ASSIGNMENT OF A POLICY

What is an assignment in a life insurance policy and how it can be made?
Assignment is a method of transferring one’s financial interest in a life insurance policy to another person or institution, including a security for repayment of loans. Assignment of a life insurance policy may be made by simply making an endorsement to that effect in the policy document. Another way of transferring or assigning the life insurance policy is by getting a separate assignment deed executed. The former case is a preferred mode of assignment as it is exempt from further stamp duty. An assignment should be signed by the assignor or his duly authorised agent specifically stating the fact of assignment and attested by at least one witness. Also, assignment of a policy nullifies the nomination of a policy to the extent of the loan amount in the event of a claim.

A/C PAYE

What purposes does crossing a cheque and writing ‘A/C payee’ on it serve? In which cases is it essential?
Crossing your cheque is the best way to ensure that it’s ultimately paid to the right party. The objective of crossing a cheque is to ensure that the drawee bank (that is, your bank) does not cash it, but pays it to a banker presenting it for payment (which should be the bank of the payee, the party you are paying). The benefit of this is that it enables you to trace the path of the cheque through the banking system and to identify the person who finally presented it for payment.
On the other hand, A/C payee means that the amount mentioned in the cheque can only be credited in an account of the concerned person/institution. In such cases the cheque cannot be encashed across the counter. Ideally, whenever you make cheque payments, you should cross it and make it an A/C payee. Apart from these things, you should not leave any unnecessary gaps in the cheque while writing words and figures. Don’t forget to strike out any blank spaces after you have written the name of the person to whom you are making the payment and the amount that has to be paid. Also, strike out the ‘or bearer’ option.

CREDIT INFORMATION BUREAU (CIBIL)

What is the procedure of obtaining one’s credit report from Credit Information Bureau (Cibil)?
The facility of credit scores for individuals was recently launched by Cibil in association with TransUnion. As a result, any individual who has been using any line of credit (home loan, personal loan and credit card) for a minimum of six months will have a credit score. However, this score cannot be shared with individuals at present. Once the Reserve Bank of India (RBI) comes up with guidelines in this respect, credit scores will be available to individuals.

CANCER COVER POLICY

My sister was suffering from cancer in 2004 and she got treated for it. She is disease-free now. She is 39 and I want to take a medical cover for her. Will the policy cover cancer too? Please suggest a good cashless health policy.
As the doctors have declared your sister disease-free, she can opt for any cashless mediclaim with any insurer, which will insure her against any hospitalisation expenses that may arise in future. Please remember that all such schemes reimburse hospitalisation expenses for illness, diseases or injury sustained and exclude any disease existing before taking the policy. For taking a mediclaim policy, normally all general insurance companies conduct medical tests and require the insured to fill a questionnaire giving details of his previous medical history along with his family’s health history. In order to avoid any future problems, your sister must declare that she suffered from cancer. Normally, it will be classified as pre-existing unless you are able to satisfy the underwriters beyond doubt about the complete cure of the disease. If the underwriters are satisfied, they may extend cover to cancer too.

OVERSEA MEDICLAIM POLICY

What are the basic requirements for obtaining a overseas mediclaim policy? Should one go for it?
You only have to approach an insurer with your passport and a visa (where necessary) and complete a proposal form provided by the insurer. Beyond a certain age, depending on the requirements of the underwriters, you may also have to undergo prescribed medical tests. Depending on the medical reports, certain pre-existing medical conditions may be excluded from the scope of the policy.
As far as the necessity of the cover, in certain countries, it is mandatory for a visitor to be covered under a health insurance policy. In its absence, one may run the risk of repatriation or quarantining at the airport itself. Besides, medical treatment is expensive overseas and can become a major financial strain in case of any emergency or accident. For a small premium paid in the Indian currency, payment of claim in foreign currency of the country, where a claim arises, is disbursed.

IDEAL INSURANCE POLICY

I am 28 and have a one-year-old child. My annual income is Rs 10 lakh. What should be the ideal sum assured in my policy?
Basically, when you decide on a sum insured, you look at a lump sum which should be available to your financial dependents in the unfortunate event of your death. Therefore, there is no fixed rule for deciding the sum insured. The major factors influencing its determination are present and future income, expenditure, investible surplus and existing amount of savings. Go for a term plan and a pension plan. The term plan will help you secure an adequate amount of risk cover at a relatively lower premium outgo. In a pension plan, as your vesting age will be 30 years or so away, you will have to invest a lower amount for a decent pension than if you did later.

FIXED OF FLOATING RATE WHICH IS BETTER

Is a fixed rate home loan better or a floating rate home loan?
A fixed interest rate is one that remains unchanged during the entire tenure of the loan. Most banks give fixed rate loans with a reset clause. In such a case, the bank resets the interest rate after a specific time period, usually five years or so.
Unlike the ‘fixed’ interest rate on home loan; floating rates will be changed by the bank. This interest rate is lined to a benchmark rate and, hence, moves up or down along with the benchmark. Most banks do not offer genuine or transparent floating interest rates.
To check whether the bank offers transparent floating interest on home loans, request for its record of benchmark rates. This data will help you whether the bank has actually passed on the benefit of reduced rates to its existing consumers at the time when the lending rates fell rather dramatically.
We strongly recommend the option of transparent floating interest rates to you as these loans are at least 2 percentage points cheaper than a comparative tenure fixed rate home loan. Also, there is safety in numbers as more than 90 per cent home loan consumers seek floating rates.
Also, you get the benefit of reducing interest rates as (not if) and when the interest rate cycle turns and commences on its downward journey. Even if the interest rates rise, in the interim as long as they do not rise above the 1 per cent differential; you are still a net gainer.

TAX EXEMPTION ON THE SECOND LOAN

If a person buys a second house, will he get tax exemption on the loan taken for it?
Yes, you can get tax deduction on repayment of loan. Even if the second house is vacant, it can not be treated as self-occupied since that status is given only to one house.
The tax department requires that you pay tax on the notional rent on at least one of the houses. Notional rent is the rent you would have got had you given your house on rent. As an owner of two houses, you can choose any one of the two houses as a “self-occupied property” and the other will be taxed on the basis of notional rent. You can also change your choice from year to year.
The income from such a home will be calculated after deduction of the interest payable on the loan as well as a standard deduction equal to 30 per cent of such notional rent. Since this house is treated as being rented out, for income tax purposes, the deduction for interest is not limited to Rs 1.5 lakh in respect for the loan taken for this house.
The income or loss from the second house, calculated separately as above, is aggregated with the loss arising due to the deduction of interest payment in respect of the first house and the net result (which can either be income or loss) is the “income from house property” (as earlier, if it is a loss it can be set off against other heads of income).
The entire principal paid on both the loans will be eligible for deduction under Section 80C, subject to the overall cap of Rs 1 lakh.

HIGH INTEREST RATES

My bank is charging a higher rate of interest on my home loan because of my past credit record. Is the bank within its rights?
Banks charge an interest rate on a product based on the profile and loan requirement of the customer. If you have defaulted on any of your payments in the past, this will have a negative impact on your creditworthiness. In such a case, the bank may charge a comparatively higher interest rate than what you could get with a clean repayment record. So, the bank is within its rights to charge you a higher rate.

MEDICLAIM FOR MOTHER

My mother is 65 years old and I had taken an insurance policy from Park Mediclaim for her. Recently, she fell seriously ill and the doctor recommended her a treatment from home only. A nurse and doctor were visiting her regularly for more than 10 days and were monitoring her health. As she was not hospitalised, can I still make a claim for medical expenses?
Yes, you can make a claim on the basis of doctor’s recommendation for home treatment instead of hospitalisation. This kind of treatment is called domiciliary hospitalisation, which means medical treatment given to the patient at home on the recommendation of the attending medical practitioner for a period exceeding three days for such an illness, disease or an injury, which in the normal course would require care and treatment at a hospital. This is normally applicable when the condition is such that the patient cannot be admitted to the hospital due to lack of accommodation in the hospital/nursing home or the condition is such that the patient cannot be removed from home and admitted to a hospital.

NO CLAIM BONUS

What is a no claim bonus? I got my new car insured but it got scratched. What is more beneficial: getting this small claim or a no claim bonus next year?
No claim bonus is a discount in premium given at the time of renewal of the policy if the insured does not file any claim of insurance during the last year. If you make a claim this year, you cannot get no claim bonus next year and will have to pay the same or a higher amount of premium next year. In your case, you can choose not to file for claim. Motor insurance is basically done to cover the cost of damages and it makes sense not to worry about the discount in premium if the damages exceed the savings made in premium by getting a no claim bonus.

RETIREMENT PLANS

I am 25 and a broking firm employee with a salary package of Rs 2.4 lakh plus per annum. I want to invest in monthly or quarterly plans for my retirement. Which ones would be best for me? How good would be unit-linked plans from Bajaj Allianz?
You may opt for a pure pension plan with an insurance cover. A pension plan has typically two components, that is, the insurance and the annuity, which is paid in the form of pension. On the investment front, when you buy a pension plan, it works like a deferred annuity, which would start after the lapse of certain period of time. Till that time period, the insurance cover is prevalent. At the time annuity is about to start, the insurer enters into another contract with the insured with respect to the payment of pension/annuity. The difference between a guaranteed (pure) pension plan and a unit-linked plan is the amount of return, that is, pension assured by the insurer at the time of vesting. In unit-linked pension plans, there are no assured returns and your money is invested in equity and other funds as chosen by you and its return shall depend on the future performance of the fund.

LIFE INSURANCE

I am 26 and want to buy a life policy with maximum cover at minimum cost with tax benefits. Please suggest one.
The best option for you is to go for a pure risk cover. Term insurance is a pure risk cover that takes care of the risk to your life and is designed for those who are interested solely in death benefit and do not want any maturity benefits or returns. The premium in it is quite low as compared to other plans as it gives no return; meaning, if the policyholder survives the tenure, he receives nothing. The premium paid on these policies also qualifies for deduction under Section 80C of the Income Tax Act, 1961. The maximum deduction allowed under this section is Rs 1 lakh. Choose the policy which comes with highest tenure and lowest cost.