Creditors-ECGC Faceoff Zooms Lenders mull winding up petition against Export Credit Guarantee Corp in Zoom case SANGITA MEHTA & SUGATA GHOSH MUMBAI

Sunk loans to Zoom Developers, a Mumbai-based engineering and construction company that bagged several overseas projects, could boil over into an unusual court battle between state-run institutions. Even as banks try to salvage close to . 2,600 crore, lead lender Punjab National Bank has obtained the consent of other banks in the consortium to move a winding up petition against Export Credit Guarantee Corporation of India (ECGC) — the 55-year-old financial institution that has insured a substantial part of banks’ exposure to Zoom. The public sector bank has taken legal opinion from law firm AZB on the matter. The banking consortium may simultaneously file a performance obligation suit against ECGC, which has insured close to . 1,900 crore of banks’ credit. Till now, ECGC has refused to pay the banks’ claim on the ground that there have been irregularities and allegations of fraud that the Central Bureau of Investigation is examining.
“The banks will first send a legal notice. If no positive response is received, they will approach the court,” a person familiar with the development told ET.
The banks, it is understood, had discussed the subject with the ministry of finance, which in turn had taken it up with the ministry of commerce and industry. State-Run Cos Rarely Go to Court Against Each Other
The commerce ministry, which has administrative control over ECGC, recently referred the matter to the institution. “We have no comments to offer on what you have stated. ECGC will initiate appropriate action as and when any situation arises,” said ECGC Chairman N Shankar, responding to ET’s email query. In an earlier communication, the institution had spelt out to PNB the reasons why the claim could not be met. But banks — as many as 26 of them in the consortium — think they have enough ground to move court. The lenders are also upset that ECGC is reluctant to refund the premium paid to the institution for covering the exposure. If indeed ECGC has to pay the amount, the outgo would almost wipe out its net worth of around Rs 2,300 crore and force the government to infuse capital to keep it afloat.
Differences between stateowned entities rarely reach courts of law. But, such a possibility cannot be ruled out in a market where all institutions are under pressure to protect their books. All the more because the earlier mechanism of a high-powered committee of senior bureaucrats sorting out a dispute between two public sector organisations no longer exists.
Banks, which had sensed sometime in early 2009 that they could take a hit, have separately filed cases in the debt recovery tribunal to recover their money. The tribunal hearing is expected to begin in month or two.

Source :The Economics Times.
Date : 29/04/2013

HIRING LINE Life Cos Hang on to Dear Talent Faced with high attrition, companies pursue change management, beef up internal postings and promote learning among staff

Life insurance companies, which are battling 70% to 100% frontline attrition and a depleting middle and senior management, are doing their best to project an employee-friendly face.
From pursuing change management to beefing up internal job postings and holding more learning and development programmes, companies are doing everything they can to shed the weather-beaten image the sector seems to be stuck with. “Earlier, a sales insurance employee was not associated with the brand and could have sold any other product, but now, companies want to focus on retention, give attractive career opportunities and better compensation,” says Shashwat Sharma, partner, KPMG India.
Still, the task is challenging, with big names in the industry too finding it difficult to attract employees. Post the downturn in 2007-08 and stricter regulations to pluginsurance scams, companies were faced with people quitting en masse to join sectors like business process outsourcing. Besides, selling life insurance is not glamourous; one needs to understand products and each family’s needs, says Sharma. “It can be quite morbid,” he adds.
“Given the low awareness in India, selling life insurance is challenging. Hiring the right profile is important but the sector tends to hire in bulk. Most players live with this BAU (business as usual), which is not healthy,” says Shailesh Singh, director and chief people officer, Max Life Insurance, which has an employee strength of 8,000.
Max Life has started developing new modules of change management, holding meaningful career discussions, creating a managers’ toolkit and beefing up internal job postings to hire more employees through references. Besides fanning out to more colleges for campus placements, Max Life Insurance plans to hire for summer internships as well. It visited five campuses, including IIM Udaipur and FMS Delhi this year.
“At the frontline level, we also reach out to non-insurance sectors like telecom and banking,” says Singh, whose company faces an overall attrition of 35% to 40%, much lower than the industry average of 55%.
Aviva Life Insurance has decided to concentrate on the middle and senior management. Around 16 months back, the company opened up job postings in Singapore and the UK to employees across departments like HR, marketing, risk division.
“The middle management is where we get our future pipeline from and therefore, this segment is important to us,” says Amit Malik, director HR Aviva LifeInsurance India. About 31% of 3,200 employees are in the middle management, with a four-to-seven-year stint in the company.
Up to 16 middle-management employees have already gone for international job postings, and this will be a focus area for the company, says Malik. But getting talent from outside is still a challenge. “The industry is getting consolidated and prospective talent from outside will give it a serious and considerable thought,” he added. The Gurgaon-based company faces a middle-management attrition of 7% per year.
Some are using salary as an incentive to push employees to acquire more qualifications, in the process, promoting learning and development. “We encourage employees to get higher levels of qualifications and certifications from theInsurance Institute of India and the Institute of Actuaries of India. This translates into an immediate salary increase,” says GN Agarwal CEO, Future Generali India Life Insurance. Employees are also nominated for courses conducted abroad by joint venture partner Generali, particularly in Hong Kong.
Other firms who are not into life insurance are not taking chances. “Attrition in general insurance companies is much lower than those in life insurance, but we too emphasise learning and empowerment, peer-to-peer learning as well as on-boarding programmes,” says Rajkamal Vempati, head – HR, ICICI Lombard GIC.

Source : The Economics Times.
Date : 26/04/2013

10 worst things to say at work

Sanjeev Sinha,

You are free to give someone a piece of your mind while at home. However, when it comes to your workplace, better mind your words because even an off-the-cuff remark of yours can not only spoil your relationship with your boss or coworkers, but can also sometimes put you in trouble.

“In today’s day and age, undoubtedly we spend most of our time at work. However, it does not mean that we keep our guards down and say whatever comes to mind. In fact, most organisations work on the philosophy that words are the best representatives of a person’s personality. Therefore, we should always avoid saying something which can put us in a bad light at our workplace,” says Deepak Kaistha, managing partner, Planman Consulting.

Here’s a list of things you must avoid saying at work:
Everyone gets approached to do things that are not part of their defined role. If someone asks you to help him out, consider it a testimony to your capabilities.

“Unless you are completely getting off focus, going beyond the etched boundaries of your role will only earn you good merit with your boss and colleagues,” says Ashish Arora, founder & MD, HR Anexi.

No need to explain, therefore, why you should always avoid saying things like, “This isn’t my job!”
2. “It’s not my fault”
Sure, it is not. But saying it this way makes you seem more narrow minded and less of a team player. Call it an ‘issue’ instead of a ‘fault’. Rather than saying you were not responsible for it, point out what you believe caused it.

Then, not only does it become obvious that you were not responsible for it, but it shifts everyone’s attention to the root cause of the issue and what needs to be done to resolve it.

“In the fast-paced culture of corporates, there is no space for slackers. If you did something that created a negative impact, have the courage to except your fault instead of putting the blame to someone. Bosses usually like people who take full ownership for a deed done,” informs Udit Mittal, founder & MD, Unison International.
3. “I’ll try”
You certainly will, but it is better not to say just that when you are accepting the task. If you are unsure of whether you will be successful, say instead, “Thank you. I’ll let you know how this goes.”

“Saying ‘I’ll try’ can also mentally limit you somewhere from giving the work your best shot. If you say something more positive and specific, it creates a better impression of your efforts with the listener. Then, even if you fail despite your best efforts, the person will appreciate that you actually did try,” says Arora.
4. “There’s nothing else I can do”
If you are saying this after trying everything for success, it could still sound reasonable. But if you are giving up even before trying, or somewhere mid course, it makes you seem less committed and enthusiastic.

“If, after trying everything, you really do believe that you cannot do anything more, it might be better to say, ‘I’ve tried all of these options, but we’re still not making it because of this (reason). Please suggest what else I can do to resolve this issue’,” says Arora.
5. “That’s impossible”
There’s nothing impossible when you have your heart and mind to it.

“Saying that’s impossible shows that you are ruling out any way of doing a thing, and if your boss thinks there is a way to do it, there probably is. You just need to change your way of looking at it,” says Mittal.
6. “That is so unfair”
Do not play the victim. If you feel something is not fair – and it is not in quite a few cases in the workplace – explain why it is the wrong approach. “Turn your emotions into conviction, not complaint. Reason with people and bring them to see your point of view,” says Arora.

Also, if your colleague, for instance, gets a raise and you don’t, if he gets recognition and you don’t, never say it’s not fair or that’s unacceptable. “It shows a huge negative impact on your behavior and attitude and makes you look like a person who always cribs,” explains Mittal.
7. “I told you so”
Your worry may have come true, but it will not help to keep reminding the sufferer so. Instead of adding to the person’s distress, offer to help to clear the mess. You never know who you might need in the future.

You will be doing this person a genuine favour, and in return, he will always be grateful to you.
8. “I did the same thing he did, why am I wrong?”
This is a common mistake people do. The reason why you are hired is because you are different.

If you are doing the same thing someone else does, that person could have easily done what you are doing and you would not hired at all.
9. “Please listen to me!”
If you have to beg others to listen to you, it may seem like you have nothing important to say.

Cut through the noise with a compelling statement, like, “I have a different proposition.” or “I know just why this won’t work.” Within a few moments, your message will sink in – the noise will stop, and people will straighten up and listen to you.
10. “I’m quitting this company right now!”
Whether or not you mean it, giving your manager or others this ultimatum will never lead to any real glory for you. At best, others may perceive that you are very frustrated with your environment, and do not know how else to deal with it than by threatening to quit.

“At worst, you may be taken seriously, and this reckless comment may speed your way out of the organization before you truly want it,” says Arora.

UK pay rises wiped out by highest inflation in Western Europe, Towers Watson research reveals

UK employers are planning to increase salaries by an average of 3% in 2013 for the second year running, however with inflation expected to run at 3.3% this year – nearly half a percentage point higher than in 2012 – the real cost of living is likely to rise slightly in the UK, the research found.
The Towers Watson Salary Budget Planning Report for Europe the Middle East and Africa (EMEA) also showed 4% of UK companies are planning a pay freeze in 2013 while 3% are preparing to postpone their salary reviews.
The research found in mainland Europe a North-South pay divide is opening up with Northern European countries such as Germany, France, the Netherlands, UK, Belgium and Scandinavia averaging pay rises of 3%, while their Southern European counterparts such as Spain, Greece and Portugal settle on lower increases of between 2% and 2.5%.
However, due to lower levels of inflation anticipated for Greece (0.4%) and Portugal (1.8%) and higher inflation in Northern Europe, including the Netherlands (2.7%), Denmark (2.1%) and the UK, the difference in real-terms is likely to be less marked.
Paul Richards, head of Towers Watson’s data services practice in EMEA said: “UK companies are planning to offer similar pay rises to their Northern European neighbours, but with inflation rates remaining stubbornly high in comparison to all other major European economies employees will feel a limited effect, if any.”
Richards added: “Employees in other European countries such as Germany, France and the Netherlands are going to feel better-off than their British counterparts with lower levels of inflation making pay increases feel more substantial.”
Further research from Towers Watson shows the vast majority (93%) of UK companies differentiate pay among employees.
Those singled out most often for higher pay rises or bigger bonuses are employees identified as ‘high-performing’ who are rewarded with base pay rises two-thirds higher, on average, than their peers.
Chris Charman, director in Towers Watson’s UK rewards practice, said: “It’s good to see that companies are targeting their resources where they feel they will generate the best return on investment. Interestingly, this tendency to reward selected employees above others becomes increasingly pronounced the more a company’s budget is squeezed.
“Conversely when budgets were more generous, the focus shifts away from differentiation and toward more equal pay rises across the organisation.”

Appraisal: What could be coming between you and the hike

ou ideate, plan and toil all through the year but when appraisal season kicks in, you usually have neither a decent raise nor a promotion to brag about. It’s not as if companies are holding back on rewards.

The annual salary increment survey by global human resource consulting Aon Hewitt revealed that the average salary increments in 2013 will be 10.3 per cent, as compared to the 11 per cent raise in 2012.

Key talent will reportedly walk away with an average 14.1 per cent pay hike. But if, despite all your efforts, you continue to come up against a wall, here’s possibly why:Suryanarayan Subramaniam, National HR Head, Tata AIG General Insurance

Every employee must understand his role in the unit, and figure how the unit functions and affects the organisation’s growth. An understanding of how he can contribute to its growth, and consequently the progress of the organisation, is vital.

So apart from figuring your function at a micro level, look at the bigger picture. It’ll help you with time management and decision making. Display initiative. Someone who goes beyond his call is bound to be rewarded.
Nitin Srivastava, CEO, Mindworks Global Media Services

Things work at the workplace as they would in any aspect of life. Are you likely to have a more rewarding life if you push the envelope, or if you settle with things around you? A company and its people are incentivised to grow and yet the path to growth is not always well laid out.

It is a work in progress. So the person who sees his or her work in this context, beyond what has been defined, is naturally a better fit. That’s why he or she is selected over others for promotions and better raises.
Adrian Williams, HR Head, Thomas Cook (India) Ltd.

An employee’s growth is as much his responsibility as it is the company’s. Given today’s rapidly changing business environment, staying relevant is key. This calls for a ‘cando’ attitude, an in-depth awareness of the industry you work in, the market and organisation and focusing on your competency.

Everyone expects a promotion, but it comes to those who are constantly abreast with the company’s vision and align their competencies to the requirement of the next role.
Ishan Gupta, Co-founder, EduKart

Slogging and dedication don’t always result in an appraisal. A competitive business environment requires ‘smart’ workers. One way to be one is to stay up to date with trends in the market and upgrade your skill set.

Follow industry articles and the latest research when you have the time. Up-skill and re-skill as often as you can. Several young professionals sign up for diploma and degree courses in a bid to move up the corporate ladder. It works.
Sairee Chahal, Co-founder, Fleximoms

Self-promotion is a movie you play out in your head first. You must define your personal story – achievements, aspirations, weaknesses and strengths, and most of all what you value – before vying for other people’s attention.

Promoting yourself by communicating more actively with colleagues and seniors. Are you interested in a project or part of a significant achievement at work? Share. The process trail in most companies is designed to map your footprint and effort.
Priyanka Bhatia, Co-founder, One Tree Spaces

Managing expectations is essential because you’re dealing with the biggest variablehuman beings. Your expectations from the company may have nothing to do with reality. The best way to manage them is to get into the nittygritty of what the company wants from you – and check your ability to deliver it.

Good employers spell this out in Key Result Areas (KRAs). If there are areas where you can’t deliver, don’t quit. Just skill up. Start by picking up an unresolved challenge in your company. Turn it into a project and send it to the person who would most benefit from it. And whenever you perform well, communicate and let the others know!
Shankar Avsb, Investor, 7Avenues Enterprises

Almost every organisation has a pyramid structure. Promotions are difficult because of fewer slots on the upside; a salary raise is relatively easier if you are good at work. If you think you deserve a promotion or raise but aren’t getting it, seize the opportunity instead of complaining.

Start taking on more responsibility, ease your manager’s workload and prove your worth by asking customers to send feedback and endorse your work. If you think of a job as just a source of salary, your motivation level will be inadequate for senior roles.


AS per the ‘Aon Hewitt Campus Study 2013’,there has been a steady flow of ‘Pre-Placement Interviews and Offers’(PPIs and PPOs).At a time when concern about final placements has been high,the PPOs and PPIs offered at campuses gave some respite with many organisations using it as a strategy to spot and retain talent ahead of the placement season.For management graduates,on an average,organisations offered 11 PPOs to interns and 19 PPIs for the 2013 batch.In comparison,the average numbers of PPOs and PPIs to BTech/BEs were much higher with organisations offering 44 PPOs and 66 PPIs on an average for the 2013 batch.
Sandeep Chaudhary,partner – Talent & Rewards at Aon Hewitt India shares that campus hiring trends are a lead indicator of the general market sentiment towards hiring.“The study results are clearly indicative of the somewhat optimistic,yet cautious sentiment of Indian businesses.While it may be some time before India witnesses a growth rate of eight to nine per cent,for now,corporate India is keeping its head high and planning for the long-term,”he says.T Dev Joshi,group president and CHRO, LNJ Bhilwara Group adds,“Despite industry sentiments riding low, most of the sectors are going for campus hires even this year in varying numbers.”
Talking about the expectations of the employers,Siddhartha Jain,human resource development & training manager,The Leela Kempinski Gurgaon says,“Companies are primarily looking for long-term team players who can add value to their organisation.”Even the students seem to have a clear set of expectations.“Youngsters today want to understand their career progression right from the start;work with managers who are inspiring and act as mentors;have a fun workplace with rules that are relaxed to suit their style of working,”shares Chaudhary.
Many business leaders and HR practitioners are leveraging this knowledge of generational difference and rethinking their strategy to attract and retain this group of ‘Gen Z’.“Companies who engage in
campus recruitments are increasingly determining new methods of engaging the present generation,which is a diverse,an ambitious,yet honest and socially-conscious segment of the population.Companies look at engaging them through continuous participation in various internal and external social events,”avers Dr Sriharsha A Achar,chief people officer, Apollo Munich Health Insurance.
These methods lead to changes in the recruitment process too. “Overall personality and communication skills are the most important determining factors of selecting a prospective employee.Grades though important are secondary in terms of selection criteria,”says Jain. Organisations are looking for unconventional traits apart from the basic ones.“Companies tend to value responsibility,fair play and a realistic,practical approach to life more than just academic records.Students who maintain a positive and calm demeanour during the interview process are preferred over those who give in to the interviewer’s pressure,”adds Achar.
Communication skills too play an integral role in the selection process.Jain believes that good communication skills enhance the personality and provide employees with the ability to converse effectively,understand the environment better and deliver optimally.Similarly Achar too considers good communication skills and confident body language a must during the hiring process,“These are indications of professionalism and engagement.A professional demeanour in terms of dress code and grooming also indicates the importance the student places on the interview and the company as a whole.”
Leaving aside the lowdown in the various sectors,it is upto the students to best leverage their strengths during campus

Source :The Times of India.
Date : 24/04/2013

What is the cost of free or additional insurance? Find out

Indian customers love freebies. Shampoo sales soar if a soap bar comes free with it. A microwave oven is a hit if you bundle it with free cookware. LED TVs are bestsellers if you throw in a music system gratis. These marketing gimmicks keep the cash registers ringing in retail outlets. The financial marketplace is no different as companies lure customers with offers of cheap— even free—insurance.

Mutual fund investors are offered free life insurance, car buyers are given free vehicle insurance, and home loan customers are told to take a loan cover at a nominal cost. So, along with the base product, you get another absolutely free. Or so you think.

The first rule of intelligent spending is that there are no free lunches. The seller factors in the price of the freebie in the total price payable by the customer. Besides, in order to avail of this free insurance, the customer may be signing up for a product that does not really suit his needs. In a discussion paper released last year, the Insurance Regulatory and Development Authority ( Irda) had noted that bundling could raise ‘certain concerns for the consumer’.

‘Packaging two or more products could become unfair to the consumer as it impedes choice and makes price comparison difficult,’ the regulator had observed. The bigger danger is thatfree insurance gives the consumer a false sense of security. The insurance cover may not be adequate. For instance, the free insurance that comes with SIPs in mutual funds is capped at Rs 20 lakh. Experts say that one should have a cover of at least 4-5 times his annual income.

Besides, there are too many strings attached, making this type of insurance a poor substitute for a regular term cover bought independently. “The SIP insurance is a good option as long as the cover is not seen as a substitute for a proper cover,” says financial planner Jayant Pai. There are other reasons why consumers must not depend solely on these covers. Given that they are freebies, they can be withdrawn at short notice. Two weeks ago, the SBI announced that it was withdrawing the free accident insurance given to its home and car loan customers from July this year. The bank did not assign any reason for withdrawing the cover.

ET Wealth examined a few of these two-in-one products on offer and discovered that while some were beneficial for customers, in many others, the buyer did not really derive any value from the bundling of insurance with other products and services.

Free car insurance

The free cover is only a substitute for the cash discount offered by a car dealer.

The car market is going through a bad phase. The sales fell 6.7% in 2012-13, the first time in 10 years. The January-March quarter was particularly bad, with a 22.5% drop in sales, and analysts expect more pain ahead. Car manufacturers are trying every trick to push sales. One such gimmick is free insurance offered to buyers.
Free car insurance, even if it is only for one year, is a big draw with buyers, who may have emptied out their bank accounts for the down payment. You can also expect better claims servicing because the dealer will follow up your case with the insurer. The convenience of getting all the paperwork done under one roof is another positive.

Where’s the catch?

The free insurance is not really free, but a substitute for the cash discount offered on a car. “The insurance premium for the first year to be paid by the customer is borne by the dealer,” says Madhukar Sinha, national head, personal lines, Tata-AIG General.

Besides, the free insurance may not include add-on covers. “It will typically not include the zero depreciation cover and engine protection,” says Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance. “Occasionally, these plans also offer customised benefits, but this is usually in the case of high-end vehicles,” says Arvind Laddha, CEO, Vantage Insurance Brokers.

The bigger problem is that you may never know whether you got a good deal. “The cost is not disclosed transparently. The buyer should ask for details of the insurance cover before buying it so that he can compare the price with other plans in the market,” says Laddha.

Moreover, you will have no say in the insurance company or the product on offer. The dealer will tie up with the insurer of his choice. “The insured must, therefore, understand the coverage as well as the service capabilities of the particular insurer before signing up for such a policy,” he adds.

Free life cover with SIPs in mutual funds

It’s beneficial, but shouldn’t be a replacement for a regular term cover.

Imagine a Ulip that charges you only 2.25% a year, doesn’t levy a heavy penalty if you quit investing, and doesn’t deduct any surrender charges on premature withdrawals. The SIPinsurance plans from three mutual fund houses—Reliance Mutual Fund, ICICI Prudential Mutual Fund and Birla Sun Life Mutual Fund—offer exactly this. SIP investors get a free life cover under these plans.

What’s the gain?

On the face of it, the offer looks good. You don’t spend a rupee on the free life insurance that comes with your mutual fund investments. As we said earlier, it’s like buying a Ulip without paying the exorbitant charges. “The investor gets a life insurance cover merely by having a SIP in an equity scheme at no additional cost,” says Srikanth Meenakshi, director, FundsIndia.

Where’s the catch?

The insurance comes wrapped in several terms and conditions. First, the investor gets a life cover only if his SIPs are on track. Miss two consecutive SIPs, or four SIPs in all, and your cover gets blown away. There is an exception in case of Birla SIP Century. If you have given 36 SIP instalments, the cover continues even if you stop investing. However, if you switch to another plan or make partial withdrawals, the contract terminates. Even partial withdrawal results in the insurance being terminated.

There is also a heavy exit load of around 2% if you switch or redeem the investment before the completion of the SIP tenure. So, make sure you choose a scheme that can offer stable returns over the long term. Go for a diversified plan with a good record, instead of a fund that has given jerky returns. “On the one hand, the free life insurance acts as an incentive not to discontinue your SIP during bad times, but it also means that you remain stuck with a lemon for a long time,” says Meenakshi.

Accident cover with credit cards

The cover offered is very cheap and should not make you opt for a costly card.

Personal accident insurance is a unique cover that everybody needs, but very few buy. Some credit card issuers offer a free personal accident cover along with their high-end cards. Others offer discounted prices to their customers. The option comes in handy if the card holder dies or suffers a disability due to an accident.

What’s the gain?

The biggest advantage here is that one gets covered against a risk that he would have otherwise ignored. As mentioned earlier, very few people buy a personal accident cover. Convenience is the other benefit. “The cardholder pays a small premium every month, which does not pinch his pocket, but ensures a greater protection for his family,” adds Bimbhet.
Where’s the catch?

The free accident cover comes with stiff terms and conditions. Every card issuer has a different yardstick. Some require you to use your card for a minimum amount. Others want you to make a minimum number of transactions every quarter. Some don’t consider buying fuel in the calculation. Personal accident insurance is a very low-cost cover. An insurance cover of Rs 2 lakh costs only Rs 150 a year. “The free cover does not offer any great value to the buyer. Don’t opt for a credit card only because it offers a free personal accident cover. Only if the cover is Rs 20-50 lakh does it add real value,” says Mahavir Chopra, head, personal lines and e-business, with health insurance consultancy firm, Medimanage. In other words, treat the free cover as an ancillary benefit, not the core advantage of the card.

The bigger problem is that such free personal accident covers offer basic protection against death and total permanent disability. The partial and temporary disabilities are not usually covered. So, you should buy a policy yourself, instead of depending on the free cover. Besides, the claim settlement procedure could be tedious because the claim is to be routed through the card issuer. “You have to intimate the card issuer, not the insurer. Since this is not a core function of the card issuer, expect the service to be mediocre,” says Chopra.

Term insurance with home loans

Buy regular term insurance that will continue even if the home loan ends.

Lenders don’t like to take risks. So, before they give you a home loan, they will size up your income level, repayment capacity and credit history. Even if everything is in order, they will push you to take a home loan cover along with the loan. If something happens to you, the outstanding loan will be paid by the insurance policy.

What’s the gain?

Home loan covers are usually single premium policies. The premium is paid through the loan, so the buyer doesn’t feel the pinch. “Borrowers also have the option of buying such covers directly from the life insurer. They need not pay the premium upfront, but can choose to pay it over a period of, say, five years,” says Sanjeev Pujari, chief actuary, SBI Life. Also, since this is offered as part of a group cover, individuals can get a high cover and are not required to undergo medical check-ups before buying the plan.

Where’s the catch?

Unlike a regular term insurance, loan insurance plans offer a reducing cover. As you repay the loan, the insurance cover comes down and ends when you repay the entire loan. This also means that if you choose to refinance the loan with another bank, you will lose the insurance benefit.

Besides, this cover is for the term of the loan, while in most cases a borrower prepays the loan. For HDFC, the average loan tenure at the time of application is a little over 13 years. However, as the incomes of the borrowers go up, the average loan ends in less than five years. Why pay for a 15-year plan when you actually need the cover for 7-8 years?

A better option would be to buy a regular term plan when you take a loan. Even after you have repaid the loan, the cover will continue to protect you. As the table shows, for a marginally higher premium, you can get a cover that does not diminish.

Source :The economic times.
Date : 22/04/2013