Archive for the ‘irda’ Category

5 Health Insurance Myths that may put you at risk

Health insurance or mediclaim is a labyrinth full of exclusions, room rate caps, pre-existing illnesses, loading, no claim bonus etc. While we do not decode all of these, we do attack some common myths that exist in the minds of the customer. Often the broker is also clueless or prefers to act dumb. The health insurance field is very much “buyers beware”, so read on.

 1.    When I buy health insurance, all I need to do is price comparisons, all plan features are essentially the same

Price is just the first comparison point for health insurance policies. Other important touch points where the polices will differ must be compared:

  • Room rent sub limits – the public insurers sub limits are usually capped at 1% of the sum assured or Rs 5000 whichever is lower. The room sub limit also restricts the reimbursement you will get for other expenses to the same category.
  • Insurance co-pay – It means that the expenses you claim will be divided between the insurer and you. So if there is a co-pay clause of 20% then for a claim of Rs.1,00,000, the insurer will cover only Rs.80,000/-
  • Renewable age: Many insurance companies will not renew your insurance policy once you are past 60 and need it the most. Do watch out for this since there are insurers which will give you insurance even at 80 years.

2.    Once I have brought the policy, I can blindly renew it the next year

Expect changes in your policy every year. The policy pricing and terms will change according to your age, claims made throughout the year, the insurers’ loading policy and the insurers’ internal policy changes. The insurance policy contract is an annual contract (at times two or three years’ contract), hence it is free to change over time. Besides there may be some framework changes from IRDA, the insurance regulator. Do ask your agent clearly about what changes have occurred.

3.    You need a minimum 24-hour hospitalisation to be claim health insurance

While this was true till a few years ago, 24-hour hospitalisation is not a criterion for making a claim. Due to advancement in medicine and better awareness, many overnight procedures can now be completed within a shorter period. Infact many insurers use the number of day care procedure offered as a selling point.

4.    The policy covering the maximum procedures / having the most day care procedures and pre-existing illness covered is the better policy

So which policy would you buy, one which covers a 160 day care procedures or one which covers 85 procedures? Well you might be making a mistake if you buy the first one. Often insurers list all possible variations of procedure make the numbers swell and also to exclude procedure. For instance one insurer mentions 4 different type of Tonsils procedure while another just mentions Tonsils and covers all variations of the treatment (which are likely to be more than 4).

Most insurers will cover pre-existing illness after a delay of 3-5 years. If an insurer is covering this with a first time buyer, then he will load it up in the cost.

  1. 5.    Since my policy offers cashless facilities, I do not need a medical emergency fund

In a cashless system, when you get hospitalized with an approved network hospital, the Insurance Company or  TPA co-ordinates with the hospital and settles the bill without you having to pay first. This however is subject to an approval for the procedure. In case of an emergency hospitalisation, the authorisation may take a few hours or it may even take a day if the insured is admitted on a holiday.

The hospital is likely to ask you to deposit cash before starting any procedure. Hence a medical emergency fund is a must even if you enjoy cashless health insurance facilities.


Keeping your money clean

Subash Chadda, 44 year old businessman approached an insurance company to buy a single premium ULIP. To his surprise he was asked to submit a whole lot of paperwork including identity and income proofs. The insurer informed him this was part of the new IRDA guidelines to counteract money laundering. If you are going to buy a new policy or make a top up bigger then Rs.1 lac then you will be subject to some extra paperwork too.
What is money laundering?

Money laundering is the processing of dirty money in order to disguise their illegal origin. Dirty money is derived from criminal conduct and criminals want the money to look like it came from a legitimate source hence they resort to money laudering. Criminals need a legitimate source of income to set up operations without attracting the notice of the government. 

Why is the anti-money laundering act needed?

The anti Money Laundering Act aims at stopping this illegal activity.

The bomb blast in Mumbai shook up the whole nation. Instead of dividing us, it has made the citizens of India more aware of their duties towards the country and fighting anti social elements.

All anti social acts require financing and this is done through illegal money which creeps into the economy and is laundered. To counter this, the government has introduced the Anti Money Laundering Act that applies to all financial institution including insurance companies.

It is essential to understand how the Anti Money Laundering Act and the IRDA guidelines for it will affect our insurance transactions.

What are the IRDA guidelines?

IRDA has instructed all insurers to classify their customers, into the following risk categories:

    – High risk: Antique dealers, arms dealers / explosive dealers, money changers, film personalities, persons dealing with real estate, politically exposed persons, NRIs, HNIs, etc

– Low risk: All others

IRDA has mandated compulsory reporting for all related cash transactions above Rs 10 lakh in a month and all transactions classified as suspicious by the company.

The agents and brokers have to maintain a separate file on each customer where details of proof verifications are given as part of the “know your customer” procedures.

The agents have to file a Moral Hazard report which states that the client is not over insured and also he is financially able to meet his premium payments.
How will it affect you?

  1. These guidelines will affect you if you are buying insurance from the insurer for the first time. You will have to supply proof of identification, proof of residence and proof of income while buying insurance.
  2. Even people who took a policy in January this year may have to provide proof of residence, photographs, and the like, which were not mandatory till now.
  3. The AML makes it mandatory for insurers to comply with ‘Know Your Customer’ (KYC) norms by obtaining documents to clearly establish the customer identity in the case of all new insurance contracts. Where the premium is Rs 1 lakh per annum in the case of individual policies, a detailed due diligence should be exercised to establish KYC.
  4. Also if you a builder or any other person who come into the category of a high risk client then the due diligence investigation conducted by the insurer will be much more.
  5. If you are paying the insurance premium for another person then the transaction will also be scrutinised in detail.

It is essential that as customers and as responsible citizens we all cooperate so as to bring the anti social elements to an end.

The paper trail

With these guidelines the paper trail has become lengthy. Buying an insurance policy will involve a lot more paper work but it is necessary to curb the menace of money laundering.

It is also been made necessary for brokers and agents to ‘Know Your Customer’ (KYC) before issuing a policy. Hence, you will now find yourself submitting a larger number of documents before you buy an insurance policy.

As a customer you will have to give the following paperwork before getting insured.

Proof of identity

-PAN Card

-Voters Identity Card

-Driving License


-Letter from a recognized public authority (e.g. Gazetted authority/ municipal     corporation) verifying identity of the customer

-Employee identity card of a listed company or public sector company

-Ration card (where photograph of customer is present

Proof of income

-Telephone Bill (not more than 3 months old)

-Electricity Bill (not more than 3 months old)

-Credit card statement (not more than 3 months old)

-Bank account statement (showing transactions within the last 6 months)

-Valid lease agreement along with rent receipt which is not more than 3 months old


-Ration Card

-Letter from any recognized public authority (e.g. Gazetted authority/ gram panchayat/ municipal corporation) verifying residence of the customer

-Letter from a listed/ public sector company/ armed forces employer/ government depts. along with latest salary slip

Proof of income

-Income tax assessment orders/ Income

-Tax returns slips

-Form 16 in case of employed individual

-Salary slips from reputed private limited / public sector employers (within last 3 months)

-Audited company account

-Audited firm accounts

-Audited proprietorship profit & loss account

-Copies of form no. 10CCAC under section 80 HHC of IT ACT 1961 for export income
Typical money laundering transactions

Here are some typical examples where laundering on money takes place and the insurance company will be more vigilant and ask for additional paperwork.

1. Use of Single premium policies.

2. Early redemptions of large policies.

3. General insurance claim fraud involving illegal or non-existent goods or assets.

4. Cash payment of premium; sometimes agents convert cash into their own cheque thus masking a true risk.

5. Cooling off periods or free look periods which offer an avenue for legitimised full refunds when the premium may have been paid out of illegal moneys.

6. Deliberate fraud between customer and intermediary or employees of insurer.

7. Premiums paid by third parties including agents and benefits paid to beneficiaries not related to the purchaser of the policy.


Though the Anti-money Laundering Act means a lot more vigilance and some extra paper work for the policy buyer, it is the best way to fight the menace of black money. As concerned honest citizens we must corporate willing and do our duty.