An Equity Linked Savings Scheme (ELSS) is a mutual fund scheme primarily focused on investments in equity and equity-related securities. ELSS funds are strategically structured to enable investors to reduce their tax liabilities under Section 80C of the Income Tax Act in India. In this article, we will provide an extensive examination of ELSS mutual funds.

                                                                                                                                                        Subas Tiwari                                                                                                                                                                               In comparison to Fixed Deposits or the National Pension Scheme (NPS), Equity Linked Saving Scheme (ELSS) provides numerous tax-saving benefits while also delivering higher returns. Mutual funds, including ELSS, typically yield greater returns than FDs or NPS. Consequently, individuals who invest in ELSS funds or equities tend to regard ELSS as a more effective option.

Imagine the advantages of accumulating funds while also enjoying a substantial tax exemption. Tax exemptions essentially translate to savings, which can then be strategically allocated to other financial objectives. A similar program, known as Equity Linked Saving Scheme (ELSS), allows individuals to save up to Rs. 46,800 in taxes.

ELSS is an investment fund that offers optimal returns within a minimal lock-in period. It is predominantly composed of stocks from large and medium-sized companies. ELSS has been thoughtfully structured to simplify tax-saving for investors. Over an extended holding period, it presents significant potential for growth and enhanced returns. This fund boasts various appealing features; for instance, you can initiate investments with as little as Rs. 500, and it accommodates systematic investment plans (SIPs). The fund comes with a minimum lock-in period of 3 years, meaning you can easily exit the fund and access your funds after this period. The most noteworthy feature is that this fund empowers taxpayers to potentially save up to Rs. 46,800 in taxes.

Fund’s salient features

There is a specified range for the minimum deposit amount in this tax-saving fund. In this particular fund, you can commence your investment with as little as Rs 500, and the upper limit for your deposit is capped at Rs 1, 50,000. Your earnings from this fund are contingent on both your deposit amount and the prevailing market conditions. Considering the performance over the past year, it has been promising, with mutual funds, as well as equities, delivering favourable returns.

Multiple benefits with single investment

Indeed, an Equity Linked Saving Scheme (ELSS) is a tax-saving fund that predominantly allocates its funds to equity schemes. Equity funds are investment schemes that channel funds into the shares of various companies. The selection of companies for investment is typically based on their market capitalization, and the fund’s assets are distributed among these companies. If an individual consistently invests Rs 1.5 lakh in an ELSS every year, they can avail a tax saving benefit of up to Rs 46,800 under section 80C of the Income Tax Act. It’s important to note that while the tax benefit is capped at Rs 1.5 lakh, you are indeed allowed to invest more than this amount in ELSS if you choose to do so.

Why invest in ELSS?

ELSS is considered to be much better than those who follow the traditional methods of tax saving. Compared to Fixed Deposit or NPS, ELSS offers many tax saving facilities along with giving higher returns. Mutual funds earn more than FDs or NPS. Therefore, people who invest in ELSS funds or equities consider ELSS to be more effective. The biggest thing is that the lock-in period of ELSS is very less as compared to FD or NPS. That is, the possibility of high returns in a short time can be found in ELSS.

Who can invest?

ELSS can be invested by any person who wants to reduce his income tax under section 80C by investing money in tax saving scheme. It is an equity investment, so those who invest money for a long term and expect returns, who are less concerned about market risk, can make the most of this fund. Since ELSS has a lock-in period of 3 years, the fund is taxed on the basis of long-term gains. If earning more than Rs 1 lakh then interest of 10% will have to be paid.

More work with less investment

You don’t have to contribute a substantial amount of money all at once to participate in this fund. You needn’t worry about having to make a large initial deposit to benefit from this tax-saving program. You can join this scheme with a minimal investment. By averaging your contributions to this fund every year, you can start your investment journey with the same amount of money. You’re not required to make substantial payments per unit of the fund. If you prefer, you can begin your investment with as little as 500 rupees, and this approach also fosters a disciplined investment strategy.

What are ELSS funds?

ELSS is a mutual fund scheme & is quite similar to diversified equity fund of Mutual Fund. As the name suggests, the scheme primarily invests in equity market by buying equity stocks of companies listed on the stock exchanges. The units of the scheme are offered at the NAV (Net Asset Value). The NAV is announced for all business days and keeps changing primarily depending upon the movement in the prices of stocks held in the portfolio of the scheme in relation to market fluctuations. Mutual Fund ELSS is a good tax-saving instrument but still is not invested in large numbers by tax-savers. So, this article is just to wake them up & take notice of this tax-saving investing option so that there is maximum participation of the public from all walks of life.

What is the urgency to invest in ELSS?

It is most likely that the Direct Tax Code (DTC) proposed by the Government will come into effect (sooner than later), and your most dependable tax saving section – Section 80C of the Income Tax Act would undergo amendments. While the DTC includes a proposal to increase the eligible deduction under Section 80 C, Equity Linked Savings Schemes (ELSS) -also known as ‘tax saving mutual funds’, would no longer continue to be a part of eligible tax saving instruments, thus leaving you with fewer market-linked investment options to accelerate the process of wealth creation.

Who are advised to invest in ELSS?

YES. This is an important aspect of tax-planning especially when you look at ELSS as a tax-saving option. The following are the factors that could be considered.

Those who have clear & focused financial goals

If you have financial goals set in your life, the same too should influence the way you do your tax planning and invest in tax saving instruments. So, say for example your goal is retiring from work 5 years from now, then your tax saving investment portfolio should be less tilted towards market-linked tax saving instruments, as you are quite near to your goal and your regular income will cease. Likewise, if you are many years away from the financial goal, you should ideally allocate maximum to market-linked tax saving instruments and less towards those instruments (tax saving) which provide you assured returns.

Those who have risk appetite

It refers to your ability to take risk while investing, and it is totally dependent on your age, income, expenses, and nearness to your goal. So, if your willingness to take risk is high (aggressive), you can tilt your tax saving investment portfolio more towards the market-linked instruments such as ELSS. But if you have a moderate-risk profile, then you can take a mix of 60:40 into market-linked tax saving instruments and assured return tax saving instruments respectively.

Thus, now if you are young, income is higher, and therefore willingness to take risk is highest along with your financial goals being far away; you may look at ELSS mutual funds to avail a tax benefit under Section 80C. Please note that ELSS mutual funds are 100% diversified equity funds and a distinguishing feature about them is the compulsory lock-in period of 3 years brings in financial discipline towards holding one’s investments for the long-term. For investment in ELSS, there is a minimum investment amount of Rs. 500 which is unlike the other equity-oriented funds (which generally demand Rs. 5,000 as the minimum investment amount).

What should be the income bracket to enter investing?

It is said that if your income is high, your willingness to take risk is generally high. This can work in your favour, as you can allot your portfolio more towards equity-related instruments such as ELSS, and make your portfolio appear more aggressive. Similarly, if your income is not high enough, you can invest in other tax-saving instruments which provide you assured returns.

At what age should one begin investing?

Your age should determine your asset allocation. If you are young, you can take more risk and vice-versa. Hence, for prudent tax planning too, if you are young, you should allocate more towards market-linked tax saving instruments such as ELSS. Moreover, you would also enjoy the advantage of greater investment tenure which would enable you make more aggressive investments and create wealth over long-term to meet your financial goals. 

How to select ELSS funds?

Ideally while evaluating ELSS mutual funds, one should assess their performance over a 3-year time frame, as this would enable you to judge whether they have created wealth for your post- lock-in period.

Moreover, the fund has to ensure to its investors to fairly low-risk, but should provide risk-adjusted returns thereby making it a low risk-high return investment proposition in the category. Also, the returns should have been achieved by the Fund without indulging in much portfolio churning.

What are the benefits of ELSS MF?

Tax benefit on the Investment

You can get full tax benefit of investment under section 80 C of Income Tax Act. Maximum taxable limit is Rs. 150000 for the current Assessment Year.

Shortest lock-in period (period during which payment will not be made if you go in for tax benefit)

Lock-in period of ELSS is 3 years which is shortest in comparison to any other tax saving investment. This lock-in period is the only difference between diversified equity mutual funds & ELSS. When compared to Bank tax-saving FDs, ELSS scores over them as Bank FDs have a lock-in period of 5 years.

Tax-free returns

Any profit/ capital gain you have from ELSS is completely tax free. If you compare the returns from NSC & Tax-Shield Bank FDs, these are completely taxable & paid interest is added to your income for tax computation. So, you end up paying tax on interest received. Only PPF offers tax- free returns but it has a maturity period of 15 years.

Tax free dividends

ELSS schemes give dividends on regular intervals and the dividend you receive is tax free.

No entry loads

Say if you invest Rs. 15000 in ELSS Scheme, your Rs. 15000 is invested in ELSS Mutual Fund. You have to decide how much want to pay your financial advisor. Take a word of caution: some insurance agents sell ULIPS as Mutual Fund + Insurance with lots of ‘load’ expenses.

High growth

Equity funds can be volatile in the short run, but have been known to beat inflation and create wealth over the long run. If you are looking at investing some money that you won’t need in future, and are willing to stand atop the ups and downs of the market, you may find ELSS an ideal tax saving option.

Systematic Investment Plan (SIP) in ELSS

In SIP, you invest a certain amount each month in a fund. It’s an effective way of investing in ELSS as the concept of rupee cost-averaging and the power of compounding works well. Even if you have done your tax planning for this year, start from 1st AUGUST, 2015.

Comparison with Unit-Linked Insurance Plan

The investors & tax-saving public sometimes think of ELSS funds and ULIPs as alternatives. This is a mistake as functionally, there is nothing common between ELSS funds and ULIPs. It’s a basic rule of saving to not mix up insurance and investments. ELSS and ULIPs are two different products that serve different purposes.

Where do ELSS stand as a preferred fund for investment?

ELSS stands out as a favored tax-saving choice for savvy investors. It not only offers diversification through its equity investments but also comes with a relatively short lock-in period of just 3 years from the date of investment. The returns generated from ELSS investments are closely tied to the performance of equity markets. Furthermore, the returns from ELSS schemes are tax-free.

In recent years, some of these funds have demonstrated exceptional growth, multiplying in value by three times within a 5-year period. It’s worth noting that there is no specific limit on the amount you can invest in ELSS funds. However, you can claim a tax deduction of up to Rs. 1,50,000 under Section 80C of the Income Tax Act.

It is always better to invest-

• via SIP mode rather than lump-sum (for cost-averaging)

• in GROWTH options (for wealth accumulation)

• in DIRECT Plan (to save costs & higher returns)

ELSS vs. NPS vs. PPF

ELSS (Equity Linked Savings Scheme), NPS (National Pension System), and PPF (Public Provident Fund) are all popular tax-saving investment options in India. Each of these options has its own set of features, benefits, and limitations. Here’s a comparison of ELSS, NPS, and PPF to help you make an informed decision:

1. Nature of Investment:

ELSS: ELSS is a mutual fund scheme primarily investing in equities. It aims for capital appreciation and carries market-related risks.

NPS: NPS is a retirement savings scheme that allows you to invest in various asset classes, including equities (up to 75% of the contribution in Tier I account). It is designed for building a retirement corpus.

PPF: PPF is a long-term fixed income investment scheme offered by the government. It offers a fixed interest rate and is considered a safe investment option.

2. Lock-in Period:

ELSS: ELSS has a lock-in period of three years, which is the shortest among the three options.

NPS: NPS has a lock-in period until retirement (with some exceptions). Partial withdrawals are allowed under specific circumstances.

PPF: PPF has a lock-in period of 15 years, but it can be extended in blocks of five years indefinitely.

3. Tax Benefits:

ELSS: Investments in ELSS are eligible for a tax deduction under Section 80C of the Income Tax Act, up to ₹1.5 lakh per financial year. However, returns from ELSS are subject to long-term capital gains tax.

NPS: Contributions to NPS enjoy tax benefits under Section 80CCD (1) and Section 80CCD (2) of the Income Tax Act. However, there are restrictions on withdrawals, and the maturity amount may be partially taxable.

PPF: PPF investments and interest earned are both eligible for tax deductions under Section 80C. Additionally, PPF returns are tax-free.

4. Risks and Returns:

ELSS: ELSS investments carry market-related risks. Returns can be higher but are subject to market fluctuations.

NPS: NPS offers a mix of asset classes, including equities, which can provide potentially higher returns than PPF but with some risk.

PPF: PPF offers fixed, guaranteed returns. It is a low-risk investment but typically provides lower returns compared to ELSS and NPS.

5. Flexibility:

ELSS: Offers flexibility in terms of investment amount and frequency (through SIPs). Post-lock-in, you can redeem or switch your investments.

NPS: Provides flexibility in asset allocation and contribution amount. It is designed for long-term retirement planning, so withdrawals are restricted.

PPF: Offers flexibility in terms of contribution amounts and frequency but has a long lock-in period.

6. Purpose:

ELSS: Primarily used for wealth creation and tax-saving goals.

NPS: Designed for long-term retirement planning and building a retirement corpus.

PPF: Suited for long-term savings, particularly for conservative investors.

7. Liquidity:

ELSS: Becomes liquid after the three-year lock-in period.

NPS: Generally, not liquid until retirement, with some exceptions.

PPF: Offers partial withdrawal options from the seventh year onwards.

The choice between ELSS, NPS, and PPF depends on your financial goals, risk tolerance, and investment horizon. Many individuals opt for a combination of these investment options to balance risk and returns while achieving their financial objectives. Consulting a financial advisor can help you create a tax-efficient and diversified investment portfolio based on your specific needs and circumstances.

Tsunamis are massive sea waves triggered primarily by earthquakes that occur under the sea. A considerable amount of water may be displaced when an earthquake or volcanic activity occurs. Waves are formed when water is disturbed. When these waves approach shallow water in coastal locations, they become high and crash into the shoreline. Tsunamis wreak extensive devastation to people and property.                                                                                                                                             

SubasTiwari     

Following the tsunamis that struck Japan and India in 2004, a debate arose as to whether insurance coverage for tsunami is available in India. Tsunamis have been reported in India as long back as 1762 AD. The Indian peninsular is covered by the water bodies on three sides; therefore, those staying in the coastal area in earthquake-vulnerable areas require a tsunami insurance coverage. Coverage for tsunami insurance is not required if you are living in the inlands, comfortably far away from the sea.

Sadly, insurance companies are yet to provide a tsunami policy and the world over, the only option for tsunami insurance is through coverage provided for natural calamities like flood, landslide, earthquake, volcanic movement, etc.

The term ‘tsunami’ and ‘tidal wave’ is the same thing. The world ‘tsunami’, a Japanese word was created by the scientific community to distinguish tsunami damage from other forms of flood and earthquake damage. Earthquakes, submarine landslides and volcanic eruptions are some of the sources of these killer waves.

Why no Tsunami insurance Cover?

A characteristic that distinguishes tsunami from most other major hazards is that it does not occur from one cause. As some experts say, to define tsunami as a result of earthquake only is a narrow definition. While ‘earthquake’ is a narrow term to define the cause of tsunami, ‘earth movement’ is a broad term that includes earthquakes, landslides, rockslides, mudslides, subsidence, etc. Therefore, it is better to take insurance for both flood and earthquakes.

 Tsunami Prone Areas in India

The government has identified a list of areas prone to tsunami in India on eastern coast. These include –

1) Puri
2) Kakinada
3) Machilipatnam
4) Nizampatnam-Vetapalem
5) Chennai
6) Cuddalore-Pondicherry
7) Rameshwaram
8) Thoothukudi
9) Alappuzha-Chavara
10) Kochi

You should know that tsunamis aren’t common in India due to their geography. However, India isn’t immune to tsunamis. Past records show the tsunami-affected areas in India that suffered a major blow. These tsunamis originated in the Indian Ocean.    

How to Prepare for a Tsunami

1) Before a Tsunami

• One should get ready before a tsunami strikes. It will help reduce damage to your home and business, it will also help you to survive.
• Ask your council about your tsunami risk. If you live in a coastal area, always keep a check on the local warning arrangements.
• If you have a disability or special requirements, arrange with your support network to alert you of any warnings and emergency broadcasts.
• Always advance a Household Emergency Plan and have a Getaway Kit ready with you.
• Know where the nearest high ground is and how you will reach it. Plan to get as high up or as far inland as you can. Plan your escape route for when you are at home, as well as for when you may be working or holidaying near the coast.

2) During a tsunami

• If possible, keep your getaway kit with you if possible. Do not travel into the areas at risk to get your kit or belongings.
• Try to take pets with you if you can do so safely.
• One should move instantly to the nearest higher ground, or as far inland as you can. If you have evacuation maps handy, follow the routes shown.
• Walk or bike if possible and drive only if essential. If driving, keep going once you are well outside the evacuation zone to allow room for others behind you.
• If in any case, one cannot escape the tsunami, then he/she should go to an upper storey of a sturdy building or climb onto a roof or up a tree. Or grab a floating object and hang on until help arrives.
• One should remember that boats are usually safer in water deeper than 100 metres than if they are on the shore. Always move boats out to sea only if there is time. It should be safe to do so.
• Never go to the shore to watch for a tsunami. Always try to stay away from at-risk areas until the official all-clear is given.
• Listen to your local radio stations as emergency management officials will be broadcasting the most appropriate advice for your community and situation.

3) After a tsunami

• Always try to be connected to the radio for civil defence advice and do not return to the evacuation zones until authorities have given the all-clear.
• Be aware that there may be more than one wave and it may not be safe for up to 24 hours, or longer. The waves that follow the first one may also be bigger.
• Check yourself for injuries and get first aid if needed. Help others if you can.
• Do not visit for any sightseeing.
• One should extreme caution while re-entering homes or buildings, floodwaters may have damaged buildings. 
• Be sure to take notes and photographs for insurance purposes if the building gets into damage state. If you rent your property, contact your landlord and your contents insurance company as soon as possible.

A tsunami is actually a series of waves. One must not go to an affected coastal area until it is declared to be safe by authorities.

Sourced: https://www.vedantu.com

Types of possible insurance coverage

What does the policy against calamities cover?

Who among earthquake victims can claim insurance benefits? For what?

What should be done to fine-tune insurance sector for India-specific situations?

TAC* Rates for earthquake

It is very important to have a roof over the head. Having your own house automatically reduces many problems. Along with this, the care and maintenance of one’s own house is also in one’s own hands. At the same time, to protect your home from any kind of natural calamity, home insurance is also very important.

                                                                                                                                    Subas Tiwari

Due to natural calamities like flood and earthquake, there is a lot of loss of life and property. The worst thing is that these disasters never come without warning and when they do come, the scene of destruction is also horrifying. Many times due to natural calamities like floods, earthquakes, houses and even the biggest buildings have been seen to be destroyed. In such a situation, it is necessary to take home insurance to avoid any untoward incident and loss.

Why it is necessary?

What do you understand when you are told to take a household package insurance policy? A layman like you could only guess- it is for households where insurance cover is available on the happening of an unfortunate event. If it is not enough & the policy coverage is wider than this understanding, does that mean that the wider scope needs to be fully understood? YES, that’s why we are offering here a deep insight into this whole gamut of household insurance to understand the concept & applicability in real-life situations for the average consumer.

Read this article fully to get some knowledge awareness & education so that when the need arises (events come without advance notice), you are not left high & dry and that you are fully competent to deal with the situation for your benefit. If you have already bought a policy, you can assess whether you have the best policy on hand.

What it means for household effects?

Coverage for household effects means insurance cover against accidents due to fire due to short-circuits, or theft of household goods, theft of jewellery, household appliances, etc. There are 3 insurable components in a home insurance – the structure (building), the contents (material assets) and people (family members and third party). You can get a specific coverage either for the structure or the contents of your home. You can also opt for a comprehensive coverage that includes both the structure and the contents. Home Insurance provides coverage for the loss or damage to your personal property and possessions against natural and man-made calamities as under. IRDA calls this type of insurance as ‘Property Insurance’.

(i)Natural- Fire, Storm, Earthquake (see BOX), Tornado, Cyclone, Flood, Landslide, Lightning, etc.

(ii)Man-Made -Fire, Burglary, Theft, Aircraft Damage, Malicious Damage, Terrorism, Strike, Riot, Explosion, etc.

Perils Covered

Allied (special) perils covered under a Fire Policy

Insurance against fire is invariably linked to perils associated with it such as fire damaging fixed glass, breakdown of domestic appliances (TV,VCP/VCR/DVD, PC, Laptop) pedal cycle, baggage, payment of professional fees paid for reconstruction after damage, rent paid on relocation due to damaged house, loss of documents (Passport, Driving License). It also includes damages caused by fire, lightening, explosion/implosion, aircraft damage, riot, strike, malicious & terrorism damage, storm, cyclone, typhoon, tempest, hurricane, tornado, flood & inundation, impact damage, subsidence and  landslide including rock-slide, bursting and/or overflowing of water tanks, apparatus & pipes, missile testing operations, leakage from Automatic Sprinkler Installations, Bush fire & Earthquake (fire & shock). So, if you take a household policy with fire cover, you are automatically covered for all these perils.

Benefits covered in a Burglary Policy

Burglary or theft to home, robbery/dacoity of the contents of the home, contents that has been placed in safe custody during temporary absence from home, contents that have been removed to private accommodation (other than one’s home) that is being occupied by insured/his family for the period of insurance, impact damage by falling trees/electric poles/lamp-posts, breakage or collapse of television or radio aerial/satellite dishes & damage by civic authorities in prevention of fire. When you buy a burglary policy, you are protected against burglary, housebreaking, theft & larceny, damage to your house or safe due to burglary/housebreaking.

Can articles in bank lockers be covered?

No. This household policy only covers material assets which are housed where you stay. So, locker contents in a bank cannot be covered. However, there are insurance companies which offer a separate policy insuring such locker contents in a bank. 

Can it cover Home Loan amount?

Except one private insurer, the insurance cover on a home loan amount taken for the construction/outright buy of a flat/apartment is not available under this policy. However, banks have been offered a tailor-made policy insurance cover for death/disability due to personal accident of the borrower covering the outstanding amount of the home loan by the insurance companies which have a tie-up. This cover helps the legal heirs in not getting the burden of the home loan repayment, as the insurance company directly remits the claim to the loan account of the deceased borrower.

What are the Exclusions?

(1) Exclusions in the structure – Property under construction, residential property used for official/business purposes and kachcha construction (Third Class).

(2) Exclusions in the contents – Books, manuscripts, money (some do not cover them), bonds, shares, securities, consumables, vehicles, etc.

(3) Willful destruction of property,

(4) Loss, damage, or destruction caused by negligence, wear and tear, civil war and nuclear weapons, etc.

(5) Terrorism (some of the insurance companies load extra premium for covering this insurance risk).

Under what circumstances, extra premium becomes payable? 

Customers can opt for plans in which the sum assured is increased by a certain percentage every year. A few insurers offer this plan, with a nominal add-on premium. Otherwise, based on risk-assessment of a structure, material assets, etc., insurance companies load additional premium. Extra premium also becomes payable if you include domestic servants on permanent employment (maids, drivers, etc.) which are called “Legal Liability towards servants/third party”.

What are the inclusions without extra premium payment?

Expensive belongings, electronic goods such as laptops, televisions, etc., precious goods like gemstones, jewellery, etc., appliances such as washing machine, refrigerator, kitchen appliances, furniture and furnishing items, personal accidents, etc. But insurance cover inclusions vary from company to company & cannot be standardized.

Period of the Insurance Policy

Generally, the term of home insurance is one year & renewable thereafter, but a few insurers offer plans up to a term of 3 years.

Advantages of a Home Insurance Policy

• Since almost all insurance companies are offering online policies, it becomes easier to buy a policy from the comforts of your home.
• Complete peace of mind regarding your property /investments.
• When you are away on holiday/tour/going abroad for a longer stay, you can go without thinking about your home & its safety.
• For a nominal premium (approx. Rs.0.50 paisa per Rs.1000), it is the cheapest of the premiums in an insurance policy.
• Some of the insurers are offering discount on premium (even up to 50%) if one takes a long-term policy.
• All unintentional damage to structures/assets is adequately compensated with repairs/ reimbursement of rent paid on lease (up to one year), transportation costs involved, therebyminimizing the hassles and documentation.

Limitations

• Perils covered are not uniform thereby the consumer is not able to take an informed decision quickly while comparing the home insurance product on offer.
• Sum insured & premium cannot be clearly defined as it is based on risk-assessment of building (value, age & class of construction), material assets and additional insurance covers.
• Individual ceiling on compensation on each item damaged thwarts full compensation of costly items.
• Structural damage due to earthquake (fire & shock) are covered in some of the policies but seldom settled in a home insurance claim.

Complicated Issues & Solution

(1) Why should anyone insure a building? Fire cannot possibly do any harm to the building.

Fire and other perils (normally covered under a fire insurance policy) can cause loss/damage to buildings. There have been fire accidents that have completely destroyed multi-storied buildings. Floods can also bring about devastating losses. Similarly, riots and acts of terrorism can also produce huge losses to human lives as well as property.

(2) One has taken an insurance policy covering his building. The bank which has financed his business has also taken insurance separately. Both policies are in force covering same property. How then is a claim settled?

In the event of a claim, each insurer will pay the loss amount in proportion to the Sum Insured under their respective policies, in accordance with the principle of contribution. The object of the principle of indemnity is to place the insured in the same place as he occupied prior to occurrence. Insured is prevented from making claim for full amount of loss under each policy. Insurance company indemnifies the insured only to the extent of actual loss suffered subject to depreciation, policy excess etc., and not permit to make profit out of a loss.

(3) One wants to cover his household goods against burglary when he is away. Can he get a burglary insurance policy?

A burglary insurance policy covers goods against the risk of burglary. A burglary insurance policy may also offer extension of cover against theft. A burglary insurance policy will usually cease to operate if the house is not occupied beyond a certain defined period unless you have intimated the insurance company and they specifically agree to extend the cover even when the house is not occupied. It is a good idea to ensure that you have a burglary policy always rather than opting for one only when you are away. You might not get one if you want to ensure to insure the contents only when the house is locked.

(4) One needs to cover his jewellery. What policy should he take?

Insurers offer ‘All Risks’ policy for covering jewellery. You must ensure that your jewellery is valued correctly and you are able to show proof of valuation should a claim occur. An All Risks policy also has exclusions, so go through the terms and conditions thoroughly.

Conclusion-Obligations of the insured

Every insured is expected to behave as though he is uninsured. It is better to take all precautions to prevent / aggravate the loss. After lodging an FIR with your area Police Station, please inform Insurance Company also who have to be given an opportunity to inspect the damages. You have to first call the Fire Brigade also who will assist you to put out the fire. During firefighting, any damage caused to other insured property caused by water, will be paid by the Insurance Company. It is beneficial to extend cooperation to surveyor while inspecting and assessing the loss. If arrival of surveyor is likely to be delayed, then, you can take photos / and shift unaffected assets to a place of safety. Please give completed claim form and documents as required by Insurer, in support of your claim. After repairs / replacement, you have to submit bills to the Insurer.

Nowadays people are getting more attracted towards seasonal employment or business instead of regular salary job. In such a situation, they do not know whether they will have the capital to pay regular premiums or not. That’s why the trend of single premium insurance policy has increased a lot. In single premium insurance policy, you do not have to pay premium from time to time. You get rid of the hassle by paying the amount once, so at first sight this policy looks better.

                                                                                                                              Subas Tiwari

A single premium insurance plan is one in which the policy premium is paid only once during the term period of the plan. These plans provide a life cover on payment of a onetime lump sum premium amount.

 How do single premium term insurance plans work?

 As the name indicates, single premium plans are policies that need you to pay the premium just once and never again during the remaining term of the policy and continue to enjoy the cover for the full term of the insurance policy. Obviously, in the case of single premium policies, the premium that you pay upfront will be a larger amount.

Are they good?

• The policyholder thinks that he will pay the premium just once in his life and it’s all done. The thought does have some merit because paying premiums regularly each year calls for discipline. If you miss it, then your policy might lapse.
• For regular payment of premium, you need to have the money in the bank account to keep the policy alive. So paying the premium just once is easy.
• Many investors buy regular premium-payment policies during the tax-saving season (January to March each year) as a tax saving instrument rather than for protection, which is not what insurance is meant to be.
• For people with fluctuating income, this is possibly one of the best instruments available today. Single premium is simply a mode of payment and comes handy for those with shorter career spans.
• People who have made some windfall gains or are sitting on huge investible surplus prefer single premium plans.
• These plans are suitable for those who do not wish to make recurring payments or fear lapse of the policy.
• If you have a sizable amount such as bonus, proceeds from sale of property, etc. and want to invest one time for life cover for a particular term, then this plan would suit you.

What else do they give?

• These are tax savings instruments as the premium paid is allowed as Section 80C deductions. You are entitled for a tax free maturity/death benefit under Section 10 (10D) only if the minimum sum assured throughout the policy term remains 10 times the single premium paid.
• The tax benefit under Section 80 C is available only if the annual premium is at least 10% of the sum assured.
• But to avail tax benefits every year, you may have to buy such policies every year, which is not always practicable.
• Bonus is paid on the declared rate every year, thereby enabling the paid-up value to grow.
• Loan is available against this type of policy either from the Insurance Company itself or by assigning the Policy in favour of the lending institution as security for the loan.

What then are its limitations/drawbacks?

• Many investors feel the pinch when they are told of a host of charges which are loaded on the single-premium policy. So in a way, it acts as a dampener for further investments.
• There are justified objections that such loading of charges offset any growth achieved on the policy and thus erode the paid-up value of the policy, generating genuine concerns of the investors.
• When comparisons are made between them and returns are compared, the case that regular investment options are preferable because they provide more opportunities for greater returns rather than choosing the single premium kind of insurance is strengthened.
• Under Section 80 (C) of the Income Tax Act, to be eligible for IT deductions, you would have to have a policy with a life cover 10 times higher than the annual premium. Thus, you may be required to either change the yearly premium significantly to get that life cover or opt for an altogether a new policy. This is cumbersome to a few, though not difficult to fulfill. For example, if you want to save Rs. 30,000 with your policy, you would have to buy a minimum life cover of Rs 3, 00,000/-.

With the above mentioned criteria, you may also have to choose a policy with a longer tenure, irrespective of whether you require it or not.

 What is in store for the future?

IRDA is bringing out new guidelines to be framed for appointment of Insurance Agents and capping on payment of commissions to insurance agents & reducing the rates of commissions during the first year of the policy & for its renewals from the second year onwards.

The salient features are-

• Insurance Agents will be appointed on a fixed salary structure thereby ensuring and assuring them on fixed monthly income;
• Everyone in the insurance business knows that insurance agents’ commission on the first year’s premium is much higher (sometimes @ 25% & above) and tapers down for each year renewal; now the revised policy will bring them further down not to exceed to an aggregate of 10 per cent of all first year premiums and four per cent of all renewal premiums on policies with deferred annuities. It further suggested that the insurer should be capped at not more than five per cent of premiums received during the year on single-premium annuity products and 1/20th of one per cent of the average of the total sums assured by policies excluding single-premium policies.

• IRDA guidelines further speak of cancelling payment on any upfront commissions by insurance companies to distributors like banks. IRDA also suggested cancelling the system of advance payments to insurance intermediaries. Insurance companies, which are selling their products through bank branches, will then need to come up with a different model.
• The proposed IRDA guidelines, if adopted into law, will enable the common man to hope to get premiums at a low cost since insurance companies would not be spending a huge sum of money on commissions.

As an investor, it is your responsibility to enquire all the details of a product before choosing it. If you have been suggested any insurance plan by your friendly insurance agent, make sure that the agent has your objective as the paramount factor and nothing else.

 Certain variables explained

• Almost all the Insurance companies offering the single premium policy are offering “Surrender Value” after the mandatory 5 years (lock-in period) from the date of the policy.
• Partial withdrawals are allowed under this policy after the completion of “lock-in period” which extends from a minimum of Rs.1000 (only on the policyholder reaching the age of 18 years as on the date of exercising such an option) to a maximum of 50% of the premium paid without interruption during the last 5 years from the date of the policy. A small fee is charged as “surcharge” for facilitating this partial withdrawal.
• There are certain companies which also levy a “miscellaneous charge” to meet the cost of duplicate statement if sought; change in name; change/incorporation of date of birth; addition of contact numbers; and so on.
• Some Companies are offering “top up” on premium to increase sum assured proportionately and this situation could come if the insured is laden with surplus money & want to invest the same in this policy.
• “switching” means that the insured is offered opportunities to switch from one Fund to another under the same Insurance product (like from “dividend” option to “growth” option or from “equity’ to “debt” option or vice versa), which is again subject to availability of such options in the Fund.  

Key Findings

• 88% of the users reported that their interest in sports increased after participating in Online Fantasy Sports contests. 
• 81% of the users agreed that by virtue of using Online Fantasy Sports platforms, they have become more aware of non-cricket sports like Kabaddi, Hockey, and Handball.
• 85% of the users agreed that the option of participating in free contests allowed them to participate without fear of incurring any financial loss. 
• Close to 90% of the users said that the terms of use for paid contests were easy to find and understand before they participated in paid contests. 
• 73% of users spend over 30 minutes researching statistics and other information to make their Online Fantasy Sports teams before a match.

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