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What is a Whole Life insurance policy and some details about these policies

ashish — Wed, 26 May 2010 09:52:40 +0000

In this post, we will talk through as to what a Whole Life insurance policy is, and try to provide some details of such policies. So what is a Whole Life insurance policy ?
Well, a Whole Life insurance policy is one that is valid for the entire lifetime of the policy holder, and is payable out to the heirs of the policy holder upon the death of the policy holders. The premium amount needs to be paid on a regular basis to keep the policy alive. Like any other term life insurance policy, the premium amounts that are paid to the insurance company are not returned at the end of the policy. This type of policy is suitable for those people who are actively involved in some kind of work for long after the normal retirement age of 60, and this income is required for their family members.
This plan seems very attractive for a number of people, since they would like to have life coverage of insurance, but one should step back and think about this – life insurance is mean to provide a mechanism for family members when you are earning and suddenly death happens; when you are happily retired and then your death happens at the age of 75, 80, or 85, by then, nobody should be dependent on your income; hence at that point of time, any insurance at that point really would not have much value. It would have been far better for you to have taken medical insurance in those years.
One possible benefit for somebody would be if they want to give something to charity after their death, and they can will the benefits of whole life insurance to the charitable institution, or if they want to actually leave money to their heirs (in addition to whatever asset they already own). However, it is debatable as to whether you can do this better using Mutual Funds rather than a whole life plan.

Different types of options available in a term life insurance policy – learn more

ashish — Sun, 23 May 2010 09:02:41 +0000

A term insurance policy seems a very simple concept; you pay a premium and you get a specific life cover. If you die, your family members (heirs) get the life coverage amount; if you survive till the end of the term period, the term policy will expire and the premium amounts you have paid are all forfeit; you can stop the term policy anytime just by stopping the payment of the premium amount. However, the term insurance policies can have different options, something that can confuse people; so in this post, we will explain some of the term insurance plan options.
- Level Term plan: The insurance premium amount is set at the beginning of each term period for a fixed number of years, and then it is reset for the next set of number of years.
- Renewable term: In a renewable term insurance plan, there is an option to renew the insurance policy after the term for which the insurance company has been set. However, once the insurance policy period has been reset, the premium amount changes (which means that the premium amount will not remain the same, and will most likely increase)
- Convertible term insurance: This is exactly what it means. A convertible policy means that the policy can be converted into other policies
- Group term insurance: A group term insurance policy is normally meant to describe the concept of an insurance policy that is taken by an employer to cover all the employees of the company. The per person premium for these policies is typically much lower than that of individual term policies, but the flexibility available at an individual level is much lower
- Increasing and decreasing term insurance: In this type of policy, there is a concept of changing the policy amount, either increasing or decreasing it.
- House loan term insurance plan: This is a specific type of insurance plan that is meant to cover the risk associated with taking the large loans covered with an insurance plan. In such cases, there is a type of insurance plan that is for the amount outstanding for the loan, and is payable to the bank or financial institution that has provided the loan. It is meant to insure that if the person who is repaying the loan amount dies, then the family members do not get burdened with the loan outstanding amount.

Banks setting limit on withdrawal from other bank ATM’s

ashish — Mon, 12 Oct 2009 06:08:12 +0000

On April 1, 2009, the RBI brought in a move that was supposed to remove the restrictions on using the ATM’s of other banks. Before this move, if you wanted to use the ATM of some other bank, then it would cost. These would include a direct to the customer for checking account balance, or for withdrawing cash, and could have gone upto Rs. 50 in direct charges. Removal of this limit was a major benefit to customers, since you could now go and access any other ATM. So, if you are out shopping, and run out of money, you would not have to search for the ATM of your bank, instead all you have to do is to find the nearest bank and use the ATM, and all this free of charge. Banks were not too comfortable with this measure, but given that this was an RBI Directive, they went ahead. However, this was free only for customers, the banks still had to clear expenses among themselves. So, if you were an ICICI customer, and wanted to use an ATM of SBI, there were some expenses that the banks would have to bear.
Also, banks that that had huge customer bases and were finding that their ATM’s used to remain busy were obliged to keep on expanding the number of their ATM’s; which is why banks such as SBI and ICICI have a large number of ATM’s, while smaller banks such as Yes Bank, Deutsche Bank, and many others have a much smaller number of ATM’s. By allow customers of these smaller banks to access the larger networks had 2 associated problems:
- It would have some negative effect on the load of the ATM’s of the larger banks
- It would remove the competitive advantage of the larger banks in terms of a much wider and easy availability of the ATM network compared to smaller banks
As a result, there was a push by the Indian Banks Association to add some constraints to this availability of ATM’s, and from October 15, there would be some restrictions on this service (link to news article):

From October 15, a customer can take out a maximum of Rs 10,000 per withdrawal from ATMs not owned by the bank in which he has an account, and the number of such transactions would be limited to five a month.
Going by the IBA guidelines, a savings account holder may get five free third-party transactions a month and could be charged from sixth onwards. However, current account holders might not get any free third-party usage.

For customers of banks with a much wider ATM network, this may not make much of a difference, but for people having accounts with smaller banks and who have got used to being able to use other ATM’s, this restriction may bite (for example, somebody who has got an ATM of another bank right next door). Personally, I have never had chance to use the ATM of another bank, so may not matter much to me.

Facts about down payment for loans

ashish — Mon, 28 Sep 2009 11:33:05 +0000

You go for buying a house, and are not fully conversant with what all this means. There is a nice house that you are seeing in a metro, and it costs around Rs. 40 lakhs for you to buy this house. A lot of people do not have the money to buy such a house outright, and will get into the system of taking a loan. This is the point at which people get into problems if they have not planned properly. So, what is a down payment ?
Down payment is the amount of money that you have pay from your end. Typically, banks and other financial institutions expect buyers to pay around 15-20% as down payment. So, for a house costing Rs. 40 lakhs, the amount to be paid as down payment could be be something like Rs. 6-8 lakhs, which is a large amount of money. A lot of people do not really expect to pay this kind of money, and get into problems when they have to make such down payments. Banks can even increase this amount of down payment when times are bad, or the person has a lower credit rating.
A down payment is something that gives a bank reassurance that the person buying the property has some stake in the property, and will try his best to repay the loan, since in default, their property could also be at risk of being attached by the bank. It is only people with very high credit rating who get a chance to get allotted loans that have lower down payment criteria, although it is more possible for shorter term loans such as car loans.
What should you consider when negotiating your down payment:
- The higher the down payment, the lower the amount of loan and outstanding due from you
- If this is not a new property and is older, the expectation is that the down payment percentage increases
- Down payment does not include other payments such as property taxes, stamps duties, registration charges, etc; so make sure that you have left enough money to cater for these charges-
- Start saving for your down payment – Since the down payment itself can be a hefty amount, you should start saving for a down payment early on