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The basic types of life insurance every portfolio needs

Life insurance is no rocket science. Being one of the most important products in any individual's finance portfolio, it provides complete protection against economic losses. According to Economic Survey, 2018, India's life insurance penetration is 2.27% compared to the global insurance penetration of 3.47%. While this is progress from previous years, we are still behind other countries.

Considering the extent to which product portfolio of the insurance sector has been widened to cater to the needs of all types of customers, there is a dire need to understand life insurance and all its types to make informed choices based on what you need and what might benefit you in the long run.

You might have opted for a term plan but does that suffice? A term insurance policy is a life insurance policy that gives you a high cover at a nominal premium paid over a pre-determined tenure. While this may seem profitable to you, a term plan doesn't provide any maturity benefits to the insured and the sum insured is given only on the death of the insured. However, iTerm Plus, a term insurance plan from Aegon Life, for example, also gives a cover for 36 critical illnesses, and has flexibility in the payment of premiums, and gives coverage until the age of 80 years.

Here are some of the other types of life insurance policies you can opt for have benefits you might not have known of before:

1. Whole Life Plan - A basic type of cash-value life insurance, this policy involves an investment component. A whole life plan offers coverage till 99 or 100 years of age. The investment component ensures accumulation of cash over the years. This cash can be withdrawn by the insured or borrowed against keeping the policy as a mortgage. The insurance component cushions the shock of death of the insured, and hence the loss of income.

2. ULIP - ULIPS are win-win plans. Under this plan, you not only get investment freedom, you also get life insurance. You can even decide the type of investment you want to use your money to make, depending upon your appetite for risk. If you are adventurous and like to live life on the edge, you can invest in an equity based fund, else you can opt for debt based fund, or even a combination of both. ULIPS allow you to build and maintain a sturdy corpus that can be used in the future in case of any eventuality. In case of death of the insured, the lumps sum amount is paid to the family; else at the end of the policy term, the entire value of the fund is given.

3. Pension Plan - Retirement is that phase of life when you want to simply relax after a long professional career, and a lot of hard work and tough choices. Your regular income also stops which might make it difficult for you to manage your expenses. However, only 4% of the total working population of India has been covered under a pension plan, and most of these are primarily government employees. There is a dire need to understand the benefits of a pension plan. Being a part of life insurance products, pension plans provide the dual benefits of pension as well as an insurance cover. This plan provides individuals with a steady income even after retirement, and in the event of death, pays the amount specified as per the policy to the insured's nominee. All you need is to invest a little money during your working years and you have a ready corpus to give you financial stability and a stress-free life after you've retired.

4. Endowment Plan - Again a mix of life insurance and investment opportunities, an endowment plan offers life cover by changing mortality costs and providing a return on the investment made by investing in the remaining amount of the premium. Covering both - death and maturity benefits - an endowment plan ensures that a reasonable corpus is maintained to deal with the unplanned expenses of life. The premium on this plan is lower but this is a safe investment to make. Is the insurer dies before the end of the policy period, the nominee gets the insured amount? If he/she goes on to live a long, healthy life exceeding the policy

Source: Business Today

Cabinet clears IDBI-LIC deal; bank to be LIC's subsidiary post-acquisition

The Cabinet Committee of Economic Affairs (CCEA) on Wednesday approved Life Insurance Corporation's (LIC) proposal to own controlling stake in state-owned IDBI bank. The move paves way for LIC to acquire 51 percent in the public sector bank consequently taking the government's stake down from current 80.96 percent to around 45 percent.

"Government has infused capital to the tune of Rs 16,000 crore since 2015... For further capital infusion, expansion of the bank's reach and bringing professional management at the bank, Cabinet has approved LIC to take over IDBI Bank," interim finance minister Piyush Goyal told reporters.

The acquisition will make IDBI Bank a subsidiary of the state-run insurance corporation.

"IDBI will be a 51 percent subsidiary of LIC," Goyal said.

Source: Moneycontrol.com

Rs 15,167 Crore Unclaimed Money Lying With Life Insurance Companies

A staggering amount of Rs 15,167 crore amount belonging to policyholders is lying unclaimed with 23 life insurance companies, according to latest regulatory data. On the basis of this information, the Insurance Regulatory and Development Authority of India (IRDAI) has asked the companies to disburse old insurance claims after identifying the concerned policyholders or beneficiaries.

As per the data released, of the total unclaimed amount of Rs 15,166.47 crore as on March 31, 2018, state-run Life Insurance Corporation towers over other companies in the unclaimed list with Rs 10,509 crore, while the 22 private sector insurers account for the remaining Rs 4,657.45 crore.

Among private companies, ICICI Prudential Life Insurance has Rs 807.4 crore of unclaimed insurance claims, followed by Reliance Nippon Life Insurance (Rs 696.12 crore), SBI Life Insurance (Rs 678.59 crore) and HDFC Standard Life Insurance (Rs 659.3 crore).

Insurance companies are required to update information regarding unclaimed amounts on their websites on six-monthly basis.

IRDAI has earlier asked the life insurance companies to provide a search facility on their website to enable policyholders or beneficiaries ascertain any unclaimed amounts due to them that are still lying with the firms.

Source: NDTV

Western Zone of LIC to expand agency force

LIC’s Western Zonal office plans to expand its agency force of 2.06 lakh agents by 50 per cent this year. That would mean about a lakh of agents are to be added before March 2019, said Vipin Anand, Zonal Manager, Western Zone. As part of an aggressive marketing strategy, the corporation has also increased its in-house marketing force by about 10 per cent, he said.

The Western Zone (comprising Maharashtra, Gujarat, Goa, Daman and Diu) is a critical arm of the corporation, with 21 per cent of its business coming from this region. In the last fiscal (ended March 2018), the zone underwrote about 34.6 lakh new policies and brought in about ?9,002 crore as first premium income. Total premium income of the zone for the last fiscal was nearly ?75,000 crore.

Wearing his marketing hat, Anand said that financial planning had to begin with life insurance. He said that life insurance has become the third necessity after roti (food) and kapada(clothing), beating makaan (shelter), as housing had become very expensive with protection of lives becoming critical. Vipin also said that life insurance provided an element of compulsive saving for many Indians, and could actually ensure long-term financial stability when compared to any other product. He dismissed the notion that life insurance was a low-return product, arguing that it was part of a whole package of benefits that included savings, risk cover, investment and tax benefits. And it was all about the fortunate paying for the unfortunate, he said.

Source: Business Line

Change in investment strategy? LIC sells big names, buys into minnows

Life Insurance Corporation (LIC) appears to have revamped its investment strategy on Dalal Street if its June quarter portfolio tweaks are any indication. The insurance behemoth invested in some lesser-known companies through the quarter even as it exited well-known names, in what looked like a game-changing strategy by the country’s largest institutional investor. The public sector insurer has seen its portfolio underperform the benchmark BSE Sensex index over the past year, mainly because of investments it had made over the years in some weak public sector companies every time the government went for share sale.

LIC was busy shopping all through the April-June period, as the broader market witnessed a lot of weakness and stocks across sectors slipped to attractive valuations. The insurer bought shares from across sectors, including banks, rating agencies, logistics, metals and mining, cement, oil marketing companies, power as well as chemicals.

Source: Economic Times

LIC nod for raising stake in IDBI Bank

The board of Life Insurance Corporation (LIC) of India has approved the proposal to buy 51% shares in the state-run IDBI Bank on Monday, paving the way for stake sale in the cash-strapped lender.

“The LIC board has approved the proposal to buy 51% share in IDBI Bank,” S.C. Garg, Secretary, Department of Economic Affairs, who is also on the LIC board, told reporters. The stake sale could happen at one go.

Mr. Garg said the state-run insurer will ‘mostly likely’ buy additional shares via a preferential issue since the IDBI Bank will need capital.

“The other option is that they can buy [stake] from the government, but that doesn’t provide capital to the IDBI Bank,” he said.

The IDBI Bank’s financial health has deteriorated with yearly loss widening to ?8,238 crore in FY18 from ?5,158 crore in FY17. Its gross non-performing assets at the end of March was 27.95% of advances. The lender is under the prompt corrective action framework of the Reserve Bank of India (RBI).

While LIC holds 8% stake in the IDBI Bank, the government holds about 86% and has been trying to shed stake in the beleaguered bank for about two years now. Since public holding is low, an open offer to minority shareholders is not material in this context, Mr. Garg said.

“Open offer may or may not come about because public shareholding is very small, only about 5%. And the pricing formula may not be too attractive. But they will go through that process if necessary. But it’s not a very material issue in this context,” he said.

According to the Securities and Exchange Board of India (SEBI) regulations, any company that acquires 25% stake in a listed entity has to make an open offer to acquire 26% additional stake from the public shareholders.

The capital market watchdog may waive the requirement in the case of LIC as it has done earlier in matters involving the government and public sector entities.

Mr. Garg, however, declined to disclose the value of the transaction as he said the amount still needed to be worked out.

Last month, insurance regulator IRDAI had cleared LIC’s proposal to pick up up 51% stake in the IDBI Bank.

The next step for the deal would be to secure approvals from the IDBI Bank board and the government.

The next board meeting of the IDBI Bank is scheduled for August 14, for finalising the results for the first quarter.

Source: The Hindu

LIC-IDBI Bank deal may conclude by September

After getting a go-ahead from the insurance regulator, LIC is preparing itself to complete the 51 per cent acquisition of debt-ridden IDBI Bank by the end of September, sources said. At present, Life Insurance Corporation (LIC) of India is doing due diligence of IDBI Bank, its assets, debt position and fixed assets, sources added. Besides, the insurance behemoth also intends to make an open offer to minority shareholders of IDBI Bank.

As per Sebi takeover code rules, an acquirer has to give an open offer to the shareholders of the target company on acquiring shares or voting rights of 25 per cent or more. The board of Insurance Regulatory and Development Authority of India (Irdai), at its meeting held in Hyderabad last month, had permitted LIC to increase its stake from 10.82 per cent to 51 per cent in IDBI Bank.

As per current regulations, an insurance company cannot own more than 15 per cent in any listed financial firm. LIC has been looking to enter the banking space by acquiring a majority stake in IDBI Bank as the deal is expected to provide business synergies despite the lender's stressed balance sheet.

If the deal goes through, LIC will get about 2,000 branches by which it can sell its products while the bank would get massive funds of LIC. The bank would also get accounts of about 22 crore policy holders and subsequent flow of fund. IDBI Bank, which is grappling with mounting toxic loans with gross non-performing assets rising to a staggering Rs 55,600 crore at the end of latest March quarter, would get much-needed capital support to revive its fortune. During the period, the lender's net loss stood at Rs 5,663 crore. The government would not get the proceeds from the stake reduction as the money would be utilised for the bank's revival. It could happen through issuance of fresh equity so that the government's stake which is presently at 80.96 per cent would come down below 50 per cent as announced in the Budget.

LIC unions oppose acquisition of IDBI Bank by insurer

LIC employee unions have said that they are against the proposal for the insurer to acquire 51 percent stake in IDBI Bank as it would be hurt the interest of policyholders and their premium money. Citing past performance of the investments made in the public sector banks (PSBs), Federation of LIC Class-I Officers Association said: “There is considerable erosion in the share value of these banks which may affect our profitability also.

“In a way, we are forced to participate in the bank recapitalisation programme. The acquisition of a major stake in IDBI has to be viewed with concern in this context.” As per reports, LIC has been made to invest Rs 1,850 crore in PSBs in 2014-15 and 2,539 crores in 2015-16, the federation said in a letter to the LIC Chairman. LIC currently holds 11 percent stake in IDBI bank and its total stressed portfolio is 35.9 per cent of total loans. The gross non-performing assets at the end of March quarter stood at Rs 55,588 crore.

Source: Financial Express

Is IDBI Bank a good buy for LIC, or will it put pressure on the insurer's earnings?

M Saraswathy,

At the end of the fourth quarter of FY18, the gross non-performing assets (of debt portfolio) of Life Insurance Corporation of India (LIC) rose to 6.23 percent compared to 4.73 percent a year ago. In its investment assets, the provisions for doubtful debt stood at Rs 20,513 crore, a sharp increase from Rs 14,084.90 crore last year.

These numbers will come under further pressure with the life insurer receiving the insurance regulator's approval to hold 51 percent in IDBI Bank.

The bank is not in good health. Its percentage of gross non-performing assets (NPA) jumped to 27.95 percent in Q4FY18 compared to 21.25 percent a year ago.

Assets vis-à-vis liabilities

LIC collected premium (first year premium plus renewals) of Rs 3.18 lakh crore in FY18, a jump of 6 percent over the previous fiscal year. The size of its balance sheet jumped by 10.4 percent to Rs 27.9 lakh crore as on March 31, 2018, according to public disclosures made by the insurer.

Investment assets stood at Rs 27.23 lakh crore, of which the life fund (traditional business) stood at Rs 20.79 lakh crore.

"The NPA ratios of the life insurance company will take a further hit in the first two quarters once the acquisition is completed," said a senior industry official.

LIC did not immediately respond to an email sent by Moneycontrol seeking a clarification on the provisions for doubtful debt.

During the fourth quarter of FY18, IDBI Bank's provisions for non-performing assets rose by 77.9 percent to Rs 10,773.30 crore from Rs 6,054.39 crore in the year-ago period. This led to the bank increasing its provision coverage ratio (PCR) to 63.40 percent in FY18 from 54.96 percent in FY17.

It won't amuse LIC's millions of policy holders that the insurer will be buying its additional stake in IDBI Bank by dipping into its policyholder account. According to public disclosures, the insurance company has Rs 26.04 lakh crore of assets in its policyholder account as on March 31.

Sources said that LIC will have to infuse Rs 8,000-10,000 crore in IDBI Bank.

LIC's solvency is 158 percent (assets over liabilities) as against a regulatory requirement of 150 percent. This is the minimum capital that an insurance company is required to maintain.

While it adhered to the regulatory requirements, LIC's solvency is lower than its private sector peers. The average solvency is around 210 percent.

LIC's equity push

The new deal comes at a time when the life insurance giant is slowly reducing its exposure to the stock market. In an earlier interaction, LIC Chairman VK Sharma had said that it will be not be as aggressive on the stock market.

LIC may invest around Rs 45,000-48,000 crore in the stock market this year. It is not clear whether the IDBI Bank acquisition will be a part of this or will be treated as a separate investment.

Although LIC could make money in the long term, with it being a contrarian investor, it could see a short-term impact on its equity portfolio. It is also anticipated that LIC could be restricted from having a high equity exposure to the banking sector, once this deal goes through.

Bad loans of IDBI Bank

During the fourth quarter of FY18, IDBI Bank's provisions for non-performing assets rose by 77.9 percent to Rs 10,773.30 crore from Rs 6,054.39 crore in the year-ago period. This led to the increasing its PCR to 63.40 percent for FY18 from 54.96 percent in FY17.

The RBI's February 12 directive on non-performing assets also led to a rise in slippages for the bank in Q4FY18. Their total slippages into bad loans jumped by Rs 12,823 crore, of which about Rs 9,000 crore was due to the directive.

The first step for LIC will be to clean the bad loan portfolio of IDBI Bank. After this, the life insurer would be involved in restructuring the bank's functioning and driving its profitability. Product distribution is also likely to fall into LIC's lap since it will be the single largest shareholder.

The only green shoot in sight is the retail portfolio, which the bank is looking to increase to 29 percent this year from 25 percent last year. Retail assets stood at Rs 88,599 crore as on March 31. The number of savings accounts stood at 16.56 million for FY18. These accounts could be used to LIC's advantage to cross-sell insurance products. The insurer had infused Rs 394 crore capital into IDBI Bank in FY18.

However, if you compare IDBI Bank's retail portfolio to its public sector peer State Bank of India, it is miniscule. SBI's personal retail advances stood at Rs 5.46 lakh crore as on March 31.

Impact on provisions

Since the first two quarters are generally slow moving in terms of premium collections for insurance companies, LIC may have to provide a further sum for the doubtful assets after the IDBI Bank stake purchase goes through.

Though the structure of IDBI Bank after the stake sale has not been finalised, sources said that it could be a subsidiary of LIC. Whether the life insurance major decides to absorb the bad loans immediately or give a timeline of a few years for this exercise will be watched closely by the market.

Source: Moneycontrol.com

LIC will invest up to Rs 26,000 crore in IRFC

Saikat Das, State-owned insurer LIC of India will invest up to Rs 26,000 crore this financial year in the Indian Railways Finance Corporation (IRFC), the market-financing arm of the railroad transporter, through bond subscriptions. The cost of the 30-year money is just 30 basis points higher than the benchmark bond yield, with a mechanism to reset the rate every 10 years, a top government official told ET. For example, if the benchmark yield is at 7.90 per cent, the cost comes to 8.20 per cent semi-annually. The rate will be revised after 10 years in proportion to the prevalent sovereign gauge.

“IRFC will issue bonds to LIC to ... meet its borrowing requirements. The cost of borrowing looks cheap compared to other market rates,” said the person cited above.

Source: Economic Times

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