Sunday, November 30, 2008
Friday, September 26, 2008
Insurance Basics Part II - Life Stages
Life Stages Your insurance need will change as your life does, from starting to work to enjoying your golden years and all the stages in between. Each one of these stages may pose a different insurance need/cover for you. In this section, we have drawn up the basic life stages and help you analyze various insurance needs accordingly.
STAGE 1 : Young and Single
An important stage where one lays down the foundation of a successful life ahead. Take advantage of the time and power of compounding to ensure that you build up your dreams. Start saving early.
Your needs:
Save for a home and wedding
Tax Planning
Save for Golden years.
STAGE 2 : Just Married
Marriage brings about a significant change. New dreams and new opportunities also bring in additional responsibilities. While both of you look forward to a happy and secure life, it is equally important to ensure that eventualities don't come in the way of shaping your dreams.
Your needs:
Planning for home / securing your home loan liability
Save for vacation
Save for your first child.
STAGE 3 : Proud Parents
Once you have children, your need for life insurance is even more. You need to protect your family from an untoward incident. Ensure your protection umbrella takes into account the future cost of securing your child's dream. You will want life to go on for your loved ones, and having enough life insurance is a way to help ensure that.
Your needs:
Provide for children's education
Safeguarding family against loan liabilities
Savings for post-retirement.
STAGE 4 : Planning for Retirement
While you are busy climbing the ladder of success today, it is important for you to take time and plan for your life after retirement. Having an early start for retirement planning can make a significant difference to your savings.Think about your golden years even before you have reached them. The key is to think ahead and plan well using your time and money.
Your needs :
Provide for regular income post retirement
Immediate Tax benefits
Lead a secure, independent and comfortable life style in your retirement years
Choosing the right plan
Identifying the right plan basis your needs is the first crucial step towards insurance planning.
Analysing Needs...What is your need?
Protection Need for a sound income protection in case of your unfortunate demise.
Investment Need to ensure long-term real growth of your money.
Saving Save for the milestones and protect your savings too.
Pension Need to save for a comfortable life post retirement.
Once you have analyzed your needs as per above classification, you need to then ascertain important factors such as type of cover, insurance amount as per one's income, life stage and dependents. It is difficult to arrive at all these figures yourself.
Our financial consultants can help you.
STAGE 1 : Young and Single
An important stage where one lays down the foundation of a successful life ahead. Take advantage of the time and power of compounding to ensure that you build up your dreams. Start saving early.
Your needs:
Save for a home and wedding
Tax Planning
Save for Golden years.
STAGE 2 : Just Married
Marriage brings about a significant change. New dreams and new opportunities also bring in additional responsibilities. While both of you look forward to a happy and secure life, it is equally important to ensure that eventualities don't come in the way of shaping your dreams.
Your needs:
Planning for home / securing your home loan liability
Save for vacation
Save for your first child.
STAGE 3 : Proud Parents
Once you have children, your need for life insurance is even more. You need to protect your family from an untoward incident. Ensure your protection umbrella takes into account the future cost of securing your child's dream. You will want life to go on for your loved ones, and having enough life insurance is a way to help ensure that.
Your needs:
Provide for children's education
Safeguarding family against loan liabilities
Savings for post-retirement.
STAGE 4 : Planning for Retirement
While you are busy climbing the ladder of success today, it is important for you to take time and plan for your life after retirement. Having an early start for retirement planning can make a significant difference to your savings.Think about your golden years even before you have reached them. The key is to think ahead and plan well using your time and money.
Your needs :
Provide for regular income post retirement
Immediate Tax benefits
Lead a secure, independent and comfortable life style in your retirement years
Choosing the right plan
Identifying the right plan basis your needs is the first crucial step towards insurance planning.
Analysing Needs...What is your need?
Protection Need for a sound income protection in case of your unfortunate demise.
Investment Need to ensure long-term real growth of your money.
Saving Save for the milestones and protect your savings too.
Pension Need to save for a comfortable life post retirement.
Once you have analyzed your needs as per above classification, you need to then ascertain important factors such as type of cover, insurance amount as per one's income, life stage and dependents. It is difficult to arrive at all these figures yourself.
Our financial consultants can help you.
Insurance Basics - Part I
Insurance
Insurance is the lifejacket you wear in a storm, the umbrella that shields you in a downpour, It does not prevent these events from taking place, but makes sure that their impact is lessened and that you have something to hold on to.
It gives you the financial security and certainty to deal with the aftermath of these events. It becomes the earning member of the family and supports you and your family during the rough times.
Why Life Insurance
Protection
You need life insurance to be there and protect the people you love, making sure that your family has a means to look after itself after you are gone. It is a thoughtful business concept designed to protect the economic value of a human life for the benefit of those financially dependent on him. That's a good reason.
Supposing you suffer an injury that keeps you from earning? Would you like to be a financial burden on your family, already losing out on your salary? With a life insurance policy, you are protected. Your family is protected.
Retirement
Life insurance makes sure that you have regular income after you retire and also helps you maintain your standard of living. It can ensure that your post-retirement years are spent in peace and comfort.
Savings and Investments
Insurance is a means to Save and Invest. Your periodic premiums are like Savings and you are assured of a lump sum amount on maturity. A policy can come in really handy at the time of your child's education or marriage! Besides, it can be used as supplemental retirement income!
Tax benefits Deductions from gross income on Life Insurance premium paid (Traditional & Unit Linked Plans)
Under Sec 80C of Income Tax Act
Available for Premium paid (max. up to 20% of SA) on Life Insurance policies with a maximum ceiling p.a. Rs. 1,00,000 irrespective of the Gross Total Income.
A maximum of Rs. 1,00,000 p.a. paid as a contribution on a pension plan is fully deductible from the taxable income (within the max. ceiling Rs. 1 lakh )
Under Sec 80D of Income Tax Act
Premium paid for Critical Illness rider is deductible as medical insurance premium from the annual income chargeable to tax up to a maximum amount of Rs. 15,000.
Exemption from the Life Insurance proceeds
Under Sec 10(10D) of IT Act
Maturity benefits are tax-free in the hands of the policyholder if, at any point of time during the policy life, premiums paid within one year do not exceed 20% of the basic Sum Assured. Death benefits are tax-free.
Insurance is the lifejacket you wear in a storm, the umbrella that shields you in a downpour, It does not prevent these events from taking place, but makes sure that their impact is lessened and that you have something to hold on to.
It gives you the financial security and certainty to deal with the aftermath of these events. It becomes the earning member of the family and supports you and your family during the rough times.
Why Life Insurance
Protection
You need life insurance to be there and protect the people you love, making sure that your family has a means to look after itself after you are gone. It is a thoughtful business concept designed to protect the economic value of a human life for the benefit of those financially dependent on him. That's a good reason.
Supposing you suffer an injury that keeps you from earning? Would you like to be a financial burden on your family, already losing out on your salary? With a life insurance policy, you are protected. Your family is protected.
Retirement
Life insurance makes sure that you have regular income after you retire and also helps you maintain your standard of living. It can ensure that your post-retirement years are spent in peace and comfort.
Savings and Investments
Insurance is a means to Save and Invest. Your periodic premiums are like Savings and you are assured of a lump sum amount on maturity. A policy can come in really handy at the time of your child's education or marriage! Besides, it can be used as supplemental retirement income!
Tax benefits Deductions from gross income on Life Insurance premium paid (Traditional & Unit Linked Plans)
Under Sec 80C of Income Tax Act
Available for Premium paid (max. up to 20% of SA) on Life Insurance policies with a maximum ceiling p.a. Rs. 1,00,000 irrespective of the Gross Total Income.
A maximum of Rs. 1,00,000 p.a. paid as a contribution on a pension plan is fully deductible from the taxable income (within the max. ceiling Rs. 1 lakh )
Under Sec 80D of Income Tax Act
Premium paid for Critical Illness rider is deductible as medical insurance premium from the annual income chargeable to tax up to a maximum amount of Rs. 15,000.
Exemption from the Life Insurance proceeds
Under Sec 10(10D) of IT Act
Maturity benefits are tax-free in the hands of the policyholder if, at any point of time during the policy life, premiums paid within one year do not exceed 20% of the basic Sum Assured. Death benefits are tax-free.
Do I Need Public Liability Insurance?
In all honesty it is unlikely that getting public liability insurance will be high up on the list of things to do, yet it could be vital for you to have public liability cover as it will cover you against any legal claims. If you decided not to get cover then you run the risk of being liable for any damages you or your business may cause.
Anyone who has a small business or is self employed sole trader could be potentially blamed for any third party injury i.e. a member of the public, alongside personal injury you and your business can be held responsible for any damage to property. The first thing to bear in mind when considering if you need cover is if you are dealing with members of the public and in what way are you dealing with them. If you are providing goods or services to the general public, then you can be held liable for any third party damage.
Even thought there is no legal requirement to have public liability cover, the law does state that a businesses or individuals pay for losses caused by the business or its employees. This means that if you don't have cover then you can find yourself paying out for any compensation that the court deem necessary to fix the wrong which occurred. Obviously this will be having to be taken directly out of the business and can be extremely damaging if the reparations are high.
If you work from home you will only need cover if you have customers visiting you on a regular basis, this is also applicable if you are visiting customers in their own home on a regular basis. When you take out a policy you will be covered against the risk of causing any bodily injury or harm to the person or property of any third party, which has resulted from the ownership use and or maintenance of the insured businesses premises or services.
What you are not covered for is any claims made against you or the business for any negligent advice, for example if you where a doctor and made a wrong diagnosis. If you want cover for this then you will need to look into getting a separate professional indemnity policy.
Public liability cover can cost from as little as £60 a year, depending the nature of your business. A builder is likely to pay more for cover than a door to door salesman as the risk is higher. Other factors in the cost of your insurance will be the business turnover as well as how many employees you may have working for you. Anyone with a small business will need cover ranging from £1 million to £5 million, yet sub contractors working for the local council or government may be required to get cover of around £10 million.
Public liability insurance is the cheap and perfect way to get cover if your business was liable for any damages. Those who opt not to have cover may find themselves paying out for a large settlement and in turn losing their business and in some cases even their home.
Anyone who has a small business or is self employed sole trader could be potentially blamed for any third party injury i.e. a member of the public, alongside personal injury you and your business can be held responsible for any damage to property. The first thing to bear in mind when considering if you need cover is if you are dealing with members of the public and in what way are you dealing with them. If you are providing goods or services to the general public, then you can be held liable for any third party damage.
Even thought there is no legal requirement to have public liability cover, the law does state that a businesses or individuals pay for losses caused by the business or its employees. This means that if you don't have cover then you can find yourself paying out for any compensation that the court deem necessary to fix the wrong which occurred. Obviously this will be having to be taken directly out of the business and can be extremely damaging if the reparations are high.
If you work from home you will only need cover if you have customers visiting you on a regular basis, this is also applicable if you are visiting customers in their own home on a regular basis. When you take out a policy you will be covered against the risk of causing any bodily injury or harm to the person or property of any third party, which has resulted from the ownership use and or maintenance of the insured businesses premises or services.
What you are not covered for is any claims made against you or the business for any negligent advice, for example if you where a doctor and made a wrong diagnosis. If you want cover for this then you will need to look into getting a separate professional indemnity policy.
Public liability cover can cost from as little as £60 a year, depending the nature of your business. A builder is likely to pay more for cover than a door to door salesman as the risk is higher. Other factors in the cost of your insurance will be the business turnover as well as how many employees you may have working for you. Anyone with a small business will need cover ranging from £1 million to £5 million, yet sub contractors working for the local council or government may be required to get cover of around £10 million.
Public liability insurance is the cheap and perfect way to get cover if your business was liable for any damages. Those who opt not to have cover may find themselves paying out for a large settlement and in turn losing their business and in some cases even their home.
Picking the Right Insurance Provider
Pick a company that specializes in the specific services you need. Bear in mind that there is a difference between what service an insurance company offers and what service it specializes in. Depending on your situation, it could be beneficial to be insured by different companies.
Understanding an insurance company's financial rating. Standard and Poor uses a system to assess the financial strength of a particular insurance provider. Ratings are from 'AAA', or extremely strong, to 'R', which denotes an insurance company under regulatory supervision. The lower rating implies that the company may pay some obligations, and not pay others because of their financial situation. While this is a reputable system, there is a disclaimer. Standard and Poor doesn't audit any company based on these ratings, and they should not be the sole reason for picking one insurance provider over another.
Play the insurance field. Look on the internet. Scour the phone book. Smaller, local providers can usually give you great deals in a more intimate environment. Ask some friends. Call the companies you are interested in and ask them the important questions, so you can get a feel for what you will be dealing with.
Use the services available to you, and save time by going with a service that provides multiple quotes from different companies at once, such as insureme.
Do your part. Know what you are looking for. Understand the coverage you are paying for before it is presented to you. Be prepared to pay on time. In some states a policy cancelled for non-payment can lead to a license suspension, fines, jail time etc... On the other hand, don't slack on the coverage you need, either.
Understanding an insurance company's financial rating. Standard and Poor uses a system to assess the financial strength of a particular insurance provider. Ratings are from 'AAA', or extremely strong, to 'R', which denotes an insurance company under regulatory supervision. The lower rating implies that the company may pay some obligations, and not pay others because of their financial situation. While this is a reputable system, there is a disclaimer. Standard and Poor doesn't audit any company based on these ratings, and they should not be the sole reason for picking one insurance provider over another.
Play the insurance field. Look on the internet. Scour the phone book. Smaller, local providers can usually give you great deals in a more intimate environment. Ask some friends. Call the companies you are interested in and ask them the important questions, so you can get a feel for what you will be dealing with.
Use the services available to you, and save time by going with a service that provides multiple quotes from different companies at once, such as insureme.
Do your part. Know what you are looking for. Understand the coverage you are paying for before it is presented to you. Be prepared to pay on time. In some states a policy cancelled for non-payment can lead to a license suspension, fines, jail time etc... On the other hand, don't slack on the coverage you need, either.
The Unique Characteristics of Title Insurance - An Overview
Invented by Commonwealth Title in 1876, the title insurance business has grown to billions of dollars per year written by about 11 title insurance company groups and 36 unaffiliated companies.
The coverage is purchased to guarantee a clean title to property as of the date on the policy. If later, liens or encumbrances are found to impair the title (and they occurred before the policy date) the title insurance company bears the expenses of repairing the title up to a specified limit. This is a very brief description of the coverage and there are exclusions.
The business of title insurance directly benefits the marketplace because it provides a guarantee of title to purchaser of property, as well as other parties to the transaction. It is more comprehensive than other means of assuring clear title.
When it comes to the profitability, pricing, and reserving of title insurance, several features of the product are important. Notably, title insurance differs from traditional property casualty insurance in several key ways and these ways affect the calculations actuaries make. Those key differences are:
The time frame the policy covers - Traditional insurance coverages unknown future events, while title coverage only applies to events that have already occurred. Also, title insurance policies don't expire until the property is resold or refinanced, while most property casualty coverages have a fairly defined loss period.
Expenses are very high relative to losses - All the research and data gathering for title insurance policies are done before any premium is collected, but high quality of research and data collection can dramatically lower losses as hidden defects in the title can be found and corrected before the policy is sold. Expenses are the key.
The highest expense is for the data/history of each property, which has to be gathered daily by an actual person, in most cases, at the county level and verified. This database is their "title plant". Unfortunately, if a title company starts scaling back on the expenses they pour into their title plant, the lack of information and verification can lead to higher losses. The title underwriting process is designed to limit exposure by thorough search of recorded documents relating to the property under consideration. The losses paid are from existing, but unidentified (and not underwritten) defects in the condition of the title.New title companies have a huge hurtle to overcome. The expenses from gearing up the title plant will severely impair their profit margins in the early years.
The ability to expand infrastructure and maximize profits during good markets and the ability to contract and control costs in bad market is key to success. Currently we are in a slow market for title insurance, because the title market correlates heavily with the real estate market.
As for other expenses other then the title plant - 3% - 6% is for losses and loss adjustment expenses (LAE). Investment income is all but insignificant given that most of the expenses of the policies are paid before the premium is even collected, making for very low financial leverage. However, the loss tail is very on the long side, so provides some very small opportunity for investment.
As indicated above, policies are written once for the risk and do expire upon selling the property. However, there is no notification when policies are no longer in force, so an accurate policy count or payment pattern is not possible. Still, duration may be able to be estimated.
Title insurers carry two reserves: A reserve for all known cases (called the Known Case Reserve) and the Statutory Premium Reserves. The SPR is a liquidation reserve, established by formula by statute. It is basically a mandated IBNR reserve and is released over 10-20 years. Investments are segregated to support the SPR. Should the known case reserve and the SPR be less than the actuarially determined loss and LAE, a supplemental reserve would also be put up.
Kimberley A. Ward, FCAS, MAAA, FCA - Kimberley serves as Partner at Windsor Strategy Partners and is located at their satellite office in Newark, IL. Prior to joining Windsor Strategy Partners, Kimberley served as Chief Actuary at AAIS.
Kimberley is a Fellow of Casualty Actuarial Society. She is hold memberships in the American Academy of Actuaries, Conference of Consulting Actuaries, Project Management Institute and Association of Insurance Compliance Professionals.
Kimberley's core expertise includes property-casualty actuarial pricing, reserving, product development, project management, mentoring, strategic planning, education, training and employee development.
The coverage is purchased to guarantee a clean title to property as of the date on the policy. If later, liens or encumbrances are found to impair the title (and they occurred before the policy date) the title insurance company bears the expenses of repairing the title up to a specified limit. This is a very brief description of the coverage and there are exclusions.
The business of title insurance directly benefits the marketplace because it provides a guarantee of title to purchaser of property, as well as other parties to the transaction. It is more comprehensive than other means of assuring clear title.
When it comes to the profitability, pricing, and reserving of title insurance, several features of the product are important. Notably, title insurance differs from traditional property casualty insurance in several key ways and these ways affect the calculations actuaries make. Those key differences are:
The time frame the policy covers - Traditional insurance coverages unknown future events, while title coverage only applies to events that have already occurred. Also, title insurance policies don't expire until the property is resold or refinanced, while most property casualty coverages have a fairly defined loss period.
Expenses are very high relative to losses - All the research and data gathering for title insurance policies are done before any premium is collected, but high quality of research and data collection can dramatically lower losses as hidden defects in the title can be found and corrected before the policy is sold. Expenses are the key.
The highest expense is for the data/history of each property, which has to be gathered daily by an actual person, in most cases, at the county level and verified. This database is their "title plant". Unfortunately, if a title company starts scaling back on the expenses they pour into their title plant, the lack of information and verification can lead to higher losses. The title underwriting process is designed to limit exposure by thorough search of recorded documents relating to the property under consideration. The losses paid are from existing, but unidentified (and not underwritten) defects in the condition of the title.New title companies have a huge hurtle to overcome. The expenses from gearing up the title plant will severely impair their profit margins in the early years.
The ability to expand infrastructure and maximize profits during good markets and the ability to contract and control costs in bad market is key to success. Currently we are in a slow market for title insurance, because the title market correlates heavily with the real estate market.
As for other expenses other then the title plant - 3% - 6% is for losses and loss adjustment expenses (LAE). Investment income is all but insignificant given that most of the expenses of the policies are paid before the premium is even collected, making for very low financial leverage. However, the loss tail is very on the long side, so provides some very small opportunity for investment.
As indicated above, policies are written once for the risk and do expire upon selling the property. However, there is no notification when policies are no longer in force, so an accurate policy count or payment pattern is not possible. Still, duration may be able to be estimated.
Title insurers carry two reserves: A reserve for all known cases (called the Known Case Reserve) and the Statutory Premium Reserves. The SPR is a liquidation reserve, established by formula by statute. It is basically a mandated IBNR reserve and is released over 10-20 years. Investments are segregated to support the SPR. Should the known case reserve and the SPR be less than the actuarially determined loss and LAE, a supplemental reserve would also be put up.
Kimberley A. Ward, FCAS, MAAA, FCA - Kimberley serves as Partner at Windsor Strategy Partners and is located at their satellite office in Newark, IL. Prior to joining Windsor Strategy Partners, Kimberley served as Chief Actuary at AAIS.
Kimberley is a Fellow of Casualty Actuarial Society. She is hold memberships in the American Academy of Actuaries, Conference of Consulting Actuaries, Project Management Institute and Association of Insurance Compliance Professionals.
Kimberley's core expertise includes property-casualty actuarial pricing, reserving, product development, project management, mentoring, strategic planning, education, training and employee development.
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