ARE YOU SAVING TOO MUCH FOR YOUR KIDS ?

Sacrificing for children can jeopardize your retirement planning

The Indian parent is more entertaining than a juggler. Watch the precision with which he handles his limited, disposable income in fulfilling the various needs and wants of his family. He puts away money for his son’s education, his daughter’s wedding and the dream house he is planning for the family. Yet, he tends to leave out a goal, inadvertently perhaps, but one that is the most essential—retirement. 

Given the multiplicity of goals, how should a parent decide which one is more important? “One should prioritise one’s goals based on two main factors—the time on one’s hands and alternate sources of funding the goal,” say financial planners . List your goals and the time in which you need to achieve them. Then, distribute the investible surplus among goals on the basis of the urgency of each goal. 

You should choose to allocate a higher surplus towards your own retirement if you haven’t managed to build a sizeable nest egg. However, if you have a sufficiently large retirement corpus, you can allocate more towards other goals. Experts say retirement planning is paramount because you can get a loan for all other goals, but nobody lends for retirement. Yes, reverse mortgage is gradually catching on, but only the people with a house can go for this option. 

EMOTIONAL INVESTOR 

The Indian parent is also an emotional investor, torn between his responsibility to provide for his children’s needs, and ensuring a golden retirement for himself. This is why child Ulips, despite their high charges, were a big hit with insurance buyers at one time. “Emotion is the last thing that should influence your decision. This is why it is not always prudent to allocate all your savings towards your children’s goals,” says Pai

Don’t get us wrong. We understand that your children’s needs are paramount and you want to give them a leg up in life, but don’t go overboard in doing so. Putting away a large chunk of your investible surplus in a house for your child is not a good idea if you have not built a sizeable nest egg. Besides, who knows whether your child would want to live there 20-25 years from now. So, you are diverting resources today towards things that your child might not want tomorrow. 

In most cases, children may not even need the money you are saving for them. As the HSBC survey shows, 86% of retirees plan to leave an inheritance for their kids, but only 59% of the working people expect something from their parents. 

GIFT FINANCIAL INDEPENDENCE 

The greatest gift you can give your child is financial independence. Delhi-based Apra Jain, 23, learnt the importance of saving as a kid. “Today, I put money in equities instead of the piggy bank,” she says. During her college days, she would get a monthly allowance of `5,000, from which she began to invest in stocks. “I started by putting in 10,000 and gradually increased it to 25,000 a month, all from my savings. Today, I invest `10,000 every month in my portfolio,” Jain adds. 

This financial independence does not come in a day, but is a process that parents must indulge in from childhood. Start by teaching your child the value of money. When you buy him a toy, make him pay the money so that he understands that things come for a price. As your child grows, give him a piggy bank and later you can also open a child-friendly bank account. This will inculcate the habit of saving in him. In his teen years, give him pocket money and ask him to use it for his expenses. This will teach him to spend within his means. These small steps will lead him to the financial discipline that everyone desires, but few actually have.

Source : Sakina Babwani – ET Wealth – 25/11/2013

INSURANCE COs CANT UNILATERALLY CHANGE POLICY TERMS

 Background: Insurance companies unilaterally and surreptitiously change policy conditions without the knowledge of the insured. When a dispute arises, the company claims that it is a yearly contract and it has the right to revise the terms governing the policy. Insurers adopt a “take it or leave it” attitude, and claim that the policy holder can opt out if he/she does not agree to the revised terms. This is patently illegal. 

    Case study: Jayshree Shah had first taken a medical insurance policy of New India Assurance in 1999. Later, the insurance company changed it to ‘Hospital benefit policy/ Mediclaim Policy 2007’, with revised terms and conditions. This policy was also renewed and premiums for 2011-12 were paid. After Jayshree fell ill and was hospitalized, she lodged a claim for Rs 29,155. The insurance company’s TPA, Health India, processed the claim and sanctioned Rs 16,879, disallowing an amount of Rs 12,276 under the revised terms and conditions. Jayshshree protested against this deduction, contending the claim ought to be paid according to the original terms when the policy was first taken. She filed a consumer complaint through the Consumers Welfare Association. 

    The insurance company contested the case, saying that it had the right to change the terms and conditions, and the insured was free to opt out if the terms were not acceptable. The South Mumbai District Forum, 

in its judgment of September 27, 2013 observed that the policy stated that it was issued on the basis of a proposal form and declaration dated February 2, 1999. The original policy as issued in 1999 provided for a claim to be reimbursed up to the sum insured, without imposing any limits under each head of expense. But these terms were changed and limits were not prescribed for various heads of expenses. The forum held that such unilateral change in the terms of the policy was not permissible. It relied on the judgment of the Supreme Court in the case of Biman Krishna Bose v/s United India Insurance Co Ltd, where the apex court had observed that a renewal of an insurance policy means repetition of the original policy. The renewed policy merely extends the period of insurance on identical terms and conditions contained in the original policy. The forum then set aside the revised terms of the policy and directed the insurance company to renew the policy as per the original terms prevailing when the insurance coverage was first taken. It ordered the company to pay Shah the balance claim of Rs12,276 along with 9% interest from May 12, 2011 and Rs 5,000 as litigation cost. 

    Conclusion: Once issued, the policy terms cannot be unilaterally changed, unless specific consent of the insured is obtained for such changes. 

Source : Jehangir B Gai – TOI – 25/11/2013

MIS-SELLING : TREAT CUSTOMERS FAIRLY - RBI TO TELL BANKS

With cases of misselling by banks continuing to come to light, the Reserve Bank of India plans to introduce the concept of ‘treat customers fairly’ (TCF) for sale of third -party products. Under the TCF norms, first introduced by the UK’s financial services authority, it is not enough for banks to merely stick to rules, they must prove that they have acted in the best interest of the customer.  “The intent and basic structure for TCF is in place in India for banking products of scheduled banks. However, it is now being considered to extend the TCF structure to thirdparty products, viz, mutual funds, capital market and insurance products sold by banks and also extending the ombudsman scheme to non-scheduled banks,” the RBI said in a report released on Thursday. 

The issue of mis-selling by banks had come to the fore with Sebi’s recent showcause to HSBC for needlessly churning a client’s MF portfolio. TCF aims to link products with promises 

The RBI’s move to implement the TCF (treat consumers fairly) concept comes in the wake of a case of ‘mis-selling’ by HSBC recently. Sebi found that the unnecessary churn in the client’s mutual fund portfolio could only have been done to earn more commission. Under TCF guidelines, it is not enough for a bank to obtain the signature of a customer on the application form; it also bears the onus to make sure that it is providing correct advice. 

According to the RBI, TCF is a consumer protection policy designed to address the problem where banks know something about the product that the customer does not. “It is a regulatory initiative by which firms are required to consider their treatment of customers at all the stages of the product life-cycle, including the design, marketing, advice, point-of-sale and after-sale stages. By encouraging firms to re-evaluate their company culture and to inculcate the attitude of treating customers fairly, the outcome is likely to result in a more optimal one from the perspective of regulators, consumers and ultimately, firms,” RBI said.

The report said that the desired outcome of the TCF programme is to ensure that consumers are provided products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and as they have been led to expect; and consumers do not face unreasonable post-sale barriers imposed by firms to change a product, switch providers, submit a claim or make a complaint.

Source : TIMES NEWS NETWORK – TOI – 22/11/2013.

INSURER CANNOT REJECT CLAIM ONLY DUE TO DELAY IN RENEWING POLICY

Consumer Forum rules rejection for this reason ‘completely unacceptable’, directs National Insurance to pay policy holder the amount plus interest

An insurance company cannot reject a claim under the mediclaim insurance policy only on the hyper-technical grounds of a mere 11 days delay in renewing the policy, the Thane District Consumer Forum has ruled.   The forum determined that rejection of the claim for this reason was only to suit the insurance company’s interests, and was therefore “completely unacceptable”. 

    Making these observations, the two-member bench of U V Jawlikar and N D Kadam directed National Insurance Co to pay Virar based Prabha Iyer an amount of almost Rs 1 lakh — Rs 58,000 as claim amount, over Rs 26,000 as interest, and Rs 15,000 as compensation for mental agony and litigation cost.  The insurer, citing 11 days delay in renewing the mediclaim policy by Iyer in 2007,wanted her to undergo a four-year “cooling off period for covering pre–existing diseases” all over again, but the forum thwarted the attempt. 

    In April 2003, Iyer had bought a mediclaim policy for Rs 1 lakh from National Insurance. Thepolicyhadaclausespecifyingawaitingperiod of four years before Iyer could claim expenses incurred on ailments already existing in her body. This meant that she qualified to make such claims only after April 2007.  Iyer kept renewing her policy without a break till April 2007 when, due to some unavoidable circumstances, she could renew it only after a delay of 11 days. 

    She fell ill in June 2007 and was admitted to PD Hinduja Hospital. The next month, she fell ill again and this time was admitted to a hospital in Kalyan. She sought reimbursement of Rs 58,284 from National Insurance for expenses incurred during both periods of hospitalization.     

The insurer, however, rejected the claim saying that Iyer was hospitalized due ailments in existence since 1998, and since she had delayed renewal of her policy in April 2007, it was now a fresh policy and she would therefore have to wait for four years before making claims under the relevant clause. 

    Iyer finally approached the consumer forum in 2009. During hearing of her complaint, the forum found out from her policy documents that even while renewing her policy after an11-day delay in April 2007, the insurer had noted the original proposal date as “April 2004”, which meant that even as per its own records,National Insurance had not treated the policy as “fresh”. Yet, when it came to reimbursing Iyer’s claim, the company rejected it citing the hyper-technical ground just for its convenience. The forum has now directed National Insurance to pay the entire amount to Iyer by December29,or face an increased interest rate.

Source : Sunil Baghel – Mumbai Mirror – 18/11/2013