Money Today experts answer money, banking, insurance, tax-related queries

INSURANCE

I have been investing in Kotak Smart Advantage Plan (Ulip). for 3 years. I am losing heavily on it. I want to stop, but if I withdraw the money or stop investing, the first year's premium will be forfeited. I wasn't told this when I bought the plan. What can I do? -Sandeep Rai, Bangalore
If you read the product brochure or the illustration, it can be seen that the foreiture clause was documented by the insurance company. Unfortunately, such points are not explained very well by the company or understood by the investor.

In the current situation, you may not have much choice but to continue investing in this policy until maturity. If you surrender the policy, you may end up being charged a penalty, in this case the first years' premium will be forfeited. Do be careful while investing in future.

I am 26 years old and require an insurance cover of about Rs 90 lakh. I prefer pure-protection term insurance plans. I already have Jeevan Amulya from LIC (coverage of Rs 30 lakh for a yearly premium of Rs 9,270 for a term of 35 years). I want to split the remaining amount of Rs 60 lakh in two different term plans so that I can reduce one over a period of time if, and when, required. Kindly suggest some products keeping in mind factors such as after-sales services and claims settlement ratio. Also, how good are the online plans. I find their pricing to be highly competitive. -Disha Sood, e-mail
You can check ICICI Pru Elite, SBI Shield and Aviva Life Shield, which provide the cheapest quote and the longest term. This is typically the criteria based on which you should avail the plan. Further, we do not see a point in splitting the term plans, since it would end up being expensive. Since you already have a PSU insurer, you can consider a private insurer for the balance amount. You will still have the option of exiting Jeevan Amulya or the new policy in case you would like to reduce your life cover in the future.

Are convertible term plans viable savings options?

My husband subscribed to ICICI Prudential LifeTime Super in December 2006. Since then, we have been investing Rs 2,000 monthly in this plan. Our investment principal has appreciated about 20% in four years. We have put in Rs 96,000 up till now and the current fund value is Rs 1.16 lakh. I understand that Ulips are not short-term investment instruments, but should we continue the policy or quit and buy a new Ulip (I believe this product has improved drastically after the new regulations)? The cover is also very low (Rs 2.4 lakh ) for a term of 20 years. What would be the best option? -Shilpa Dhingra, Ghaziabad
Since you have made decent returns, you can consider switching to an efficient Ulip with a higher life cover. However, you need to remember that on the ICICI Pru Life time Super that you have availed in 2006, all the upfront charges have already been deducted and there will be no further notable charges apart from administrative and management charges.

Switching to a new plan would mean having to pay the front-end charges again (although they have been rationalised substantially). Of course, the current life cover that you hold is extremely low and you may want to enhance this. You can consider doing so through a pure vanilla cover, depending on your financial goals, age and objectives.

I have a flat in Faridabad, which I bought three years ago. The property rate has gone up by 100%. Almost three-fourth of my investments are in real estate. Should I sell the apartment or rent it, as my portfolio is not diversified? -Rajan Pillai, New Delhi
It is good to have a combination of real and financial assets in your portfolio. Considering that you have 75% exposure in realty, we suggest you to bring this down in phases to about a 35% at max. You could achieve this by means of selling some of your realty investments and re-investing in other instruments and consistently increasing investment in other avenues going forward (essentially all your investments in the future should be diversified or channelised to other avenues).

There are however tax implications that need to be taken care of; long term capital gains (when held for more than 3 years) will attract 20% post indexation benefit, unless it is invested in another residential property or in tax savings bonds. You should avoid re-investing into another residential property since we are targeting to reduce exposure to real estate.

Further, we suggest that you align all your investments to your financial goals, while doing so, it is suggested that you move across the pyramid of safety, liquidity and then potential upside. By being overtly exposed to realty your liquidity becomes a serious concern; realty cycles are typically longer-ranging between 7-10 years, and you may end up in a situation where you may not find an appropriate opportunity to exit when you need funds the most or may have to sell at a loss.

HEALTH PLANS

I had bought LIC's Health Protection Plus plan (a health insurance plan with a Ulip component) about a year back. I think it was a bad buy and want to switch to a standard health insurance plan from a general insurer. Since this is a health insurance plan from a life insurer, I believe I won't be allowed to port the policy. Also, it is a market-linked plan so is quitting after a year a wise choice? What would be the best move? -Rawson Sharma, Noida
According to IRDA's guidelines on portability, the benefit is only offered to the customer of a non-life insurance company. Hence, your existing policy would not be accepted for portability. However, I would advise you to buy an additional health insurance policy over and above your existing policy.

It is prudent to purchase an adequate health cover at an early age to avoid higher premiums later on in life. An early start to your own health insurance cover would ensure the completion of waiting periods, following which you can enjoy full benefits of the health insurance plan and can hedge a larger financial risk for efficient treatment at the best healthcare provider. You could opt for a family floater, which would extend cover for your entire family for the sum insured level at a marginally incremental premium.

Anil Rego, CEO, Right Horizons, has tackled financial planning issues; Antony Jacob, CEO, Apollo Munich has advised on health insurance and Taxspanner.com has answered tax queries. Log on to www.moneytoday.in to submit your questions.

Renu Karnad, MD, HDFC

REAL ESTATE

I had applied for a home loan and the bank informed me that I have been given a "pre-approval" home loan. What does that mean? How would it benefit me? -Sajan A, e-mail
A pre-approved home loan refers to the bank granting an in-principal approval to home loan borrowers who have not identified a property yet. This is however done after a thorough examination of credit worthiness of the borrower, while the approved amount depends upon several factors including age, income, savings history, credit score etc.

A pre-approved home loan helps a customer in planning the purchase of the property. Since the customer is aware of the funds available to him, he can buy a property within his budget.

However, the loan approved is valid for a particular period. In case the customer approaches for disbursement after that period, the bank will do a re-assessment of his eligibility. This way he could even get a higher loan amount if he desires provided his income would have risen during that period.

Renu Karnad is the Managing Director of Housing Development Finance Corporation. She has answered queries on home loans.