Secure future for your child

"Emotions run high when parents plan for a child's future. And chances are that one gets swayed by insurance agents' pitches. However, before investing in the future of your child, it will be wise to let one's head, not heart, rule" .

Children's insurance can be broadly divided into two categories:

• Policies that take care of children's education or marriage; and
• Plans that provide for an immediate payment of basic sum assured amount on death of the (parents') life assured during the term of the policy.

Apart from the public sector player Life Insurance Corporation of India, a lot of private players have entered the field. Yet, while buying children's plans, people tend to bank on LIC more than its private counterparts.

Let's take a look what schemes LIC has on offer for children:

1. Jeevan Anurag is a profit plan meant to take care of the educational needs of children. The plan can be taken by a parent on his or her life.

Benefits are payable at pre-specified durations irrespective of whether the life assured survives to the end of the policy term or dies during the term of the policy.

In addition, this plan provides for an immediate payment of basic sum assured amount on death of the life assured during the term of the policy.

Assured benefit

Payment of 20 per cent of the basic sum assured at the start of every year during last three policy years before maturity.

At maturity, 40 per cent of the basic sum assured along with reversionary bonuses declared from time to time on full sum assured for the full term and the terminal bonus, if any shall be payable.

For example, if the term of the policy is 20 years, 20 per cent of the sum assured will be payable at the end of the 17th,18th, 19th year and 40 per cent of the sum assured along with the reversionary bonuses and the terminal bonus, if any, at the end of the 20th year.

Death benefit

Payment of an amount equal to sum assured under the basic plan immediately on the death of the life assured.

2. Another popular LIC policy is: Komal Jeevan

This is a children's money-back plan that provides financial protection against death during the term of the plan with periodic payments on survival at specified durations. This plan can be purchased by the parent or the grandparent for a child aged from 0 to 10 years.

Commencement of risk cover

The risk commences either after two years from the date of commencement of policy or from the policy anniversary immediately following the completion of 7 years of age of child, whichever is later.

Premiums

Premiums are payable yearly, half-yearly, quarterly, monthly or through salary deductions, as opted for, up to the policy anniversary immediately after the life assured (child) attains 18 years of age or till the earlier death of the life assured. Alternatively, the premium may be paid in one lump sum (Single premium).

Guaranteed additions

The policy provides for guaranteed additions at the rate of Rs 75 per 1,000 sum assured for each completed year. The guaranteed additions are payable at the end of the term of the policy or earlier death of the life assured.

Loyalty additions

This is a with-profit plan and participates in the profits of the corporation's life insurance business. It gets a share of the profits in the form of loyalty additions, which are terminal bonuses payable along with death or maturity benefit. Loyalty addition may be payable depending on the experience of the corporation.

3. Another LIC plan is Jeevan Kishore, an Endowment Assurance Plan available for children of less than 12 years. The policy may be purchased by any of the parent/grand parent.

Commencement of risk cover

The risk commences either after two years from the date of commencement of policy or from the policy anniversary immediately following the completion of 7 years of age of child, whichever is later.

Premiums

Premiums are payable yearly, half-yearly, quarterly or monthly throughout the term of the policy or till earlier death of child.

Bonuses

This is a with-profits plan and participates in the profits of the corporation's life insurance business. It gets a share of the profits in the form of bonuses. Simple reversionary bonuses are declared per thousand Sum Assured annually at the end of each financial year.

Once declared, they form part of the guaranteed benefits of the plan. A final (additional) bonus may also be payable provided policy has run for certain minimum period.

How to buy

Coming to the crux of the matter: how to buy these policies. There are four basic ways of purchasing insurance policies. These are:

Buying from individual insurance branches -- Step in to any of the insurance branches and meet the policy purchase/sale desk. For instance, in case you want to buy LIC's Jeevan Kishore plan for your daughter, visit any of the LIC branches across the country to buy it.

Buying from banks -- Most nationalised as well as private banks have tied up with insurance companies and one can buy the policies of their choice from any outlet. For instance, in case you want to invest in ICICI Child Plan, all you need to do is walk into any ICICI Bank branch and ask for the policy form.

Buying through agents -- The most convenient mode of purchasing an insurance policy is buying through agents.

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Get Health Insurance when going abroad

Students can choose to insure themselves either in India or abroad. Student insurance policies cost $500-900 per year in the US, and around Australian $400 in case of Australia. The amount can change depending on the university. The cheapest worldwide cover offered by Indian insurers is $168-234 and the most expensive is $355-575 per year.

The insurance policies offered by universities abroad provide only medical cover; non-medical risks are not insured. Which is why most students prefer to buy cover in India itself. However, some universities insist that students take insurance policies from them and do not accept policies taken in the home country.

But, adds Sudhir Menon, head, travel insurance and worksite marketing, ICICI Lombard, "Universities in the US grant students a waiver from their medical insurance policies if the policy that the student buys is comparable to theirs."

Why buy insurance?

Students, especially from India and other developing countries, invariably have a hand-to-mouth existence thanks to an unfavourable exchange rate. And medical treatment in most western countries is very expensive, often several times over what the same treatment would cost in India.

That's something Mohit Garg, 23, found out the hard way. Garg left for the US in 2005 to study structural engineering at the University of Florida. A viral infection affected his foot and he had to be operated upon to remove the infected part. What would have cost him a couple of thousand rupees in India cost him over Rs 22,000 in the US. Thankfully Garg had medical cover, so his bills were taken care of by ICICI Lombard.

Student travel health insurance policies offered by Indian insurers cover the risks right from when the student boards the flight out of India. Hospitalisation expenses are paid even if the insured falls sick and has to be hospitalised in some country while on his way to the destination-country.

What is covered?

Apart from paying out-patient medical expenses and hospitalisation charges of $50,000-250,000 depending on the policy, Tata AIG offers to bear your nearest family member's round ticket cost, if you are hospitalised for more than seven consecutive days. Bajaj Allianz offers to pay the costs of most direct flights for the same. Tata AIG also offers to bear the cost of the student's flight to India if a close relative is hospitalised back home.

Many insurers offer a bail bond of $5,000 if the student gets into trouble with the law. Others offer to reimburse tuition fees paid in advance if studies are interrupted due to medical or compassionate reasons. These policies also provide sponsor protection benefit.

Since for most Indian students their parents are the sponsors, the tuition fee is fully or partly contributed by them. Insurers are offering to reimburse the remaining tuition fee in case of death or permanent disability of the sponsor, to the extent of $10,000, so that the student can continue with the course.

Apart from this, insurers are offering to take on students' liability risks, and pay up to $100,000 for any unintentional damage caused by the student to either private or public property. TATA AIG Student Guard has gone a step further, and offers to cover felonious assault, where the insurer will reimburse the loss or damage done to a student's property in case of attacks based on racial discrimination or for any other reason.

All these benefits will continue to apply even when the student leaves the university to travel to any other country on holiday.

The flip side

It's not all about low premiums and unlimited cover. Students say the biggest problem with Indian insurers is the tedious process of making a claim. Even though insurance companies say making a claim is as simple as informing the third party administrator in the host country to make cashless claims, policyholders say in reality it's different.

Garg, who claimed for his foot treatment, had to pay all the bills upfront and then courier the bills back to ICICI Lombard in India. He says, "Even though they made the reimbursements after I filed all the bills, as a student it was very difficult to pay all the bills upfront in dollars and then file a claim."

Insurers, however, say that they can do little if the policyholder does not give them advance notice about claims. Menon says, "If the policyholder informs us about their hospitalisation in advance, we will make necessary arrangements with the hospital concerned so that we can make it a cashless claim." If, however, the student does not give advance notice, it will take a while to settle the claim. So, the onus is on the student.

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Need for a PAN Card

The permanent account number or PAN has grown in importance and is today a vital part of any financial transaction. The tax department allots the PAN to an individual for the purpose of identification and to relate to various transactions and information pertaining to him.

If your income exceeds the basic exemption limit, you should apply for PAN by May 31 of the relevant assessment year. Any person whose turnover or gross receipts exceed Rs 500,000 and specified charitable trusts should apply for PAN before the end of the said accounting year. Employers filing returns for fringe benefits have no time limit set to apply for PAN.

Using PAN. All returns, quarterly statements, challans or correspondence with the income tax authorities should include the PAN. It is necessary to quote the PAN in documents related to the following transactions:

• Sale or purchase of immovable property valued at Rs 500,000 or more. If there are co-owners (buyer or seller), the PAN of both the owners will have to be mentioned. If a nominee holds the property, the PAN of the legal owner must be mentioned.
  The PAN should be disclosed in the document pertaining to purchase or sale of the property.

• Sale or purchase of a motor vehicle requiring registration other than two-wheelers. This does not include vehicles running on fixed rails or special vehicles for use only in factories or in other enclosed premises or vehicles of less than four wheels with engine capacity of not more than 25 cc.

• A time deposit of more than Rs 50,000 with any banking company and deposit of more than Rs 50,000 with post-office savings bank. This requirement is not mandatory when investing in post-office National Savings Certificate or Kisan Vikas Patra, and the PAN will be required only if the time deposit exceeds Rs 50,000.

• Contract of sale or purchase of securities exceeding Rs 1 lakh in value, including shares, bonds, debentures, derivatives, units and government securities.

• Cash payment of Rs 50,000 or more for purchase of bank drafts, pay orders or bankers� cheques during any one day.

• Cash payment exceeding Rs 25,000 in connection with travel to any foreign country (fare or purchase of foreign currency).

• Application for installation of telephone, including cellular telephone.

• Payment to hotels and restaurants against bills exceeding Rs 25,000 at any one time.

• Opening a bank account.

• Application for issue of a credit card.

• A cash deposit of Rs 50,000 or more with any bank during any one day.

• Payment of Rs 50,000 or more to a mutual fund for purchase of units or to a company for acquiring its shares or to a company/institution for acquiring its debentures/bonds or to RBI for acquiring bonds.

• Minor intending to open time deposit or bank account should quote the PAN of either father or mother or guardian in whose hands income is likely to be clubbed.

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Technology help to track your money

The advance of technology is relentless and like every other sector in any economy, banks can rely on technology to offer better, faster and safer services. There is no end to the potential. We take a look at the next level of technology usage by banks that will become widespread in the next one to three years.

Transaction alerts. For about a year now, banks have been sending SMS and e-mail messages to customers every time their account (savings or current) sees a debit or credit. ICICI Bank, HDFC Bank and ABN Amro Bank started offering these text and e-mail alerts to customers a year or so ago.

So, you receive an alert every time there is a debit in your account. This could be a cash withdrawal from an ATM or bank branch, clearance of a cheque issued by you to someone else, Internet-based transfer of money from your account to any other account, purchase on your debit card, or an automatic transfer of funds from your account to your mobile phone company, utility company, broker, depository participant or credit card-issuing bank as payment of your dues.

The bank will also send you an alert when there is a credit in your account, for instance, when a cheque you have deposited gets cleared, you deposit cash through a branch or ATM, your salary is directly credited in your account, or there is a direct electronic transfer of funds into your account from your broker, dividend-issuing company, or interest-issuing small savings government body.

Why alerts matter. Today, to find out what is happening in your account, you have to log on to your bank's website's netbanking module, call up the bank's call centre or make a trip to the branch or ATM. Knowledge of any activity - more so in the case of debits - can only be beneficial to you if you know about the debit or credit activity in your bank account as soon as it happens.

That's because there may be times when delayed information can put you through insufferable inconvenience or even a monetary loss. Milind Pendharkar, a finance professional in Vashi (Navi Mumbai), faced this predicament recently when his debit card was erroneously swiped twice at a restaurant. His bank, like a majority of banks, has not yet started offering transaction alerts. Says Pendharkar: "Had an SMS-based alert come on my mobile phone I would have been able to rectify the problem immediately."

As things turned out he discovered this mistake much later (after seeing a double entry in his card statement) and despite his attempts to get the bank or the restaurant to reverse the entry, he was not successful. He is still trying. His food bill was Rs 2,500 but he has ended up paying Rs 5,000.

It is to offer a handy tool to take quick action in such situations that banks can offer the alerts. Says C N Ram, head-information technology, HDFC Bank: "The basic use of a savings account is for transactions, but very often you don't know how much debit or credit is happening, particularly in the case of joint accounts. Through our transaction alerts, you can catch any misuse before it is too late."

Bank customers, of course, are aware of how useful these alerts can be. Says Ajit Mhatre, an architect with a construction company in Mumbai, who banks with Bank of Baroda, another bank that does not offer such alerts: "Mobile phone alerts are a good system for feedback on the transactions in my account. Today, I come to know my account details only when I update the passbook when I visit the bank, which is at the bottom of my priority list of things to do!"

Types of alerts. The three banks that offer text and e-mail alerts today have proven software development capabilities, which have enabled them to be first in offering these services. This is similar to the scenario some five or six years back when these banks were the first to offer netbanking; others followed suit only one to four years later.

While it's all very well to hail these banks as innovators and path breakers, it is also important to know what they offer, and how these offerings differ (See table: Get Alerted). While all of them provide transaction alerts, the ability to set amounts vary. Further, some provide alerts even on deposit maturity.

What is most important is how soon you get these alerts. ICICI Bank's alerts on transactions are instantaneous whereas HDFC Bank's alerts take some 12 hours to reach your mobile phone or e-mail inbox.

The technology. These differences do not take away the usefulness of the service. So, why have more banks not started taking advantage of the fact that they can send such alerts? It cannot be cost.

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