LIC hikes interest rates on loans and on delayed payments

Life Insurance Corporation has increased interest rates on loans against policies thereby shutting an arbitrage opportunity for policyholders. The
corporation has also increased interest rates on delayed payments. Until recently the corporation charged 9% on loans against policies. This provided policyholders an opportunity to earn a spread by borrowing from LIC and parking funds in fixed deposits of triple A rate companies such as HDFC, which offers returns of 9.5% on 15 month deposits. To avoid this, the corporation has raised interest rates to 10%.

The policy condition states that interest rates on loans would be revised from time to time, Unlike the EPFO , which allows employees to tap their retirement savings only for specific events, LIC freely grants loans to policyholders for up to 90% of the surrender value of the policy, including cash value of bonus. The only requirement is that the policy should be assigned in favour of the corporation.

Similarly in the case of interest of delayed payments, LIC has hiked interest charges to 10%. Earlier the corporation was charging 8% interest.

LIC set to revise Term cover premiums

The country’s largest insurer, Life Insurance Corporation of India, plans to reduce its term insurance rates. Term insurance policies refer to those covers where the insurance company makes a pay out only upon the death of the insured.

Although LIC’s rates for term insurance are higher than that of private insurers, the corporation has a much better track record in claim settlement.

According to the IRDA’s annual report, the claim settlement ratio of LIC was better than that of the private life insurers. Settlement ratio of LIC increased to 97.03% in 2010-11 as comparedto 89.04% for private life insurers.

Similarly, LIC had a low rejection rate of 1% as compared to 8.90% for private insurers.

At present, a 30-year-old who purchases a 25-year LIC term cover pays Rs 14,600 annually for a cover of Rs 50 lakh. This is much higher than the premium charged by private life insurance companies which are in some cases up to 40% cheaper.  Term insurance rates cannot be compared directly because in high value policies the actual premium would depend on medical underwriting and the parameters for "normal" rates vary across insurers.

LIC pays dividend to government

D.K. Mehrotra, Current-in-charge Chairman of the Life Insurance Corporation (LIC) of India, handed over a cheque for  Rs 11,37,99,41,904  to Pranab Mukherjee, Union Finance Minister, in New Delhi.

D.K. Mittal, Secretary, Department of Financial services and Nilesh Sathe, Zonal Manager, LIC North Zone, were also present on the occasion. The amount is the dividend paid by LIC to the Union Government for the year 2010-11.

Source : TOI,  Dt 16 March 2012

LIC Jeevan Vriddhi

 Source : ET Dt. 12.03.2012

Get Jeevan Cover and Higher ‘Vriddhi’ in Maturity Gains

Product Details
LIC’s Jeevan Vriddhi is a single premium policy with a 10-year term that offers guaranteed returns on maturity. The guaranteed additions are determined by the age of the policyholder and the amount of single premium paid. The death benefit in this scheme is equivalent to five times the amount of premium paid

Key Features
The guaranteed maturity benefit ranges from 4.70% to 7.09% CAGR (compounded annual growth rate) for a period of 10 years. The same is determined by the age of the policyholder at the time of investing from 8 years to 50 years.
However, in the case of single premium payments above 1 lakh, there is an increase of about 0.46% CAGR in the guaranteed maturity benefit. For single premium payments between 50,000 and up to 1 lakh, the increase in guaranteed maturity benefit is about 0.20% CAGR for a period of 10 years.

Surrender Value
The minimum guaranteed surrender value is 90% of the amount of the single premium.

Comparative Analysis
Assuming a single premium payment of 1,00,000 for a policy term of 10 years, the comparative analysis of the maturity proceeds that will accrue to various age groups from LIC Jeevan Vriddhi vis-à-vis a similar investment made in a bank fixed deposit (net of term premium to ensure life cover & taxes) is illustrated herewith:

Our View
Investors who do not currently have a term plan and are looking out for a comprehensive investment cum insurance plan can consider LIC’s Jeevan Vriddhi. As compared to the highest returns currently offered by a bank FD (9.25% by SBI for 10 years), Jeevan Vriddhi offers better gains on maturity if one were to adjust the bank FD’s returns for premium paid for term plan and income tax at the highest tax slab

Gold loans face rising frauds

Frauds are proving to be a headache for gold loan companies which are grappling with the problem of borrowers pledging spurious and even stolen metal to meet their funding requirements.

With a surge in the number of institutions which offer gold loans, companies say there is an almost proportionate increasein the probability of a fraud as a greater number of people are now aware of gold loans. Earlier if there was one case of fraud in the 30,000, today it is one in every 10,000 cases.

Unfortunately spurious and low purity gold is being detected not only with financial institutions, but the market in general.

Health, motor or property cover may cost more from April

Buying general insurance such as health, motor or property cover could cost more from April. The finance ministry has asked the national reinsurer, General Insurance Corporation, to stop underwriting loss-making businesses. The government has also said if insurers take on loss-making businesses, they should bear the risk in their books or increase premium rates.

While insurance companies have a choice in accepting or rejecting insurance proposals, GIC has to accept the risks that are passed on. In addition to the compulsory portion, insurance companies reinsure other parts of their portfolio with GIC to protect their own balance sheets.

In a communication on February 7, the finance ministry has informed GIC that it should not provide reinsurance for covers that are loss-making and, for such covers, insurers should make arrangements on their own or take risks on their own books.