Monday, February 24, 2014

WHY FINANCIAL PLANNING? or FINANCIAL PLANNING vs SAVINGS AS PER LIQUIDITY



Has anyone experienced being sold a Financial or Investment product which actually is not meant for you?, reason being-

It does not help you financially satisfy your goal, i.e. under or over shoots your requirement?  (of course, if you know your actual requirement)

AND / OR

The maturity does not match to your goal year?

AND / OR

The Product itself is not for you?

AND / OR

The product gives very high or very low returns?

AND / OR

Product is such that, regular re balancing is very much necessary?

AND / OR

The product was good for my friend or colleague, but not for me?

I bet on this, everyone has experienced or is experiencing few of the above…….
Has anyone asked you what is your family’s requirement? And assessed the same with you ?


Following are the reasons why Financial Planning becomes eminent for individual family (as each family has their own goals and dreams)-

Contrary to popular belief, Financial Planning is not just investing its a process and all about how to set and move on with it and finally achieving Financial Freedom-the ultimate Nirvana.-

** Family Income recording and assessment

Each family has an income and lot of people within family say “I have this income”,-this needs to be consolidated as family income and recorded as per different point of time and level of receipts, from time to time. This would actually show what is the income available.( believe me most don’t even know what is there actual family income) Recording income also helps manage it.

** Family Expense recording and understanding cash flow

More the number of people in the family more the hands to incur expenses and with that comes more the difficulty to record , evaluate and control it, but sitting once together would help all get actual picture (Believe me, doing this by yourself also will help family a lot)

Actually with each member of family having a very busy schedule, there is lack of communication, which results into unnecessary expenses and even may create a credit hole for the family (even when the family is small and even when only few members in family are actively earning)

Income and Expenses may generally differ as per periods and needs respectively, but once a record of the same is done you know what is the surplus available at that particular point of time on an average history basis which helps a family take any financial decision, may be  for spending or saving

So this may help the family increase cash flow, plan tax payments and even plan for expenses. This may  in turn increase cash flow.Increase in Cash Flow may also help increase Capital.

** Recording current assets, liabilities and investments held and assessing the same

This is the most under-rated activity by any family as no collation is done of the same. Most of the times it is actually a very “Truth Bearing” activity. Most family’s just invest and then no records are kept, not even tracked where it is.

I had this one prospect who said ”I have partnership business assets like plot, plant and machinery etc , which will take care of my retirement “ and I felt pity for the family ‘cause those assets were never valued ( keep aside his retirement needs assessment). So being under some assumption is like digging a hole in once own pocket ( “and we say there are lot of pick-pocketer’s around ”)

So it is very much necessary to record all assets, investments and liabilities at one place and collate them, assess them and value them. Moreover each asset and liability class has its own different time and money value characteristic.



** Assessing Family security needs

This is very very important.
While we all must have some or the other risk avoiding or risk averting method or investments, has anyone actually assessed the Risk Attached with the Family? Financial Planning will aptly guide the family for the same, and provide peace of mind which in turn increases productivity and concentration.

** Helps in Investment needs analysis

What are goals for the family and what are its needs to invest today to achieve those goals, which falls at different point of time; needs to be assessed, but doing above activity will give definite clarity for the family individually.

** Standard of living

Once income and expenses are recorded, it will help the family to understand whether same standard of living can be maintained or it can be / needs to be upgraded.

** Financial advisor role, with Financial plan as base

It is very important to have a financial consultant, such that he not only is good in technicals and calculations but also has emotional and intuitive understanding of people, situations and markets. Such a person will help you in the following with help of Financial Plan-

 - Creating a vision for the family, through individualistic Financial Plan preparation
 - Laying a path to achieve the vision created
 - Following a set process, thereby keeping emotions and market conditions at bay as far as investment decisions are to be taken.
- Preparation of Plan as per individual Portfolio Allocation and Risk profiling of the family.
- Reminding and re-affirming of Family Goals and requirements, if anytime member waives away from the Plan

** Re balancing the investments from time to time regularly

Market conditions change from time to time and accordingly investments would also change. So Financial Advisor/ Planner  would help the family on regular basis to rebalance the portfolio as per family needs. So here, each family would have its own unique rebalancing requirement-and that can be done only by experienced Financial Advisor with the spiritual book-your Financial Plan in hand.

** Disciplined approach

Once a Financial Plan of the family is written, it becomes a spiritual book for the family and gives a very clear thinking approach, hence it helps the family to think in a direction and hence disciplines the family.

Better financial understanding is achieved when all financials are measured-like each goals are measured, its financial needs to achieve is measured, investments are measured and effects of decisions taken and reviews done are better understood.Each financial aspect measurement capability is met with pros and cons of those decisions and situations..

Actually this approach also inculcates a better and disciplined habit in younger family members towards Financial Planning, and it is always advantageous to have this understanding at a early age. ( for more clarity read- " SAVE NOW or PAY LATER" )

** Actually creating value for money

Emotions generally affects any investment at 3 levels viz, market level, investor level and advisor level and each will play its role at some point or time to make financial decisions.

But when a Financial Plan is written and which well articulates the habits of the family, a discipline is set which would always help the family take worthwhile decisions, in turn create value for money in its real sense.

** Financial Plan helps stick to goals and prioritise as per actual needs

We have, what we call responsibilities and duties towards family members, have goals, have dreams and aspirations. Who will help the family understand these things and make realise the family what and where is the difference? For each family a dream and a goal would be differently defined and so the needs and wants would be accordingly prioritised and so sticking to goals becomes a habit.

So now you have a single person-called Financial Consultant / Advisor who actually knows your family’s needs in and out and is point of contact for every financial need or query or situation-Plus you have an added advantage to have a consolidated Financial Statement at one go rather than calling 10 different agents who don’t’ know you in and out, your family resources, needs and goals.


" In Short to Sum-Up, a financial plan offers to help family clear their hazy and cloudy thoughts and ideas AND think and act in same direction in a Disciplined manner."


Financial Planning basically-with the help of a financial advisor- should help in 3 ways, Understanding current Financial Situation, Evaluating where you want to go (i.e.goals and measuring the goals) and lastly setting a process to achieve those goals, with a wholesome approach.

Monday, February 17, 2014

6 REASONS WHY FAMILY BUDGETING IS IMPORTANT




Since an Interim Budget of our country is due today i.e.17th February,2014, we will be watching and even discussing lot on country’s budget and it’s pros and cons and what should have been done and what should not have been done and the cause and effect of the same.

While worldwide all country’s prepare and present budget, but it has been found that only very few percentage of household family’s do Budgeting. While we all live on, have our own set of income, expenses and responsibilities, it is fatal not to prepare a budget (in Writing, incomes , expenses on paper). In India the percentage of household family actually writing income and expenses on paper is still very low. Some Family member may be writing their daily expenses in a book, but for me that is very little work done.

Having a family can be a huge responsibility. There are countless things that must be taken care of everyday and the safety and security of said family is foremost in the mind. That is why it is so important for a personal family budget to be in place. The financial area of your life as it pertains to the family is the deciding point between happiness and extreme stress. Those who fail to use a family budgeting system often end up with family problems and worse yet, devastating financial losses, all of which could have been prevented with a bit of planning.

The family budget is really nothing more than a listing of the expenses and incoming monies on month to month basis. While some people believe that the budget must be a complicated mess of numbers and accounting practices, the common person will find that simplicity is the best method. So the first rule of the family budget should most certainly be to keep it simple.

Budgets carry the stigma of cutbacks and no spending on fun items. A family budget serves as a useful tool for families, regardless of income level. A budget may actually free money and assist in targeting the money on more useful items. Budgeting is an important component of financial success and one that's not difficult to implement.

Following are top 6 Reasons why a family should sit together and discuss,prepare budget and reassess the same at regular intervals-
  
1.Track Spending

   A family budget allows the analysis of the family's money and how it is spent. The exercise of identifying spending habits reveals trends and money wasters. Small amounts of money add up quickly, creating a drain on the bank account if the items purchased are not necessities. Identifying the items on which money is spent is a key when establishing a family budget. Families often find themselves surprised when they explore where the money goes each month and from my short but great financial planning experience I can vouch that putting things on paper makes a huge difference, especially sitting together with all family members. One can even allot Percentages to each expense, to ascertain what percentage of total expenses goes where.
       2 Predict Spending
      A family budget provides a tool to predict future spending. Foreshadowing expenses and spending trends allows the family to plan for upcoming events or unexpected expenses that inevitably arise. A review of the budget periodically allows the family to adjust spending based on previous months. The budget also allows the family to identify areas that can be cut when unexpected expenses do arise.
Also some expenses are done on monthly basis, some on bi-monthly basis, some quarterly basis ….and so putting on paper helps a lot to track and predict what comes next. And on the top of it, if followed rigorously even for some time by family, there would be no reminder needed for any of the future expense.
3.Manage Debt

Consumer debt hampers many families, holding them back from financial freedom. A family budget helps control spending which allows extra money to go toward paying off debt. Setting budget ensures that all credit cards and other forms of debt are paid on time each month,avoiding late fees and penalties. Extra money in the budget may also be set aside to aggressively pay off outstanding debt. This eventually frees more money to apply toward other areas of the budget, including a family savings account.

 4. Increase Savings

The savings account often falls neglected without a family budget. Small splurges eat away at any extra money in the bank account which could go towards savings. A family budget allows a percentage of the income to go toward a savings account or other investment options. Building the savings into the budget ensures the money makes it into the savings account before it is spent on other things, it also throws up actual surpluses left on each regular interval, which helps for either future expense or saving.

5. Teach Financial Responsibility
Implementing a family budget sets a strong example for children. Financial responsibility begins at an early age, well before a child is old enough for a check book or a credit card. The responsible approach of creating a budget instills the value of money and responsible spending in the entire family. While they don't need to know every detail of the family's financial situation, understanding that spending money needs to be planned is a good lesson for kids to learn.
6.   Creates a Common Vision for Family
Doing this activity on regular basis has its indirect advantages for the family. It creates a sample vision for the family and each member keeps tracking it somewhere, and on a regular basis the family sits together. GREATEST ADVANTAGE…..
So traditionally it is said.
“Family that eats together, stays together”
AND
The improved latest version says,
“Family that discusses and prepares budget together, stays and grows together”


Saturday, February 08, 2014

FINANCES AND SMOOTHER MARRIED LIFE


Being in a Week of Love, first I need to wish all a very happy and lovable Valentine week for the year along and whole life. I could't resist myself to publish an issue related to couples in such special event of love.

With the change in Socio-Economic conditions of our country and increasing Literacy among females-even in rural areas- a big shift is happening among young couples and there financial life which affects sometimes directly sometimes indirectly married life positively and/or adversely depending upon how the life together is taken forward.
With most of the couples, lately both are actively working and having sizable earning capacity, and with finances becoming more and more important to handle even daily chores, some or the other financial question always arises between a couple at least once in a day which they need to discuss and/or decide. Traditionally in India, females are always part of finances for a couple / family,  but was limited to only household expenses. With growing literacy , growing aspirations, ever growing expenses, changing socio-economic conditions and more and more females actively working , each member of the family has to take active participation into finances and investments as at least Taxation has to be taken care of even for the Females now. With growing literacy, comes knowledge and more awareness which leads to more cash surplus which a couple should positively utilise for achieving their goals and dreams.

BUT THAN , EVEN WHEN BOTH ARE KNOWLEDGEABLE ENOUGH WHY FINANCES ARE FOUND TO BE IN TROUBLE AND IN LATE MARRIAGE YEARS COUPLES FIND THEMSELVES IN TROUBLE ,WHICH SOMETIMES ALSO LEADS TO SEPERATION?
I have seen cases where the couple is earning excellently and can easily fulfill their dreams and goals, but still are in trouble AND the challenges can actually start even before one says "I do."

After preparing Financial plans, I have realized few lapses which I would like to share with you, just to see that I do not have to handle or rebalance any portfolios for separation as the reason and in a larger sense sharing few ideas which would help couple take and enjoy life more prudently with satisfaction and finally achieving financial freedom. Here, size of dream or income or goal is of least importance, rather what is important is achieving whatever the family dream is, together.

To explain things from financial aspect, I first need to talk about individual traits and couple compatibility as related to finances.

Different types of couples and their approach to financial planning

From the perspective of financial planning behaviour, I generally find the couples into three broad categories:

Type 1: One spouse leading from the front, second spouse on backstage

The first partner is knowledgeable, inclined and actively involved to design family’s financial future. The second partner gives first partner an implicit authority to take financial decisions for the family and to live out its implications (possibly because this partner is not very money savvy, trust in knowledge of first partner, being from a non-financial background like IT etc., loaded with other responsibilities like managing household, etc.).

Type 2: Both spouses on the front-stage

Both spouses are professionals having own incomes, have a very clear view about money and financial goals, and definite opinions on how it should be managed for the family’s future.

Type 3: None of the spouses at front-stage

Both spouses are laid back as regards financial planning aspects. None of the partner displays any active interest/ involvement to design family’s future and plan financial goals.

Now, let us analyse the above approaches.
Type 3 couples anyways are not bothered and happy in their own life, so there generally may not be an issue, so we will exclude them for our discussion here.(We will talk some other times their financial problem, which always is, because of laid back and unaware approach)

In case of type 1 couples, the approach is acceptable, because then the first partner is free and without any botheration allowed to take calls regarding financial aspects – like hiring a planer, listing down financial goals, making investments etc. Also, the first partner takes lead in learning more on personal finance aspects and takes charge when required.

But here also, the first partner has an implicit responsibility to keep the second partner updated on important financial decisions and its implications AND also seek consent for critical financial choices.If not done so, at time it is found that it leads to future differences, unsatisfaction, not meeting financial expectations and finally living with or separating for not giving due respect and thus not achieveing financial goals or aggravating financial problems.

Coming to type 2 couples – in these cases, if both couples are very much knowledgeable about money matters – while having all the knowledge is good, over time in marriage, this knowledge itself can result into “self-centeredness” and resultantly, ego issues can very easily crop up.  

Since both partners earn and have own view on how to manage money, in case partners don’t have the necessary emotional maturity and empathy towards each other, there can be a possibility of conflict in terms of each member knowing best on how to plan the family’s financial future.

In such cases, even if a financial planner presents a very clear cut financial roadmap, there are very slim chances that it will actually get implemented, unless there is enough compatibility amongst the spouses to work together.

Why compatibility between spouses is so important for a sound financial life

In earlier times, we had a very good safety net in form of joint family system – a wise community of elders whom couples could approach in case of confusion/ conflicts between spouses.

Today’s times are increasingly stressed times, there is no job security, plethora of choices, ever increasing lifestyle expenses, big responsibilities taken early at life, easy availability of credit etc.

It is in these times that both partners are forced to make some very key decisions that can potentially impact their entire financial future.  Some of such decisions are as follows:

  1. Whether to mix individual funds in joint account or keep accounts separate after marriage
  2. To live with the parents or live separately
  3. Which city to settle in (staying with parents vis a vis staying in a big city, OR staying where one of couples is working)
  4. When and how big a house to purchase
  5. When to think about starting a family
  6. What to do with windfall gains received – for e.g. yearly bonus, inheritance
  7. How and when wife will take a career break to raise kids
  8. How should be the child’s schooling (type of school, day boarding etc.)
  9. What career options can homemaker explore in later years
  10. How much to invest in commodities (e.g. gold etc.)
  11. Which financial goals to keep in priority
  12. Taking care of senior parents, their accommodation, medical treatment costs etc.
  13. What will one do after retirement? Etc.

It is in these times that the emotional maturity and mutual respect and regard between spouses truly shines through, and determines ultimately how abundant a family’s financial life will be.

Also, these crucial decisions have to be acted upon fast and cannot be avoided altogether. For e.g. a couple postpones home buying for 5 years. By end of 5 years, when they go out in market to buy, prices have risen so much that house becomes unaffordable and also whatever they paid in rent for all those years was money down the drain…had the couple taken decision before, they would have been much better placed now…how many of us see this happening everyday to people around us?

What couples need to keep in mind

From a financial perspective, both couples should realise that “being on the same page” is their “most important asset” when it comes to their financial life.

No partner should thrust his/her financial decision on the other partner, for the simple reason that if the other partner is pained by a decision, the pain will come back and affect the first partner as well.

Each partner has to see into each other’s hearts as to what the other partner envisions their joint future to be, which helps both partners to understand and appreciate other partner’s views.

Both partners have to also decide whether they are themselves capable to chart their financial path, and if they decide to hire professional help, that decision should also be a joint decision, and not a forced one.

In my view, couples should specifically reflect on following points in their financial journey:
  1. Stop considering “money matters” as a taboo. It’s high time couples talk about financial goals and envision the financial future – remember that only dreams become reality. I generally suggest partners to sit together and chart out a financial plan discussing all financial aspects of family together, listing out goals/dreams i.e. creating a common vision and charting out a path to achieve financial freedom and meet goals. This indirectly helps couples to act like-mindedly even to handle disturbances in life, which may occur in life at some point or other.
  2. A word to husbands: You know a lot, agree. But please involve your wife in financial decisions, even if she is a homemaker. It is equally about her life too. Let her learn, and contribute also.  
  3. A word to wives: Please be more active in financial matters. It is your right. It is you who actually “runs the house”, so any financial planning exercise is incomplete without you.
  4. A word to the financial planner – don’t ignore the spouse compatibility aspect in the planning process. Inform the couples that their joint involvement is necessary for success of the plan. At least in the initial meeting and presentation of draft plan, try to call both spouses for a discussion.

Here I would like to share one example which highlights of the biggest problems I see within couples, which surely affects their financial life in a grave manner:
I met this couple few months ago, both working in a good company, having excellent income levels to save enough to meet atleast 70% of their common Goals / Dreams, but I got this call saying “we are not able to save enough and we don’t know why even our high incomes are draining”.
I just did one thing, while discussing made the couple sit together and got all details from both of them together. Even I was shocked to see that they where discussing their finances for the first time together.                                                        


After they discussed the Incomes and Expenses, goals, assets, liabilities, and other details with me (surprisingly, even within themselves for the first time, even after having kids and being married for more than 20 yrs.) and recording the details i.e. putting things on paper in detail they by themselves had the solutions ready in their minds (even before I wrote and presented their financial plan to them).The problem initially was NO SURPLUS EVEN AFTER GOOD INCOME LEVELS AND BOTH WORKING automatically turned into A WOW EFFECT ,just because a healthy communication and discussion happened where all was recorded and a common goal with a vision and a common path was laid.

THE CORE THING HERE MISSING WAS HEALTHY COMMUNICATION.

Now let me come down to basics, which could help each one in some or other way to excel through or even help avoiding separation. A little financial planning can do a lot for your love life down the line. Here are a few pointers to help you stay smart when following your heart:


Know Money Habits
You must talk money even before your relationship becomes serious—a person's financial habits are an incredible insight into his values and ethics. That doesn't mean a lousy credit score is a reason to break up, but if you find that your new love interest doesn't handle money responsibly, you have to question what else he isn't going to be upright about. If you're the one with the issues, be honest about your shortcomings. A good relationship is one in which each partner helps the other make better choices—and you and your beau might be able to help each other become smarter about money.

Meet in the Middle
Whether you are newly engaged or suddenly find a long-term relationship challenged by a financial setback, support each other. Retreating to your corners does not help. Nor does finger-pointing; blame doesn't help your family balance sheet. To address any money problem, you need to work together to come up with a plan.

Understand all Equals
Who makes what is irrelevant. Do you hear me, stay-at-home moms or for that matter only earning dads? The size of your paycheck does not determine your role in the family finances. Respect each other as equal partners, with an equal say in money management.


Put It in Writing

Ensuring that you have the correct documents in place to safeguard you and your assets is a must. Means a couple who is about to commit to the relationship or a couple who is married should write it on paper or some sheet who owns what and who would own what later(or for that matter could decide and appoint a financial planner at earliest) and a will, or P.O.A. or trust preparation etc.with hilding all accounts in nomination or jointly . For those contemplating a second marriage, the only way to protect the assets you bring to the table—especially if you want them to go to children from a prior marriage—is to create a legal trust. That document will spell out what portion of your personal assets will or what will not pass to your children, rather than to your new spouse.

Understand Debts, before and after marriage
Debts you had prior to marriage are yours alone—unless you actively merge them. When you wed, don't automatically rush to combine everything. You can help each other out by chipping away at your loans without becoming officially responsible for each other's. Actually this is slowly but steadily and surely becoming a issue to handle.

Example: I had a client who had a home loan jointly with his daughter for tax saving purpose for both, so the loan would equally get deducted regularly. Once she got married this became an issue, somehow my client was not able to understand (and also handle, because of his own cash surplus issues, though temporary) and then once I wrote newly married couples Financial Plan, I got an opportunity to understand and explain their personal traits and get the matter resolved.

Divide and Conquer
Here's how I suggest every cohabiting, working and waring couple organize their cash flow: Create three accounts—one for you, one for your partner, and one joint fund. Once you've determined the total cost of your shared living expenses, both of you should contribute your portion of these costs to the joint account each month, based on your share of household income. (For example, if you make Rs.60,000 and your partner makes Rs.40,000, you're responsible for 60 percent of household expenses.) Whatever money doesn't go toward these costs stays in the individual accounts, to be used at each person's discretion.

Extra Credit
Every woman also needs one credit card in her name only. If you become divorced or widowed, an individual credit history will enable you to get a loan and open utility accounts without leaving a deposit, and may even help you land a job (some employers check applicants' credit during the hiring process).

Ties That Bind
After you marry, every asset either of you acquires is jointly held. That's why you both need to be in sync on your long-term financial goals, from paying off the mortgage to putting away for retirement. Ideally, you should talk about all this before you wed. If you don't, you can end up deeply frustrated and financially spent. Discussing money with the man/woman you hope to spend the rest of your life with doesn't mean you don't love him/her. It means you love him and yourself, and that you are seriously looking things forward.

Don't Hide Your Head in the Sand
A lot of women fall into the habit of letting their partner handle the money. If you are one of those women, that's not your spouse's fault; it's yours. Your husband may be doing a fabulous job with your money—that's not the point. You need to understand the family finances and weigh in on all decisions. The fact that women tend to live longer than men means they may need to rely on the money longer and will also find themselves managing it at some point. The longer you wait to engage, the bigger the surprises you may find down the line.


Truly this is one article very close to my heart, as finances should not become an issue for a couple just because of inequality in financial terms, few differences and lack of communication.

This took me very long to write as it is a very sensitive thing to write on finances in conjunction with personal traits.

 I am satisfied writing this, especially after this final article and I hope you people will be satisfied too? I am sure this will not only help each of you to excel in finances, but also knowing each other more. Untill I started Financial Plan writing I thought it is all about finances and calculations, but trust me emotions, individual traits, and how each of us react to situations differently also have somewhere financial implications, which is where my role also comes.

Monday, February 03, 2014

INSURANCE DEMAT - What's that now?


Let me talk on the topic directly. Lot of us have received a letter for Holding Insurance Policies in Electronic form; at least I have received a letter and lot of my family members of investors have too received it. We all have been enjoying the benefits of Demat account and would have experienced the ease and convenience that Demat form of holding Securities have brought to dealings in Securities Market. Now it’s time to hold Insurance Policies in electronic form and experience the same ease and convenience

Insurance Regulatory and Development Authority (IRDA) has authorized few companies to act as an Insurance Repository. You can now hold your insurance policies in electronic form with these companies, the way you hold your securities in Demat Account. A proposer can hold insurance policies in electronic form in a single e-Insurance Account (eIA) and offers easy online access to these insurance policies. For this, you will have to open an eIA and the insurance policies will be credited by the Insurance Company into this eIA. You can seek credit of existing as well as new insurance policies in eIA. The biggest advantage or attraction currently is….
It costs you nothing to open eIA and hold insurance policies in electronic form.


Other actual Benefits / Facilities:

·         Holding of all insurance policies in a single e-Insurance Account (eIA),
·         Doing away the hassles associated with holding the insurance policies in physical form
·         One time Know Your Customer (KYC) for opening the e-Insurance account,
·         A single point of contact for the account holder to update demographic details with insurance companies
·         Conversion of the existing paper policies into electronic policies at the request of the policy holder
·         No charges for eIA opening and eIA maintenance to the eIA holder
·         Eliminates multiple KYC
·         All insurance policies under one umbrella
·         Single view for all policies
·         Portfolio tracking
·         Ease in Premium payments
·         Account Statement from Facilitator

eIA can be opened by filling the eIA application form (attached) and submitting it to your nearest Approved Person - your DP/Broker may also be an Approved Person who will facilitate opening of eIA.
The details of the Approved Persons and the list of insurance companies, whose policies as on date can be converted into electronic form are available at respective Insurance Repositories. All Insurance Repositories are in the process of appointing more approved persons and many insurance companies are likely to join the Insurance Repository system in due course.
          


A general FAQ is reproduced below from one of the Repositories website:

WHAT IS INSURANCE REPOSITORY?
“Insurance Repository” means a company formed and registered under the Companies Act, 1956 (1 of 1956) and which has been granted a certificate of registration under these Guidelines by Insurance Regulatory and Development Authority for maintaining data of insurance policies in Electronic form on behalf of insurers including the history of transactions during the term of Policy.

WHAT IS eIA?
eIA stands for e-Insurance Account i.e. “Electronic Insurance Account” which will safeguard the insurance policy documents of policyholders in electronic format. This eIA account will facilitate the policyholder to access his all insurance portfolio at a click of a button through internet.

CAN ONE HAVE MULTIPLE e-IA ACCOUNTS?
No. IRDA stipulates that an individual can have only ONE e Insurance Account across Repositories, irrespective of the number of policies owned by a policy holder - thus, if a person has an e IA with say Repository A, with any other Insurance Repository. All Repositories will have systems in place to check this before opening an e IA - any application for a second or multiple e IA will be rejected by the Insurance Repository. All the electronic policies owned by a policy holder can be credited or held under this single e IA.

WHAT IS THE OBJECTIVE OF INSURANCE REPOSITORY?
The objective of creating an insurance repository is to provide policyholders a facility to keep insurance policies in electronic form and to undertake changes, modifications and revisions in the insurance policy with speed and accuracy in order to bring about efficiency, transparency and cost reduction in the issuance and maintenance of insurance policies.

WHAT IS THE DIFFERENCE BETWEEN DEPOSITORY AND REPOSITORY?
A depository is a temporary storage where you put money and the value keeps fluctuating as per the market value. A repository is a place where something valuable is stored and the value is as per the agreement.

CAN ANYONE BECOME OR SET UP INSURANCE REPOSITORY?
No, only entities approved by Insurance Regulatory and Development Authority (IRDA) can become an Insurance Repository. Insurance Companies cannot set up an Insurance Repository on their own nor can they hold more than 10% stake in any Insurance Repository.

DO INSURANCE REPOSITORY SELL INSURANCE POLICIES?
No, Insurance repository cannot sell insurance policy. They just maintain record of all insurance policy which the Policyholder has purchased from any insurance company.

WHO GOVERNS INSURANCE REPOSITORY?
Insurance Repository is governed by Insurance Regulatory & Development Authority (IRDA).

IS INTERNET CONFIGURATION REQUIRED FOR INSURANCE REPOSITORY?
There is  a web based system with all Insurance Repository  Approved Person (AP) and they need to have Internet connection. The AP will be provided with User ID and Password and they can create multiple Users. Further policy holder can also login using Internet.

HOW TO OPEN AN e-IA ACCOUNT?
To open your eIA, you first need to select an Approved Person (AP), of your convenience. Use Selected Insurance Repositories search engine in contact details to find a AP who is located closest to your home or place of work.
Once you make your selection, you will be taken to an informative page of your chosen AP. If you are satisfied with what you read, you can download the eIA opening form & submit the same along with the KYC documents to the respective AP chosen by you.

WHAT ARE BENEFITS OF e-IA ACCOUNT?
Policy Servicing
  •  Single request contact details updation
  •  Premium alerts & payment for all insurers
  •  Increased number of service touch points
  •  Ease in registering bank account details for premium payment and payouts
Ease
  •  One time Know Your Customer updation
  •  Storage of policy in electronic format
  •  All insurance policies under single eInsurance Account
  •  Consolidated insurance statement on an annual basis.
Claims
  •  Single view of all policies to an authorized person in case of  death of the eIA account holder.
  •  One time claim intimation
CAN e-IA HOLD OTHER FINANCIAL INSTRUMENTS?
eIA will hold only Insurance policies and no other financial instruments.

WHAT ARE KYC DOCUMENTS?
KYC means (Know Your Customer) these documents include : 

  • Proof of Identification (POI)           
  • Proof of Address (POA)
  • Proof of Date of Birth/Age
WHAT IS FEE FOR OPENING e-IA?

No fees have to be paid by the customer for opening e-IA.

WHAT DOCUMENTS ARE REQUIRED TO OPEN e-IA ACCOUNT?
Customer needs to provide
  • Recent passport size photograph
  • Cancelled Cheque ( In case of ECS/NEFT services for insurance premium payment transaction)
List of KYC documents:
    Identity Proof (Any One)
  • PAN card
  • UID
Address Proof (Any One) 
  •  Regd. Lease and License Agreement/ Agreement for sale
  •  Aadhar Letter
  •  Ration Card
  •  Driving License
  •  Passport
  •  Voter ID Card
  •  Bank Passbook (not more than 6 months old)
  •  Electricity Bill (not more than 6 months old)
  •  Residence telephone Bill (not more than 6 months old)
  •  Self-declaration by High Court and Supreme Court judges, giving the new address in respect of their own accounts
  •  Identity card/document with address, issued by Central/State Government and its Departments
  •  Identity card/document with address, Statutory/Regulatory Authorities
  •  Identity card/document with address, Public Sector Undertakings
  •  Identity card/document with address, Scheduled Commercial Banks
  •  Identity card/document with address, Public Financial Institutions
  •  Identity card/document with address, Colleges affiliated to universities
  •  Identity card/document with address, Professional Bodies such as ICAI, ICWAI, Bar Council etc. to their Members
Date of Birth Proof (Any One) 
  •  PAN Card
  •  Domicile Certificate
  •  Ration Card
  •  Driving License
  •  Passport
  •  Voter ID Card
  •  Municipal birth Certificate
  •  Notarized Birth Certificate
  •  Baptism Certificate
  •  Marriage Certificate issued by Church
  •  Identity card/document with address, issued by Central/State Government and its Departments
  •  Gram Panchayat certificate
  •  Identity card/document with address, Public Sector Undertakings
  •  Defense ID including Ex-serviceman card issued to Defense personnel/ certificate of DOB issued by commanding officer with his seal & signature on the same
  •  Identity card/document with address, Colleges affiliated to universities
  •  Central Govt. Health scheme certificate for their employees/ family members/ dependants
  •  Govt. service registers extract/certificates issued by Govt. to its employees
  •  Employer's PF statement
  •  ESIS Card ( Employees State Insurance Scheme )
  •  Employer's certificate from Govt., Semi Govt., MNC, Public Ltd, Reputed Private Ltd. Organizations only. The certificate must be on the letterhead, duly signed & stamped by the authorized signatory
  • Certified School/ College Extract including School/ College leaving certificate/ Degree certificates / mark sheet or hall ticket or admit card issued by Educational Board (10 & 12th std) reflecting DOB of eIA applicant
  •  Policy Document of other private insurers
  •  LIC Policy
  •  Islander cards for Residents of Andaman & Nicobar Island
  •  Pilgrim pass issued for Haj Pilgrimage
CAN AN e-IA BE OPENED WITHOUT PAN or AADHAR?

As per IRDA guidelines Pan or Aadhar is mandatory for opening an e-IA. Regret to say that you will not be able to open e-IA without that.

HOW MANY DAYS DOES IT TAKE TO OPEN AN e-IA ACCOUNT AFTER ALL FORMALITIES ARE DONE?

Though each Insurance Repository has little time frame and procedure, normally  eIA account will be opened within 07 working days and you will receive a welcome kit and Pin Mailer containing your user name and password for your account to login to the e-insurance account.
HOW TO CONVERT PAPER POLICIES INTO ELECTRONIC FORM?

Insurance repository provides demat services for conversion of existing physical policies into electronic form. Policy holders need to just follow the below mentioned steps for conversion of the policy. Steps:-
  •  Fill the Request form for conversion of physical policies into electronic form
  •  Surrender the existing policy document with nearest  Approved Person/ concerned Insurance Company
  •  The policy will be credited within 7 working days
  •  Confirmation will be sent via SMS / email
WHENEVER I REQUIRE, WILL I GET HARD COPY OF MY INSURANCE POLICY?

Yes one can take printout of e-Insurance policy for personal records whenever required.
WHICH ARE THE INSURANCE POLICIES THAT WOULD BE ELIGIBLE TO HOLD IN ELECTRONIC FORM?
All Life insurance, Health insurance , General insurance & Annuity policies that are issued by registered Insurance companies with IRDA who have signed up with the IR through whom you have opened an account eligible to be held in the electronic form. In the first phase only Life Insurance would be in electronic form.


CAN A POLICY HOLDER HOLD POLICIES IN BOTH FORMS i.e. ELECTRONIC AND PAPER?
Policy holders can choose the form in which they want their policies issued - paper or electronic. A policy can be bought or maintained in one form only - either in electronic form or paper but not in both. However, a policy holder can choose to keep some policies in electronic form and others in paper form - only the electronic policies will be reflected in his e IA account and he can use repository services only for the e policies (and not the paper policies)


WHAT WILL HAPPEN AFTER THE PROCEDURE IN DONE?
The repository will issue a unique code number to all policy holders, and their policies will come under that number. It will maintain the history of the policy details such as claims, nominees, beneficiaries and other data.  
CAN AN e-IA BE OPERATED BY ONLY THE POLICY HOLDER?

Yes, the e IA can be operated by the account holder only during his life time, unless, of course, he has been unfortunately rendered incapable to operate it (incapacity due to mentally unsound means or terminally ill as certified by a medical practitioner). In such circumstances, the e IA may be operated by the Authorized Representative (AR) appointed by the account holder (pl see below for details).

The account holder is strongly advised to keep the log In ID and password for online access of his e IA confidential and not share it with anyone else.
WHICH ARE THE AUTHORISED COMPANIES AS INSURANCE REPOSITORIES?
As of now the insurance regulator has permitted NSDL Database Management Ltd, SHCIL Projects Ltd, Central Insurance Repository Ltd , Karvy Insurance Repository Ltd and CAMS Repository Services Ltd to act as insurance repositories.

WHICH COMPANIES HAVE REGISTERED AS PARTICIPATING INSURANCE COMPANIES?
(List is recently upated, and hence including details now)

-- ICICI Prudential Life Insurance Company Limited
-- HDFC Standard Life Insurance Company Limited
-- PNB MetLife India Insurance Company Limited
-- Star Union Dai-chi Life Insurance Company Limited
-- IndiaFirst Life Insurance Company Limited
-- Reliance Life Insurance Company Limited
-- Future Generali India Life Insurance Company Limited
-- Tata AIA Life Insurance Company Limited
-- Edelweiss Tokio Life Insurance Co Ltd
-- Kotak Mahindra Old Mutual Life Insurance Limited

DO's and DONT's
Do's
  • No fee to be paid to AP for opening eInsurance account (eIA)
  • PAN/UID is a mandatory document for opening eIA
  • Provide clear copies of KYC documents for eIA opening
  • Self Attestation of KYC documents is must
  • Intimate your change of address or contact details to your nearest Approved Persons (AP) immediately
  • Maintain secrecy of your eIA password
  • Quote your eIA number when you buy a new policy
  • Signature should be uniform across all your communication
  • Verify your annual eIA statement and inform your AP  about any unauthorized credit found

Don'ts
  • Avoid over-writing, cancellations and misspellings in any documents
  • Do not let anyone fill your eIA
  • Don’t share your password with anyone.

CONCLUSION
I still remember the days when DEMAT was introduced. There  were lot of queries, lot of problems and lots of doubts on the system, but eventually we all know now, where we are. I have seen and met policy holders who don’t know what they have, where they have as far as Insurance is concerned and hence I would suggest to opt for this facility. Initially there may be problems,few insurance companies are still on board,but actually are not active enough, but the long term result seems to be  great. When DEMAT was launched, everyone was scepticle about it, but now we cannot hold paper share?

MY TAKE—SUBSCRIBE.