key features, besides the premium cost, one need to look into before purchasing a health cover:

1. Pre-existing disease: If you have a history of disease at the time of taking policy, you need to check how it will be covered.  There are certain policies which do not cover pre-existing diseases at all and there are few policies which covers such diseases after a period of 3 to 4 years.  Needless to say, you should always prefer the second option.
2. Room eligibility:  Room eligibility means the daily maximum amount which the insurer will bear for room charges, boarding and nursing related expenses.  Certain policies will link it to the sum insured (usually per day cap of 0.5% to 2% of sum insured, which may be too low), whereas some will specify the type of room eligible such as twin sharing or single along with a maximum cap for each type of room.  You need to factor this while purchasing the cover and keep it in mind at the time of hospitalisation.  In case you exceed these limits, the insurer deducts the additional expenses incurred above the limits specified.  Do remember that doctor’s fees, operation theatre cost and many other costs are related to the room you occupy.  All such cost will be settled based on your eligibility and any additional expenses will be bear by you.
3. Pre & post hospitalisation cover:  You need to check the number of day’s pre and post hospitalisation expenses you will be able to claim.  Generally it is 30 days for pre-hospitalisation expenses and 60 days for post-hospitalisation expenses.
4. Diseases cover:  Certain diseases such as Hernia, Piles, Cataract, Osteoarthritis may be specifically excluded from the cover or may be covered after certain years of policy existence.
5. Entry Age:  Earlier it was difficult to cover people above 55 years of age under health cover.  This was rather disgusting since that is the period of life when the health problem starts arising.  But now, there are many policies available where one can enter in to a health cover at age of 55 years or above.  Do check with your insurance provider about the entry age limits.
6. Renewal Option:  This is one of the important things to check and it basically means the age till when you can renew your insurance policy.  Certain companies restrict it to 70 years whereas few provide till 90 years.  Definitely, more the better.
7. Co-pay: Co-pay clause reduces your premium outgo, however by choosing this option; you agree to share your hospitalization bill with the insurance company.  Co-pay can range from 5% to 20%.  In 20%, you agree to bear 20% of the total hospitalisation bill, whereas the insurance company bears the balance.  Co-pay usually is not wrong, but you should be aware about it at the time of purchasing the policy and should be reflected through reduce premium outgo.
8. No claim discount and loading: Generally the insurer provides 5% discount on premium (subject to overall limit) for each claim free year.  Hence having no claim during a year may reduce your annual premium outgo.  As a contrary to this, if any claim is admitted during the year, then a loading of 5% or more (depending on the terms) shall be levied on your next annual premium.  In simplest terms, you benefit with reduce premium in case there is no claim during a year or you need to pay increase premium for subsequent year in case of any claim.  However the catch is the benefit of reduce premium is generally restricted (upto 20%) whereas there is no restriction for loading percentage.  There are few policies where loading can be up to 200% to 300% of the premium amount.  Hence it is necessary to clarify loading terms before finalizing a health cover.  There are few companies which do not specify the terms and state that it is based on their scientific model.  However, it is better to have it specified upfront in the policy document.  Certain private companies have started selling policies without any loading conditions.
9. List of Network Hospitals:  You need to check the list of network hospitals covered by the insurance company.  This will be helpful since you can avail the facility of cashless hospitalization in these hospitals.  Few insurance providers requires you to co-pay certain portion of the bill in case the treatment is availed in non-network hospitals.
10. Maternity Benefits:  Do check whether maternity expenses are covered and its limits.
11. Critical illness cover:  There are certain policies which cover only critical illness such as cancer, brain tumor, etc.  While these diseases will also be cover in your normal policy, the cost of such treatment may be substantially higher and may exceed your sum insured.  Critical illness policies helps in such case wherein they cover only specified critical illness.  Since there coverage is specific, if taken at early age, premium outgo is less.
12. Other benefits such as ambulance cost, attendance charges: Policy may cover ambulance cost and attendant charges upto certain limits.  It is advisable to know them.
13. Claim process (TPA or direct):  You need to check how the claim settlement will take place.  Whether will it be through Third Party Administrators (known as TPA) or directly by the insurance company?  Generally, in case it is by the insurance company, the company should pass the benefit of cost savings by way of reduce premiums.  TPAs are incentivized to deduct the hospitalization bill and try to reduce the claim amount as much as possible.  Hence it is important to know the TPA for the insurance provider and check its claim settlement history.

One can opt for family floater policy instead of regular policy, where the sum insured is floating over the persons insured.  With the family floater option, you can additionally cover your spouse, parents or children to the same annual aggregate limit. Since the probability of all of you getting hospitalised is negligible, it reduces the premium outgo without affecting the insurance cover.

Another thing to keep in mind is that it is necessary to have a health cover even though you are cover under your employer’s group mediclaim policy.  This is generally allowed as perk to the employees.  However, the employer has an option to withdraw the same or reduce the cover or in case you discontinue your job, you may be without a health cover and the new cover may come at a higher premium.

There are health cover plans available which gives cash benefits for each day of hospitalisation or which are insurances plus investment plans.  However, as in term insurance, it is beneficial to keep the health insurance cover simple to cover the basic risk of hospitalisation expenses.

 

Were you aware about these features while purchasing your health cover?  Did you face any problems at the time of claim settlement?  Do share the same along with your comments and suggestions below.

Market crash – should I sell my stocks?

Courtesy: Zadeus from Flickr

At the time of writing this, the markets have fallen by more than 1500 points from the high of 21,005 reached on 5^th November 2010.  That’s a drop of 7% in 20 days.  The euphoria has turned negative with news of sovereign debt problem in Ireland, tension between the two Koreans neighbours, bleak outlook for micro-finance institutions and yesterday’s housing scam involving top officials of public and private sector companies.  To be fair, 7% fall in the backdrop of phenomenal increase in last two years can hardly be termed as significant.  Yet, the retail investors’ restlessness has increased.

Yesterday while travelling in Mumbai local, I overheard a traveller chatting with his colleague about the markets.  He was worried on account of recent fall.  It appears that he had made significant investments in selected equity stocks just before markets started falling and now he is in substantial loss in just couple of weeks.  The main point of worry is these were his short term funds which will be required in two months.  He was lure by the tip given by his broker about a sure shot profitable trade on these stocks within one month.  He is now confused as whether to sell this investment fearing further downside or to stay invested hoping market to recover and exit when he recovers his notional loss.

Are you also in the above category of investor? Are you as a retail investor concerned about recent reduction in value of your investments?

Well if you have followed few fundamental principles of investing, then you will not be in the same situation as my fellow traveller.  Here are the principles which will not let you have sleepless night during such times.

1. One should invest in equity markets taking a long term view.  In case you want to purchase a car in few months or planning to purchase a home in this year, then you should not invest that amount in equity markets.  Better to stick to debt funds and fixed deposits for such short term tenure.
2. It is always advisable to invest in mutual funds rather than directly into the equity stocks.
3. You should never make lump sum investment in equities.  Always spread your investment over a period of time with periodically investing a fixed sum. Ever tried a SIP in mutual fund?
4. Keep your investment plan in line with your long term goals.  It is always prudent to stay within the allocation range suitable for your investment goals and horizon.
5. Do not worry about short dips like this.  In a larger frame of your goals, it is not of much relevance.  You should not worry about it so long as you are a long term investor.
6. In case you are nearing your goal target, start booking profits periodically in your equity investments and shift to debt funds.
7. Do not listen to any tips or advices given by broker for immediate or sure shot profits.  Remember there are no shortcuts in life.

If you have followed the above principles, then least assure you are on a right path and should not be concerned about the market movements every now and then.

So in which category do you fall?  Do share your views in the comment section below.

Your guide to Mutual Fund Investment

Courtesy: Iscan from Flickr

 

Mutual funds are one of the vehicles available for retail investors to invest in equity and debt markets.  Based on the investor’s risk and investment profile, mutual fund should form part of an investor’s portfolio.  This post is an elementary guide to help one understand mutual fund investment. 

 

Understanding Mutual Funds

Mutual funds are investment instruments which collect money from various investors and invest in equities, debt or gilt as per the investment mandate.  They are managed by fund houses that collect their management fees which vary depending on the type of funds being managed and can vary from 0.25% to 2.5% with actively managed equity funds charging the highest fees.

Why to invest?

As a retail investor, it is difficult for an individual to identify good stocks or bond for investment.  For selecting a stock, he relies on investment tips from friends or on business channels or on available stock analyst reports. Rarely does he carry out the analysis of the company by understanding the company’s business and by reviewing its financials.  This is not a correct way of investing and by doing this one is never sure whether the investment decision is right or not.  Even in case he is confident about his decision at the time of investment, it becomes difficult to track the company and continuously evaluate the impact of latest developments on the company’s business. 

On the other hand, mutual funds are managed by portfolio managers who are experts in their field of investments.  They have specialized skills and knowledge and are able to constantly track their portfolio.  Further, mutual fund can provide exposure to varied class of assets.  There are mutual funds which invest in debt funds, in equities or both in debt and equities. The debt funds can be further sub-divided into short, medium or long term depending on their time horizon. Similarly, equity funds can be sector specific or index funds. Thus within mutual fund, there are various alternatives available to suit the investment and risk profile of the investor. Transparency is high and they are one of the cheapest investment avenues with the elimination of loads and curtailment of asset management fees. All this makes mutual funds an ideal instrument to take equity and debt exposure.

How to Invest?

Investment in mutual funds can be carried out either (i) through your distributor / agent / financial advisor, (ii) through your broker, (iii) directly with the fund house or (iv) through online portals.  Below we discuss each mode of investment in detail.

1. Investment through distributor / agent / financial advisor:  These are the middle men who act as your agent.  It can be your neighborhood distributor or bank or financial advisor.  Based on the mutual fund scheme selected, they assist you in filling the application form, collect your cheque for investment and forward your application alongwith cheque to the mutual fund house for account opening and investment.  They are your point of contact and you can contact them for further investments or for redemption or switching.  Alternatively, you can also directly get in touch with the fund house for future transactions.  Generally the distributor will charge you transaction fees for the services provided by them.  Tip: Ensure that you fill up the application form yourself to ensure correctness.
2. Investment through broker: Investors having demat accounts can also invest in mutual funds through their broker.  It works just like the way you purchase equity shares from broking account.  You need to identify the scheme in which you want to invest and number of units.  Based on the NAV of the scheme, the corresponding amount will get deducted from your broking account. Broker will charge broking fees for the transaction and the investment will get reflected in your demat account.  Now it is also possible to create an SIP through this mode of investment.
3. Direct investment with fund house: If you do not want to interact with any agent, you can invest directly with the fund houses.  It can be done either online or offline. Few fund houses such as HDFC like to have the first transaction offline and allows you to register for their online facility once an investment has been made.  Online mode, though, is not completely paperless.  After filling the online form and making payment through net banking account, you need to take a printout of the form and submit it to the fund house.  Post receipt of the application form, fund house will open the folio and forward the online login and password which can be used to monitor investments and for further transactions.  Alternatively you can invest offline by downloading the application form from the fund house’s website, forwarding the filled form alongwith the cheque for investment to the fund house.  The fund house will verify the papers and open the account.  The date of receipt of form will form the basis of NAV determination.
4. Investment through online portals: There are online portals like www.fundsindia.com which help one choose the mutual funds to invest in and allow the facility to invest directly from their site.

Certain important things to take care of while investing

1. Ensure that you fill in the bank account details properly.  You may be required to provide the proof of the bank account specified in your application by way of a cancelled cheque. The said bank account with be credited for dividend and redemptions or for direct debits in case of SIP.  Many investors complain that over a period of time, the specified bank account may get closed and it then becomes cumbersome to change the bank account at the time of redemption.  Hence SEBI has now allowed to register five bank accounts and to specify your preferred bank account for transactions.  In case the preferred account gets closed, you can choose any one of your registered bank accounts for future transactions.
2. KYC Compliance:  KYC is a big thing and is required for all mutual funds investment of more than Rs. 50,000.  From 1^st January 2011, it will be mandatory for all mutual fund transactions irrespective of the amount involved.  Hence it is necessary to have yourself and your family members KYC Complaint.  The process is simple.  You need to visit any of the designated KYC Point of Service (check the list of Point of Service here, fill up the form and submit the address and identify proof.  The service is free of cost and usually within 2 weeks you will be KYC complaint.  You can check the status of your KYC on the website of CDSL.  It is important to remember that the details in KYC form will override all the details which are given in mutual fund application form and hence it is necessary to have updated address in KYC to receive all communications on time.
3. Timing of investment:  Sometimes you purchase mutual fund units online in the evening only to realize later that the NAV of the transaction is not of the same day but one day later.  You should note that the transaction should be completed by 1 pm for liquid funds (debt funds investing in short-term debt securities having duration of less than 1 year) and by 3 pm for non-liquid funds (equity and other debt funds) in order to avail the same day’s NAV.
4. Nomination:  Nomination is important and you should ensure that you have nominated a person who will be entrusted with your funds in the case of your death.  Do remember that nomination does not means legal ownership and you need to specify the owner of your mutual fund investments in your will. More on nomination here.

Which are the best Mutual Funds to invest?

There are plethora of mutual fund schemes and all the fund houses cite their schemes to be the best based on the awards they have received or based on narrow comparisons which suits them.  It is difficult to select the best mutual fund to invest and ideally you should leave that job to the experts.  Bachhat prefer to choose the mutual fund scheme based on their long term performance, consistency and ability to stay within the mandate given for investment.  Mint 50 list of mutual funds or www.valueresearchonline.com are good sites where you can select best mutual fund scheme.   Ideally it is okay to have holdings in not more than 5-7 mutual fund schemes including debt funds and advisable to invest through SIP and not a lumpsum amount for equity mutual funds.

Do you have any more questions on mutual fund investments?  Feel free to write it down in the comments section below.

Bharti AXA Life Insurance – 48 hours claim settlement promise

You would have seen a television advertisement running nowadays by Bharti AXA Life Insurance promising settlement of claim within 48 hours.  In case you have not seen it, you can view it below.

Since this concept is new and use as a tool to attract customers, further to my analysis of claim settlements by various insurance companies which was carried out few days back, I thought it will be interesting to know how this promise of 48 hours claim settlement works and what are the terms and conditions to this promise.

A recent article in Mint tried to de-code the promise earlier this week.  Lets see how it works.

First thing to note here is that this settlement promise is only applicable for unit linked insurance plans (ULIPs) and not for any other insurance plan including the term insurance.

Second, the promise is to settle only the fund value of the plan and not the sum assured.  In case the sum assured is more than or additional to the fund value, then only the fund value will be settled and the differential amount will be release at a later date after detailed processing.  There is no time limit for settlement of this differential amount.  As per FY 2009-10 numbers disclosed by Bharti AXA, all the claims which were not repudiated were settled by the company within one month of receipt of all documents.

Important to note here is that the fund value is basically the premium which you have paid and which has been invested by the insurance company on your behalf increased by the returns which your fund has generated over the years.  Thus the insurance company is only returning back your investment amount and is paying nothing out of its pocket.

To clarify, at the time of the death of the insurer, if the sum assured is Rs 10 lacs whereas the fund value is Rs 5 lacs, payment of Rs. 5 lacs within 48 hours is promised.  Additional benefit on account of increased sum assured will be paid later after processing the death claim.

In case they are not able to pay the claim amount they will pay 1% of the fund value as interest for delay in each day of settlement.  Other terms and conditions are:

1. Fund value means the market value of the units (excluding sum assured and any other death benefit) as on the date of receipt of intimation of death after deducting applicable charges as per 'policy contract'.
2. The 48 hour period shall be reckoned from the time acknowledgement slip has been duly stamped at the branch to the time the cheque towards the fund value is released in the beneficiary name.
3. Saturdays, Sundays, Holidays declared by the company and Public Holidays are excluded from 48 hour period.
4. For any claim intimation received after 3.00 p.m., on any working day, the 48 hour period would be reckoned from 9.00 a.m. from the next working day.
5. Cases where policy is in "lapse" status (i.e. premium not paid) as on the date of death or for cases were the claimant is other than beneficiary as per the company records are excluded.
6. 'Guaranteed 48 hours Fund Value release' does not in any way indicate acceptance of any liability or admissibility of the payment of the sum assured or other death benefits under the said Policy by the Company.

Thus the customers should evaluate the pros and cons of such promise before opting for ULIP policies of Bharti AXA.  Bachhat's suggestion remains the same.  Go for term insurance and grow your wealth through other investment products such as mutual funds.

Your comments are appreciated.