Car loan: Shift you must, but only after thorough analysis
Insurance agents are highly qualified professionals trained and experienced in guiding consumers through the process of choosing appropriate and affordable insurance plans. Insurance agents create benefit and value for their customers by evaluating their specific needs and providing tailored plans and recommendations for the same.
Often there has been a scenario where the agent cannot be reached or is missing. In such a case, policyholder should be self-sufficient to reach out to the company to get the query resolved. Policyholder should have the knowledge of all the procedures and documentation. While investing in insurance, one should understand important features of the policy such as investment options, policy charges, claim process and procedures, etc. so you can react in the right manner in case of immediate action when the agent is out of reach.
Detailed below are simple and effective ways of ensuring seamless management of your policy-related requirements:
Maintain policy documents
Life insurance offers protection against uncertainties. Since insurance documents are at most times required at short notices, it is necessary to keep the insurance paperwork organised and handy for quick perusal. Your dependents and beneficiaries need to know your policy details as all correspondences with the insurer require the policy number for quick action. Maintain a database of all communications related to your policy as they are crucial reference points for conversations with the insurer. Apart from the information on claims, insurance policies do not require a huge amount of paperwork. It is advisable to keep the information relating to premium payment bills, maturity date, etc. at easy reach to avoid any concerns while submitting for claims.
Update all information
Information discrepancies often delay issue management and claim settlements. Ensure that your contact details and other personal information are frequently updated and remain current with the insurer. Ensure your contact details are always updated in the insurer's database as there are host of services that you can avail of by updating your mobile and landline numbers, email-id and mailing address. Nominate your beneficiary/ies and keep them and other close family members informed of your policy. Policy updates, including tax certificates, policy account statements, service information, premium payments receipts, etc. are emailed to policy holders. Important policy updates such as payment alerts and NAV alerts, payment receipt confirmations, premium payment reminders, service confirmations, fund value etc. can be received over SMS services.
Premium payment options
In the event of an agent being absent, a customer needs to be more open to different approaches to paying the premiums. We are comfortable in dealing with a single familiar face (the agent) when paying the premium rather than meet new faces each time or doing it ourselves for fear that things may go wrong. Insurers send regular intimations via SMS, e-mails, renewal notices and calls from specialised service desks. Each of these notifications has details on the different processes for premium payments.
Timely premium payments can be made anytime and anywhere utilising the online payment options. This includes electronic payment transfers (NEFT) through your bank's website, online payment via net banking facilities at selected banks or even using you credit card. There are automated payment options that no longer need you to remember premium payment dates or worry about depositing cheques before the due date. Electronic Clearing Systems (ECS) or Direct Debit facilities can be enabled from your bank account or credit card to automate the payment process.
Direct remittance at branch offices
Premium payments can be made by depositing crossed cheques or demand drafts at the insurer's branch offices. If the premium is under a certain specified limit, it can also be paid by depositing cash at the branches. Always collect acknowledgement for all cash payments. Receipts in the case of cheques and demand drafts are provided once the payment is honoured.
Policy management on the web
Most policies can now be managed online through the insurer's website with the help of a unique username and password. It is easy to get a username and password and enable online policy access by registering your email-id with the insurer or contacting the insurer's customer care. Today in the internet age, policy-related services and self-care options are offered on the web.
Claim settlement is always mis-represented as one of the most prolonged processes in the lifecycle of an insurance policy. It is necessary for the beneficiaries to be well aware of the entire process before filing for claims. By taking care of few minute details while filing for claims can help the beneficiary at the final stage. The claim process, also known as claim intimation, can be initiated by visiting the branch/office of the life insurance company or by writing an email to the company's website.
There is no specified time limit for submitting the claim but it is best to initiate the process at the earliest to avoid problems and undue delays. The claims process is primarily a matter of submitting requisite documents in the manner prescribed by the insurance company. If the documentation is in order, the claim is processed without undue delays. All required documents must be in original or photocopies attested by the relevant authority for e.g. a Magistrate, Gazetted Officer or a person of local standing like the police sub-inspector or authorised members from the insurance company.
Managing and understanding your insurance policy is easy with the company's branch officials and customer care toll-free numbers at your service. Avail of these to ensure that you adequately understand your policy, its benefits and requirements.
The author is Deputy Chief Executive Officer, Birla Sun Life Insurance. The views expressed in this article are his own.
Car loan: Shift you must, but only after thorough analysis
My friend seemed very happy because he had received a call from one of the sales agents of a financial institution offering him a lower interest rate if he shifts his existing car loan to them. This irresistible offer would not only save him 1.5% on the interest rate for the balance tenure but would also reduce his monthly EMI burden.
I suggested him to hold his decision and not to commit himself so soon. My next question to him was if he has done any cost and benefit analysis of saving in EMI vis-a-vis the switching charges to know if it is a wise decision to shift his existing car loan of one year to another lending institution.
Analysis: He was stunned. For him, the only thing which mattered was the interest rate he will be paying in future - down from 12% p.a. to 10.5% p.a. and thus save on monthly instalments.
I invited him over a nearby coffee shop and took out a piece of paper and pen and started explaining him the easiest possible way.
If he continues to pay his EMIs of Rs 11,122 at the existing rate of interest at 12% till the end of 5-year tenure he would end up repaying a total amount of Rs 6,67,333 on Rs 5 lakh loan amount. Hence, the total interest payout would be Rs 1,67,333.
Now let's assume that he transfers his existing car loan to another lender after the completion of 1 year i.e. after repaying 12 EMIs.
So for the first 12 months, he would have paid an EMI of Rs 11,122 at an interest rate of 12% p.a. Hence the balance outstanding after the end of 12 months would be Rs 4,22,355. I showed him how the balance outstanding was calculated with the help of amortization table, which provides a break-up of interest and principal component of each EMI.
Assuming that he transfers his existing car loan to a new lender for the remaining four years, he would have to pay an EMI of Rs 10,814 at a new interest rate of 10.50% p.a. So the total amount repaid for the entire tenure of 5 years would be Rs 6,52,525 consisting a total interest component of Rs 1,52,525.
Hence, if he shifts his car loan, the savings on interest component would be Rs 14,809.
Wow! That was Mr Sharma's immediate reaction and looked determined to go ahead with the transfer.
"Hold it, we are not through yet," I told him. Here comes the trickiest part which most of the borrowers just fail to realise.
Now let's calculate the cost of shifting the loan. He has to pay a pre-payment penalty to the existing lender @3.37% (inclusive of service tax) on the outstanding loan amount and 0.28% (inclusive of service tax) on the amount to be transferred as processing fee to the new lender.
Considering an outstanding loan amount of Rs 4,22,355, Mr Sharma will have to pay a pre-payment penalty of Rs 14,233 and the processing fee to new lender will be Rs 1,183. Hence, the cost of transferring his loan itself would be Rs 15,416 resulting in a net loss of Rs 607 i.e. cost of transfer less savings on interest component.
Jaws dropped! He could not believe that what looked like a profitable decision would be in fact a loss-making proposition.
Ideally, it makes sense to be pro-active and periodically keep checking the interest rate prevailing in the market so as to derive the benefits of lower interest rate. But, before you take the decision to transfer your car loan, it is always advisable to know the cost of transferring such loan with a special emphasis on pre-payment penalty, as it can be as high as 5.62% (including service tax). This will effectively negate the savings that the borrower would make on EMIs.
Remember…All that glitters is not gold!
The author is Product Manager, Apna Paisa. The views expressed in this article are his own.
I am a non-resident Indian. After my father's death, his property was equally divided between me and my sister. I want to sell my share. How would it be taxed and how can I get this money from India? — Inder Kumar
When you sell your share of the property, you would have to pay capital gains tax. I assume that the property referred to herein are immovable properties and were held by your father for more than three years and, therefore, such gains would be long-term capital gain, which is computed by reducing the aggregate amount of the indexed cost of acquisition and the expenses necessarily incurred for the sale of the property from the sale consideration of the property. The excess amount is the capital gain on which you have to pay tax. At present, long-term capital gains are taxed at 20% plus education cess of 3% thereon. Once the tax has been paid on the sale of the property, you can approach your bank for remitting the net amount to your bank account outside India. You will need a certificate from a chartered accountant for this purpose.
My company has provided me domestic servants who are being paid by the employer. My query is whether the amount paid by the company in respect of such domestic servants would be included in my salary. If so, how much amount will be included in my salary. — Alok
In accordance with the provisions of the Act, the provision of free domestic help will be considered a perquisite and value thereof shall be the actual cost to the employer. The actual cost would be the total amount of salary paid or payable by the employer or any other person on his behalf for such services as reduced by any amount paid by the employee for such services. Thus in your case the amount to be included in salary would be the actual cost to the employer.
I am a retired Central Government official and my previous employer engages me occasionally for specific assignments. I am paid an honorarium for each assignment. I am also paid travelling allowance when I travel for the assignment and am also reimbursed stationery charges against bills. Under which category should I show the honorarium while filing my returns? What about my travelling allowances and stationery expenses? — JS Puri
Since there is no employer-employee relationship now and the payment is received for special assignments, the honorarium received should be shown under the head "Income from other sources". If you have any professional skills on account of which you are rendering your services, the income would be taxable under the head "income from business and profession".
The expenses reimbursed on actual basis on submission of bills are not in the nature of income and, therefore, need not be shown in the return of income. But if the reimbursements/allowances received by you are more than the actual amount spent by you, then the excess amount would be taxable.