PAID UP VALUE

When exactly does a life insurance policy acquire a paid-up value? How is the value determined?
If premiums are paid for three years for a policy, but not subsequently, the policy is said to have acquired a paid-up value, although literally speaking, it is a lapsed policy. The paid-up value is calculated by multiplying the sum assured by the ratio of number of premiums paid under the policy and the number of premiums payable. Most policies stipulate that if the value thus calculated is lower than Rs 250, the policy is not said to have acquired a paid-up value. Once a policy acquires a paid-up value, it is disqualified from participation in future bonuses.

TERM IS BEST

Why should one prefer term plans for life insurance over unit-linked plans and Why are term plans considered the best?
Term insurance is the purest form of insurance—it provides cover only for the risk of death of the life assured. If the life assured dies during the policy period, his legal heirs receive the ‘sum assured’ under the policy; if the life assured survives the term, there is no return. The entire premium paid in a term assurance plan, that is, the cost of buying the insurance cover, is utilised for covering the risk of death of the life assured. It is for this reason that insurers offer this plan at the lowest cost. The best thing about this plan is its cost advantage. Due to this, one can afford to secure an adequate amount of coverage.

CHILDERN POLICY

I want to insure the life of my two-year-old son. Should I take a policy in his name or mine?
The basic aim of taking a policy is to provide for those who are financially dependant on the life assured. Since children do not have dependants, the purpose of securing a child policy is to save for the child’s future. An earning parent is an integral part of child policies as they have to propose the policy and pay the premiums. Different insurers offer different products. Whether you insure your son or yourself will depend on the policy you choose. The best, in our opinion, will be to insure your son under a policy, which provides for premium waiver in case something happens to you. Normally, children policies cover the risk after the deferment period, which may be two years after the commencement of the policy.

EDUCATION LOAN

I have just finished my MA in political science and want to do research from a foreign university, preferably in US, or UK. What is the procedure for taking a loan for my studies? Which banks should I approach? How do banks fix the modality for paying back the loan?
The willingness of a bank to give you an educational loan will depend on what they see as employment prospects for the course they are funding. The bank is well within its rights to deny a loan to this PhD course, after such an assessment. You will have to provide them adequate information so that the decision can be made in your favour.
For funding education, banks tend to prefer shorter duration courses, like an MBA with a campus placement, rather than longer tenure PhD courses. But you can still try your luck. Public sector banks give more education loans than private banks. If your university has high credentials, foreign banks could be interested. Several educational loans for large amounts require guarantees and collaterals, so check with the bank. Educational loans are repayable in instalments only after the borrower has begun to earn money to repay it. If you already have credentials and papers, the university will be willing to offer you fellowships to fund your studies. Most PhDs are funded by fellowships, grants for research and by tutorial earnings of the candidates. Explore these options before going for a loan.

ZERO BALANCE ACCOUNT

I had a zero balance salary bank account in my previous job. I quit that job three years back and did not operate the account after that. Recently, I got a mail from the bank saying it had debited money from my account because the account was switched from zero balance to a normal savings one and it did not have the minimum deposit for a savings account. What should I do?
The zero balance facility was linked to the fact that your employer held their accounts with the bank and, therefore, it was able to extend this facility to the employees. The facility ceases to exist when you are no longer an employee. Close the account if you do not need it or use it, or cannot maintain the required minimum balance.

You do not have any rights in this case because the facility offered to you was conditional upon your employment. Banks determine the minimum balance required based on their assessment of costs to keep and maintain an account and offer the facilities thereon. It is their business decision to fix this amount. You need to make your choice of the bank, based on your needs and abilities.;

COMMRCIAL LOAN

I want to take a bank loan to start a small grocery store. How will the bank decide the maximum amount it can give me? What can I furnish as security? I own a two-bedroom apartment. Can it be considered as security for the loan?
Banks are usually comfortable lending to an existing business, rather than funding start-ups. Some of them do have special schemes for small entrepreneurs, and may be willing to fund your venture.
The loan will be sanctioned after you have submitted a project plan, which describes the prospects for your business, and also has the information about your finances and net worth. Some banks are willing to fund up to Rs 15 lakh without collateral, provided you are able to bring in your own capital into the business. Banks usually do not offer mortgage-based loans for businesses, but the value of your home will add to your net worth and can increase your credit-worthiness. There is no standard set of practices when it comes to small business loans. Approach a bank that you are dealing with already since they know you and are familiar with your transactions.

LOAN FOR NGO

I run an NGO in Ahmedabad, which works for slum children. What are the requirements for taking a bank loan for my NGO?
Since your NGO is not involved in the activity of on-lending, you may not be able to obtain a bank loan for your activities. A bank loan is usually routed to activities that have the potential to generate cash flows, but have the constraint of mobilising a large amount of initial capital to lend in the first place. The ability of your NGO to borrow will, therefore, be limited. You may have to depend on donations to run your NGO. The Rashtriya Mahila Kosh (RMK) scheme does have some lending initiatives for education, but the procedures remain cumbersome. See http://www.rmk.nic.in/.