Loan Protection Insurance Policy: Credit Shield

When a loan seeker is issued the loan, most banks/issuers would ask the customer to also buy an insurance policy. This policy is to cover the bank’s risk of non-repayment of the loan dues in case of death of the primary loan seeker. These policies are called Loan Protection Plans and are typically a Group Term Plan that the insurance company has floated for the bank in question.

The advantage for the loan seeker is that his family is not under stress in the unfortunate event of a death before the loan tenure is up. The Loan Protection Insurance Policy’s sum assured is typically equal to the loan amount and tenure is equal to the loan tenure.

Impact of FY 2013 budget on Insurance

The Union budget of FY 2013/14 had a few interesting updates for the Insurance industry.

  • All towns with a population in excess of 10,000 will have a LIC branch, and also of one of the PSU general insurers. By 31st March 2014.
  • No prior approval is needed to open up a branch in Tier II town by any Life Insurance or General Insurance company
  • Bank KYC will suffice for a new Insurance policy sale
  • Banking Correspondents will now be allowed to sell micro-insurance in rural areas
  • Banks will now have the option of taking up a broking license. This would mean that Bancassurance which has been the 2nd largest channel for most private Insurers will see a significant disruption.

List of Web Aggregators licensed by IRDA

As of May 2013, following are the IRDA licensed web aggregators that can operate in India.

Approval No. Applicant Web Address Status
IRDA/WEB/AGG/MUM/001 iGear Financial Services Pvt. Ltd. Valid
IRDA/WEB/AGG/UP/002 Accurex Marketing and Consulting Pvt. Ltd Valid
IRDA/WEB/AGG/ND/003 Great Indian Marketing Consulting Services Pvt. Ltd Valid
IRDA/WEB/AGG/MAH/004 Voila Consultancy Services India Private Limited Valid
IRDA/WEB/AGG/BAN/005 eMudhra Consumer Services Ltd. Valid
IRDA/WEB/AGG/HYD/006 I Call Soft (P) Ltd Valid
IRDA/WEB/AGG/MUM/007 Policy Mantra Insutrade Pvt. Ltd Valid

Insurance Web Aggregator – IRDA definition and guidelines

IRDA, the Insurance regulator has issued guidelines for a new category of players – the Web Aggregators.

IRDA’s definition of Web Aggregators: IRDA defines a web aggregator as a legal entity that is

  •  Company registered under Companies Act, 1956 (1 of 1956)
  • Approved by IRDA under the Web Aggregator Guidelines
  • Owns & manages a website that provides information and online price comparison for insurance products
  • Generates and sells “leads” to Insurance companies or their agents/brokers

IRDA Web Aggregator Guidelines:

  • Only factual and unbiased content about Insurance products and companies to be put up
  • Shall not show ratings, recommendations or best-sellers
  • Clear notice to visitors that their details can/will be shared with the insurance companies/ brokers
  • No advertisements or sponsored content on the web aggregators portal
  • Accurate and up-to-date product comparisons should be there
  • Leads can be shared with a maximum of 3 insurers, if the customer shows interest in buying but doesnt fill up any preferences
  • Leads should be shared securely and within 5 days of customer’s applying online
  • Leads to be charged at Rs 10/- maximum
  • Flat fee of Rs 1 Lakh max for each product listed on the site
  • Max of 25% of premium as sales commission for any actual sale that happens on the lead. And this will be calculated basis the actual premium collected by the insurer.

Update July 2013:  IRDA has issued a new draft of guidelines seeking to build more controls around the web led distribution model in Life and Health Insurance. Web aggregators was new category that IRDA had defined in 2010/11 wherein portals doing comparison and selling leads to insurers were to comply.
The new set of draft guidelines are around increasing the realm of control that IRDA has over the web channels. Some of the key highlights of these guidelines are:

  • A web aggregator cannot buy leads or have tie-ups with other portals
  • Web aggregators cannot do comparison on social media sites
  • Need to have a Leads Management System (LMS) which needs to undergo an IT audit every 6 months

How much life insurance do I need

Though there have been a lot of advancements in technology and medicine, the uncertainty of life still looms large in the 21st century thanks to factors like accidents, unforeseen illnesses and natural illnesses. Most people opt for insurance to ensure the well-being of their loved ones during such catastrophic events. However, thanks to the ads and marketing campaigns by various companies, the kind and amount of insurance has become a perplexing question for most.

So, how much insurance does one need? There are many factors to consider while framing an answer to this question. The first aspect is the income of the family. You need to make sure that the interest income from the sum assured can meet the current monthly expenditure of your family so that they don’t fall on hard times. Moreover, one also needs to account for inflation and the possible fall of the rupee.

The size of the family and the age of the income earner also needs to be taken into account. People who have dependents will naturally need more insurance as compared to people who don’t.

Here are some rules that can help you to decide the amount of insurance you need:

  • Most experts advocate that individual insurance cover should at best be eight to ten times of the gross annual income. So, if you earn x amount, then your cover should at least be 8x to 10x.
  • The insurance amount should also cover basic expenses like the education of your children, your loans and any kind of debt. It should also be enough to take care of major events like marriage or higher education.
  • Factor in the impact of inflation. Even to manage your current regular expenses you would need an increasing amount of money
  • Keep some room for new avenues of expenditure that might come up.E.g. people who would have done their expense planning 15 years ago might not have factored in monthly mobile bills or buying an iPad etc.
  • The insurance premium paid by you should be such that it does not hamper the regular expenses of your family.

These are some of the basic rules you need to follow while calculating the amount of insurance that you need. Also, it is a good idea to periodically consult your adviser to review your insurance needs.

What is a Loan Against Security

Loan Against Security is typically a short term (usually 1 year) loan extended to consumers against selected shares, mutual funds and Life Insurance policies held by them. While this is a collateral backed loan, given the underlying volatility in the shares/mutual funds market, such loans are slightly costlier.
In India, these loans are typically charged at upwards of 14% annual rate.

These loans can be availed for varied purposes, including purchase of property/farm house, for executing a merger or other business transaction, subscribing to a rights issue etc.

What is Core Banking System, Core Banking Branch

Core banking refers to the retail business of lending and deposits for any bank. Considered separate from the Corporate business, the name originated from considering the retail/consumer business as the core of the banking sector.

Core Banking System
Core Banking System or CBS refers to the technology platform that a retail/consumer bank has to service its clients. This system typically provides for account updates, withdrawals, account queries, interest calculations etc. Since most of today’s systems are internet enabled, a CBS might also infer that the branches of the bank can service any customer from any location. I.e. the customer need not go to the home branch everytime for all account updates.

Core Banking Branch (CBS Branch)

Branches of a bank which have access to this CBS platform are called Core Banking Branch or a CBS Branch. At such branches a customer from any branch could walk in and get the necessary information or transaction done. In India, since the branch networks for most PSU banks consisted of a very large number of branches, the CBS roll-out was typically done in a phased manner. This meant that customers could avail of the above benefits at only a handful of these branches and to clearly identify these preferred locations, the banks started listing their CBS branches clearly. With time, as the roll-out is complete all branches would be CBS branches.

Top Core Banking Software Systems

Here’s a list of the top Core Banking Systems currently available in the market. These leading CBS solutions run the basic platform for retail/consumer banking for most of the leading banks globally.

  • Flexcube by Oracle (previously iFlex)
  • Finacle by Infosys Technologies
  • TCB from Temenos
  • Corebank, Bancpac from FIS
  • BaNCS from TCS
  • Bankfusion Universal Banking by MiSys
  • ICBS by Fiserv