Tag: taking cover

3 important things to note about NPS annuity

Personal Finance

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The National Pension System (NPS) is one of the preferred retirement options, thanks to its low cost structure and tax advantage. But one thing that concerns investors is the mandatory requirement to lock into an annuity product on exit. The requirement to purchase an annuity is for providing a monthly pension after retirement. If you are planning to enter the NPS or are an existing subscriber reaching your retirement age, here are some of the important factors to know about the annuity product.

Under all citizens model, for subscribers on turning 60, it is mandatory to buy an annuity plan with at least 40 percent of the NPS corpus (unless subscriber decides to defer the exit). The balance 60 per cent is paid as lump sum to the subscriber. If the subscriber chooses to prematurely exit from the NPS before the retirement age, at least 80 per cent of the accumulated corpus has to be utilised for the purchase of annuity.

The four main variants of annuities include — Annuity for life (annuity for life time and on death of the subscriber, annuity ceases); Annuity for life with return of purchase price (on death, annuity ceases & 100 per cent of the purchase price is returned to the nominee); Joint life, last survivor without return of purchase price (annuity for life time and on death of the subscriber, annuity will be payable to the spouse for life time. On death of the spouse, annuity ceases); and Joint life, last survivor with return of purchase price (same as earlier, but purchase price will be returned to the nominees on death of the spouse). There’s one more option – ‘NPS – Family Income’, a dedicated annuity option offered only to government employees.

Currently, there are 13 life insurance companies empanelled with the Pension Fund Regulatory & Development Authority (PFRDA), from whom you can select the annuity product. One can use the link – https://cra-nsdl.com/CRAOnline/aspQuote.html – to compare the annuity rates for different annuity variants provided by the all service providers.

Return on investment

When you purchase an annuity, you get a fixed income at the annuity rate throughout life irrespective of interest rate movements. Since the annuity pays you for life-time, it also reduces the risk of re-investment of capital. These benefits come at a cost, though, which get accounted for in the annuity rate.

Currently, the annuity rates for products with the return of purchase price (ROP) are in the range of 5.5-6.6 per cent for an individual of 60 years for an annuity purchase of ₹40 lakh. Though not a perfect comparison, we can look at the return on the ROP annuity products versus that on non-cumulative bank deposits and the Pradhan Mantri Vaya Vandana Yojana (PMVVY). Today, banks are offering 6-6.5 per cent on their ten-year FDs. The PMVVY – with a limit of ₹15 lakh for a single account and a lock-in of ten years – is offering an assured pension of 7.40 per cent per annum payable monthly for all the policies purchased till 31st March, 2022.

There are no investment products that can be compared with the annuity products with no ROP, which pays higher annuity than those with the ROP option. The internal rate of return (IRR), which is an effective way of calculating the return on investment in this case, increases as the subscriber goes on to live longer. For instance, a 60-year old purchases an annuity with annual fixed income of ₹80,000 for ₹10 lakh today. If she lives to 80, her IRR would be just five per cent. But if she lives till 100, then her return jumps to 7.6 per cent.

Annuity products with no ROP can be opted by those with no dependents or liabilities. Note that the income you receive from your annuity plan is taxable at your income tax slab rate.

To overcome the low rates on annuities, PFRDA appears to be working on an option in which the corpus would continue to be managed by pension fund managers but subscriber gets to have periodic payouts, similar to systematic withdrawal plans of mutual funds.

Deferment of annuity

While annuity providers reset the annuity rates periodically, the rate prevalent at the time when you purchase the annuity is applicable to all future annuity pay-outs. Since we are in the low interest rate environment, rates are expected to inch up. Thus, if you are an existing NPS subscriber who is close to retirement and does not need a periodical annuity income, you can defer buying annuity. Also, the longer you defer the purchase of annuity, higher the pension you will get as the number of years over which the insurance company has to pay the annuity comes down. As per NPS rules, one can defer the annuity purchase by 3 years from the time the subscriber exercises the option to withdraw the non-annuity portion (60 per cent, or 80 per cent of the corpus in case of pre-mature withdrawal).

Less scope to alter annuities

Subscribers under all citizen and private sectors can choose from monthly, quarterly, half yearly or yearly payment frequencies (only monthly for government employees). Once an annuity is purchased, the option of cancellation or reinvestment with another annuity service provider or in another annuity scheme is not allowed after the free look period. Surrendering the policy, too, is restricted only to special circumstances such as a critical illness. This would be available only for the annuity option with ROP, however, at high charges.

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How you can give life to your lapsed LIC policy

Personal Finance

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LIC has announced a window of opportunity to revive lapsed life policies which will be open until October 22, 2021 for individual policies. The insurer periodically announces such opportunities for policy holders who have fallen behind. A similar offer was announced in November 2019 too.

Policyholders should utilise such opportunities, especially now, considering the heightened need for a risk cover. Reviving an existing policy with rates and terms of earlier periods can be beneficial and cheaper as well. Compared to reviving an older risk cover, the expected premium for new life covers from most insurance providers are expected to increase significantly in future. The increase in premiums is to compensate for higher claims post the pandemic and higher reinsurance costs for underwriting term, health, and life insurance policies.

Current scheme

In the current window, policies which are in the premium paying term and have not completed their policy term are eligible for revival. Lapsed policies, which are within 5 years from the date of first unpaid premium can be revived along with a concession on the late fee. According to LIC, the concession is not applicable to high risk covers such as term assurance plans and policies which are covering for multiple risks. Health and micro Insurance plans also qualify for the concession on the late fee.

For a total receivable premium of up to ₹1,00,000 (cumulative unpaid premiums), a late fee concession of 20 per cent is applicable up to a maximum concession of ₹2,000. Similarly, for receivable premium sum of ₹1,00,001 to ₹3,00,000, 25 per cent late fee concession up to a maximum of ₹2,500 and for premiums above ₹3,00,001, 30 per cent late fee concession is allowed up to a maximum of ₹3,000. While a concession on the late fee is being allowed during the specified time frame, there will be no concession on medical requirements.

Ordinary revival schemes

Most policies generally have a grace period of 15 days for monthly payments and one month for other payment frequencies such as quarterly, half-yearly and annual. Post non-payment within the grace period, the policy can lapse. The revival of such a policy is a fresh contract, with the insurer having the right to impose fresh terms and conditions. A lapsed policy can be revived by payment of accumulated premiums with interest and a penalty. You have to submit the relevant health documents too.

In an ordinary revival, upon receipt of unpaid premium plus current interest rate (around 8 per cent currently) within 6 months of the first unpaid premium, the policy is revived. A certificate of good health and medical report as per the policy demands may also become necessary. For a revival on medical basis, medical requirements based on policy specifications will be required for continuing the cover.

Even in ordinary circumstances (outside of the policy revival campaign currently underway), revival schemes are available for making a financially easier return to the insurance fold. But if one has missed more than a couple of premiums, the lump sum payment of the same can be become burdensome. LIC’s special revival scheme can be utilised in such situation. If a policy has lapsed for not more than 3 years (from the date of last unpaid premium), the scheme allows you to shift the commencement date, allowing for the payment of just one unpaid premium, calculated on the basis of age and applicable health conditions. Such an option is allowed only once in the entire policy term and the policy should not have acquired surrender value (reached after paying three full year premiums to LIC). Instalment revival, survival benefit cum revival scheme and loan cum revival scheme are other financially modified options available, if an ordinary revival or special revival are not appropriate for the customer.

In ordinary circumstances, insurance policies can be revived but only within a period of two years from the date of the last unpaid premium. The current offer allows for a five-year window to revive old policies and adds a discount to the late fees being paid as well. Amongst the many lessons taught by the pandemic, the most critical one has been the necessity of an insurance cover and LIC’s current campaign for reviving old policies could not have come at a better time.

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What you need to know before buying a heart cover

Personal Finance

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Heart-related ailments are increasing every year across countries including India. Pollution, smoking, diabetes and lifestyle-related changes are the key reasons for heart-related ailments across age groups. According to the World Heart Federation, cardiovascular-related ailments results in 18.6 million deaths a year.

To address specific disease-related medical expenses, a few insurers including Care Health, Star Health, Future Generali and ICICI Pru Life have come out with standalone cardiac covers. While your regular health policy also covers you for cardiac ailments and other critical illnesses, should you go for such a cover?

Read more: All you need to know about critical illness insurance

Plans for existing cardiac ailments

Insurers offer two kinds of products to cover against cardiac-related ailments.

One type is for those who have already been diagnosed with cardiac ailments or disorders and possibly have undergone surgeries for it. These types of plans are usually offered by health insurers such as Star Health (Star Cardiac Care) and Care Health (Care Heart). So unlike regular health plans, where those with cardiac ailments have to undergo a pre-existing or disease specific waiting period, here they get covered from day one (post the initial waiting period).

Note that cardiac specific plans too come with a waiting period. As a policyholder, you have to wait for 30 days (initial waiting period) after the commencement of the policy before the cover starts. You will also have to undergo pre-existing diseases waiting period, for those ailments other than cardiac related, such as cataract, bronchitis, and varicose veins, of anywhere between 2 to 4 years. Similarly, there is a waiting period for specific diseases such as all types of cancers, kidney and liver failure and retinal disorders, which is usually around two years.

These cardiac plans work as an indemnity policy where the hospitalisation expenses are covered. For instance, Care Heart Plan from Care Health covers hospitalisation expenses and pre and post hospitalisation expenses. The plan also covers domiciliary hospitalisation and offers restoration benefit, no claim bonus benefit, and health check-up.

Benefit policies

The other kind of health policy that specifically covers against cardiac ailments is the benefit policy, where the insurer will make a lumpsum payment only at the time of diagnosis after which the policy terminates. The policyholder can use the money for medical or non-medical expenses without any restriction. These policies are suitable for those who are likely to suffer from such ailments in future. A few of the policies offered include ICICI Pru Heart and Cancer Protect, HDFC Life Cardiac Care and Future Generali’s Heart and Health plan

The list of cardiac conditions covered varies with insurers. For instance, in case of Heart and Health plan from Future Generali (where you opt for the Heart plan option), you are covered against 18 heart-related conditions (both minor and major) including angioplasty, open chest bag, cardiac arrest and heart transplant.

A few insurers make the lumpsum payment upon diagnosis, depending on the severity of conditions. For instance, in case of HDFC Life’s Cardiac plan, 25 per cent of sum insured (SI) is paid in case of minor conditions which include angioplasty, minimally invasive surgery of aorta and insertion of pacemaker. The plan pays 100 per cent in cases like heart transplant, open chest coronary artery bypass graft and the like.

The waiting period usually ranges between 90 days to 180 days. Do keep in mind that the benefit from the policy will be payable only if the insured person survives for a specific period post the diagnosis, known as the survival period, which usually ranges from 7 to 30 days. These products also come with similar benefits such as SI restoration, no claim bonus and portability.

Our take

If you are already suffering from heart-related ailments, you can consider the plans that offer coverage without pre-existing condition waiting period. But do keep in mind that, these plans come with limits on sum insured. For instance, the SI options available with Star Cardiac Plan are up to ₹15 lakh, while the maximum SI offered in Care Heart is ₹10 lakh. They also come with sub-limits and co-pay. For instance, Care Heart has a sub-limit on room rent of 1 per cent per day up to SI and co-pay of 20 per cent .

If you have a family history of heart ailments or any other critical illnesses, you may be at risk of contracting one. So in such cases, it makes sense to go for cardiac benefit policies (which is taken before you get any heart related ailments) or critical illness (CI) policies. These policies also offer higher SI options.

While you can consider standalone cardiac plans (benefit plans), there are products in the market that covers other critical illnesses too. For instance, Bajaj Allianz General’s Criti-Care plan covers a wide range of 43 critical illnesses and the plan offers five options – cancer care, cardiovascular care, kidney care, neuro care and transplants and sensory organ care – for policyholder to choose from (one or all) depending on the need. Note that, it is always recommended to go for CI plans (cardiac or comprehensive) over and above your base health insurance policy.

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