No-claim-bonus for mediclaim or car insurance is given as an incentive for not making a claim. Car insurance NCB can be transferred to the new insurer. Resist the temptation to save on premium by faking the NCB while moving to a new insurer, else you will face problems when a genuine claim is filed
Amit Kumar (name changed) had a car insurance with Royal Sundaram in 2009-10 and 2010-11. There was one claim in each year. He says, “When I renewed it with HDFC ERGO in the third year (2011-12), I was told by the insurance agent, that he will give No-Claim-Bonus (NCB) and bring the insurance premium amount down. When I told him that I had made an insurance claim that year, he said, nothing to worry as I am switching the insurance company and he will manage it. So, I was offered a 20% NCB by the new insurer. Fortunately there was no accident in the third year. In the fourth year (2012-13), I purchased online insurance from Royal Sundaram. I was offered 25% NCB as there was no accident or claim in that year and also there was 20% NCB mentioned in my HDFC ERGO policy.”
Kumar met with a small accident in last week of Nov 2012 and was in for a shock. The Royal Sundaram executive called up after a good five days and told him that he had wrongly claimed NCB, for which he was not eligible from HDFC ERGO in his third year. HDFC ERGO had gone back and checked the claims made in prior years and unilaterally reduced his insurance tenure from 12 months to 10 months to adjust for the NCB claim. In effect, says Kumar, “My insurance with HDFC ERGO ended in August 2012 itself. After I made claim in December 2012, I was told by the Royal Sundaram executive that I had misrepresented the facts when buying online policy in October 2012.”
Clearly, Amit Kumar fell for a glib-talking sales agent who said he could fix the problem. However, on the face of it the fact is simple—Kumar knew he had claimed insurance and was still claiming a NCB. Remember, buying car insurance with fake NCB is as good as not having any insurance. You may be tempted to ask for NCB when changing your insurance company in the hope that the new insurer will not find out and that you get a clean slate going forward. After all, NCB can give up to 50% discount on Own Damage premium. But someone who is in the habit of claiming insurance almost every year ought to be even more careful.
Faking NCB is like washing away the sin of being involved in an accident. Today, insurers share far more data than they did in the past and it is easy to get caught. This is supposed to happen at the time of underwriting and not really when a claim is made, but don’t be surprised if insurance companies share data only when there is a claim.
The NCB rule is clear—“You can avail of the NCB facility if you change the insurer on renewal. You would have to produce proof of the NCB earned by way of renewal notice from the current insurer. Alternately, you can produce your original, expiring policy along with a certification that you have lodged no claims on the expiring policy. For this, the proof can be in the form of a renewal notice or a letter confirming the NCB entitlement from the previous insurer.”
Manipulation of NCB is a major cause of claims denial. Don’t get lured by agent to ‘fix’ your NCB and give good premium rates. The insurance company may just play dumb until there is a claim even though they should validate the NCB claimed by customer at underwriting. It is as though the insurance company is underwriting with understanding that they don’t have to pay the claim. Giving any amount of discounts in this case is still profitable for company. There cannot be anything more risk-free for the insurance company!
The customer is supposed to have signed the insurance contract in utmost good faith. Amit Kumar is clearly at fault, but does it completely absolve HDFC ERGO and Royal Sundaram? Did they do the necessary due diligence?
There are five points worth pondering –
• Do insurance companies really do underwriting or accept the NCB desired by the customer to make a quick sale?
• How did the HDFC ERGO agent manipulate the system? Did HDFC ERGO also mis-sell the policy?
• Did HDFC ERGO realise the misrepresentation and reduce the policy term from 12 to 10 months?
• If Amit Kumar (policyholder) knowingly misrepresented facts, what happens to the pending claim with Royal Sundaram and the status of existing insurance cover (2012-13)?
• Was Royal Sundaram aware that Amit Kumar availing 25% NCB (2012-13) was already insured by it in 2009-10 and 2010-11 and had claims in both the years?
Agents represent insurance company while brokers represent you. Brokers have more responsibility than agents in case of mis-selling. What are the steps taken by some brokers to ensure that NCB is not manipulated by their client? In the second part of the article we will talk about it and give current status of the case.
Moneylife has often warned of the shortcomings of unit-linked insurance plans. The new unit-linked insurance scheme from LIC Nomura Mutual Fund is no better, even without considering its charges, due to poor scheme performance
LIC Nomura Mutual Fund is re-launching the insurance-linked tax saving scheme previously known as Dhanraksha-89 as LIC Nomura MF Unit Linked Insurance Scheme (LIC Nomura MF ULIS). Despite being in existence for more than a decade, the scheme has a corpus of under Rs150 crore. Just as with Unit-Linked Insurance Plans (ULIPs) sold by insurance companies, part of the premium you pay will be paid to Life Insurance Corporation of India for securing the life risk cover and the remainder will be converted into units of LIC Nomura MF ULIS at the prevailing price. How much would be charged for insurance? Moneylife contacted LIC Nomura MF to get details of the charges. The charges would be around Rs130 annually (Rs1 lakh insurance cover) for persons aged 18 years to 31 years. The amount is charged is depending on the investor’s age and term and mode of payment. But even though the charges are low, investors should take note of the scheme’s poor performance.
The asset allocation of the scheme is similar to balanced schemes, with 65%-80% invested in equity and the rest in debt securities. However, as with the other equity schemes of LIC Nomura MF, this one has also been a poor performer. The scheme has underperformed its benchmark in the one-year, three-year and five-year periods ending 14 January 2013. In fact, in the past 40 one-year quarterly rolling periods, the scheme was able to outperform the benchmark on just nine occasions. Such poor performance is prevalent in other equity schemes of LIC Nomura MF as well. Therefore, the tax you save by investing in this scheme may end up being much less than the amount you stand to lose from poor fund performance.
How does the scheme work? There are two plans—Single Premium and Regular Contribution. The amount of investment aggregated under each plan would be the target amount. For example, in the Single Premium plan, if you just invest Rs50,000, that becomes your target amount. In the Regular Contribution plan, if you invest Rs5,000 a year for 10 years, the target amount works out to Rs50,000 (Rs5,000x10).
Life insurance cover can be availed under two options as well—Uniform Cover, where the life insurance cover is equal to the target amount, and Reducing Cover, where the life insurance cover equals the remaining target amount. Under both, the maximum cover is Rs15 lakh. There is also be a free personal accident cover equal to life cover under both options, subject to a maximum of Rs7.5 lakh under all plans.
Other details of the scheme
Eligibility: Resident Indians and NRIs between the ages of 12 to 60 (age nearer birthday) years under the Single Premium option and the 10-year term of Regular Contribution option and 12 to 55 years for the 15-year term of the Regular Contribution option.
Regular Contribution Option -
1) Rs10,000 under the 10-year term
2) Rs15,000 under the 15-year term
Single Premium option: Rs10,000 and thereafter in multiples of Rs1,000 under both the 5- as well as the 10-year term
1) Rs15,00,000 under the Regular Contribution option
2) No maximum limit on the Single Premium option
Death benefit: In case of unfortunate death of the investor during the term period, the beneficiary will be entitled to
1. The corpus accumulated
2. Amount of life insurance cover
3. Amount of accident insurance cover in case death occurs due to accident
Maturity Benefit: On maturity of the scheme, the investor will get a bonus of 5% to 10% (depending on the term) of the target amount along with the accumulated corpus.
Maturity bonus will be paid subject to all renewal contribution in time.
Single Premium Plan: 5% of target amount for five-year term plan
10% of target amount for 10-year term plan
Regular Premium Plan: 10% of target amount for 10-year term plan
15% of target amount for 15-year term plan
However, if there is any default in payments, the maturity bonus will not be payable. On maturity the investor has the option to:
1. Continue in the scheme without insurance cover and exit at any time later on at the applicable NAV as on the date of receipt of redemption request.
2. Switch the maturity proceeds into any of LIC Nomura MF’s ongoing schemes.
3. Redeem the units as on the date of maturity.
Entry load: Nil
Exit load: Nil (three-year lock-in period)
Annual Scheme Recurring Expenses: Maximum 2.25%
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