We all might have heard about the unfortunate fate of the UK Big Brother celebrity who was diagnosed with terminal cancer. Being a single 27-year-old mum of two boys, the Big Brother celebrity decided to sell her story to the media, sharing her daily ordeal with television viewers. Her main objective was to raise enough funds to secure the best education for her sons. She passed away in March 2009, leaving behind a legacy of £4m. What if she hadn’t had enough time to accumulate such wealth?

According to a 2006 survey carried out by sociologist Prof. Mario Vassallo, only one third of the Maltese adult population is covered by life insurance. This is unlike other European countries, where people take out a life insurance as part of their financial planning. It is mostly those who have experienced an early or sudden death of a partner who can understand just how much a life policy can alleviate the financial strain that prevails in such circumstances.



Life assurance and financial planning

If you are a parent, property owner, business partner, or sole trader, then life cover should be at the top of your financial planning list. At application stage, you would need to know how much life cover you require and for how long. Ideally you should have a life cover equivalent to at least four years’ annual salary or gross income.

If you are a parent, make sure that the amount of life cover will be enough to pay for your children’s private education.

If you also own property, it is likely that your heirs will have to pay inheritance tax. Therefore get legal advice to ensure that your total life cover will also provide for the payment of inheritance tax.

If you are a business partner, ensure that you and your partners are all covered by life insurance. Upon the demise of one of the partners, the lump sum received could be used to buy the shares of the deceased partner, ensuring that his/her relatives would be kept out of the partnership, particularly if they are not educationally qualified or have the business acumen to run the business with you.

If you are a sole trader, you may wish to leave a lump sum to your heirs, so they could keep the business running. You can also insure a “key person” that is crucial to your business’ profitability. You will be able to use the death lump sum to recruit and train an equally qualified employee, or use part of the sum received to give an “ex gratia” payment to the heirs of the “key person”.

Under current legislation, the sum payable on death is tax free. If you already have a life policy or will be applying for one, ask for a Designation of Beneficiary Form. This will enable you to nominate and change beneficiaries on your life policy. The instructions relating to the life policy supersedes the will, thereby making the payment process faster. You can also put your life policy under Trust (also called Life Insurance Trust) giving instructions to the Trustee of how and when the lump sum is to be disposed of or re-invested.



What type of Protection Plan?

Insurance companies offer various types of Protection Plans; the most popular being the Level and Reducing Term.

A Level Term policy will pay a fixed lump sum if death of the person covered occurs until the expiry date. The premium is also fixed for the duration of the policy term.

A Reducing Term policy pays a lump sum that decreases yearly, however the premium remains fixed. Although this is the most economical type of cover, it is best to have a Level Term. When a Reducing Term policy is used to secure a bank loan, there is usually no residual value for the heirs. The lump sum is just enough to settle the loan.

You may have as many life policies with the same or different companies, depending on the premium you afford to pay. There is an option to combine the protection element with a savings plan, so that you will receive a lump sum upon maturity of the policy. There is usually no refund or investment that is received back if you stop a protection plan.

Life cover does not cost, it pays to be adequately insured.

http://www.maltabusinessweekly.com.mt/news.asp?newsitemid=7926

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Quite often you hear your insurance advisor talking about mortality charges in your life insurance. But what is the meaning of mortality charges? How are they computed and as a policy holder does it give any benefit to you? What should you know to save on mortality charges?

What are mortality charges?

Whenever you buy a life insurance policy, the company offering it will levy a charge for the insurance protection upon death and to cover certain other expenses. In a nutshell this is the actual cost of insurance. Technically called mortality charge, this is deducted usually every month from your policy's account value. While the insurance company can tweak these charges from time to time it cannot exceed the maximum limit as specified in the policy.

How are they computed?

Life Insurance Corporation the oldest life insurance company operating in India [ Images ] has a table of charges in place and most insurance companies follow this. However, some private insurance companies have their own set of table for calculating mortality charges. But how are mortality charges computed?

Generally, there are three things that are taken into consideration in determining the mortality charges: One, the net amount at risk under the policy; two, the risk classification of the policy holder; and three, the attained age of the policy holder.

The major chunk of the premium is invested in a savings fund and returned to the policy holder at the time of maturity and to the nominee when the policy holder dies.

Relation between mortality charges and your age

Do you benefit from reduced mortality charges if you buy a life insurance at a young age? The answer is yes based on the simple logic that higher the age higher is the mortality charges. For example, a 25 year old will obviously have a higher life expectancy than a 55 year old and hence will get lower mortality charges if he buys a life insurance.

How to save on mortality charges?

Scientific and medical advancement has meant higher life expectancy for the average Indian. On the flip side this has meant a higher cost when it comes to buying whole-life annuities that will help you get regular income for a specified time upon payment of a lump sum amount. Early birds get more benefit, so go for a life insurance cover at an early age to save on mortality charges.

And if you are one of those wanting to invest in pension plans, at least two-thirds of your accumulated sum will be required to buy annuities to save tax.

Recent developments

In August 2009, the Insurance Regulatory and Development Authority had asked life insurance companies to stop levying any charge on customers if the policy is surrendered from the fifth year besides withdrawing the mortality charges from the overall cap on the charges levied by unit-linked insurance plans or ULIPs.

However, this step has been seen by experts as a move that will benefit both the customers and the insurers. The policy holder will be benefited by this if he wishes to take higher life cover while buying ULIPs. Insurance companies stand to gain too as this would give more freedom to increase administration charges.

http://business.rediff.com/report/2009/dec/10/perfin-insurance-life-what-are-mortality-charges.htm

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In the 2010 economic policy plan report, the government stressed that it will shift away from a manufacturing-oriented growth strategy to pursue growth based on high productivity and strong domestic demand. It said the policy shift is being made because the old growth model has reached its limits.
Experts generally hailed the idea of the growth strategy shift, but pointed out that policymakers should come up with more detailed plans about how to reform structural problems of the economy to nurture domestic demand.
"The government did mention the need for a 'growth paradigm shift,' but it didn't say anything about how to shift the focus from conglomerates and exports to SMEs and domestic demand," said Kim Sang-jo, a professor of economics at Hansung University.
"The economic policy plan only focuses on stabilizing the economy and seeking new growth models. It lacks plans as to how it will reform chaebol or the financial system to achieve new growth," he said.
The 2010 economic policy plan mainly deals with labor flexibility and the public sector in terms of reform efforts.
According to the government's report, Korea will enhance labor flexibility through a possible state support for companies who expand the flexible work-hour system for a limited time.
However, the government did not mention what kind of state support it will be.
Sohn Min-joong, research fellow at the Samsung Economic Research Institute, said even if the government offers financial support for the flexible working system, companies will not welcome the support if it is only temporary.
It will not be easy to tackle the labor flexibility issue in a short time, although the issue has been dragging the Korean economy since the 1997-98 Asian financial crisis, he said.
"Korean industries are still awash with bad practices in terms of discrimination against part-time or irregular workers," he said.
Bae Sang-kun, director of the economic research division at the Federation of Korean Industries, said Korea's policy focus on creating jobs and boosting the service industry is timely, adding that the government needs to be more careful in implementing exit strategies.
Although the Finance Ministry said it would keep its expansionary fiscal stance until the first half of next year, it made sure to withdraw some of the emergency measures taken to fight the global financial crisis.
Bae was referring to the government's cancellation of tax credits on the business sector's spending in facility investment from next year, which faced strong opposition from the business sector.
"If a strengthening local currency hurts corporate profitability next year, the business sector's facility investment will be more discouraged by the cancellation of state support," Bae said.
Regarding exit strategies, Kim offered the opposite view to Bae.
Kim said that implementing exit strategies too late will reproduce inflation and asset bubble concerns, exposing the local economy to a bigger risk of a double-dip recession.
"I think the Lee Myung-bak government's economic focus next year is still set on too much growth," Kim said.
The green growth strategy unveiled yesterday was little different from what has been announced before, except that the government will start nurturing maritime wind power and rechargeable batteries industries in earnest and that the economy-related ministries will set an energy saving target.
As for the government's efforts to enhance Korea's global standing through hosting the G20 Summit in November, SERI's senior research fellow Kwon Soon-woo said that the G20 story is somewhat irrelevant to be included in the six economic goals.
"Of course the G20 Summit would be important for the government, but I don't understand why it has to be included in the economic goals," he said.

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 If you are keen on investing in unit-linked insurance policies (Ulips), wait till  From December 31, existing Ulips will get phased out
following new regulations on charges from the Insurance Regulatory and Development Authority (Irda).

The new plans will conform to the cap of 3 per cent on charges. The new Ulips will help policyholders earn returns better than the present crop of Ulips. This would be possible because the amount invested from the first premium paid will be much higher than it is now.

For instance, if the first year premium was about Rs 100,000 for a 20-year policy, the amount invested on behalf of the policyholders from this would be just above Rs 70,000 in most of the Ulips now on sale. The rest of the amount goes as various charges, including agent commission.

The upfront deduction of charges would stop and would be spread over a longer period, thus increasing the returns for policyholders. The charges allocated to a policyholder are much higher now than the cap of 3 per cent imposed by Irda from January 1, 2010.

“All the products will be revised and will conform to the new rule from January 1 next year,” a senior Irda official said.

Irda announced the new regime of Ulip charges in June 2009. Accordingly, the charges will be capped at 3 per cent (300 basis points) for a policy with tenure of up to 10 years, of which fund management charges cannot be more than 1.5 per cent (150 basis points).

For policy tenures above 10 years, the charges cannot exceed 2.25 per cent, of which the fund management charges cannot exceed 1.25 per cent (125 basis points).

Insurance companies will have to provide customers charts on the gross yields and the net yields (after deducting all charges). The difference between gross and net yields cannot exceed 2.25 per cent (225 basis points) for product with tenures of more than 10 years and 3 per cent for products with tenures of up to 10 years.

S B Mathur, secretary general of Life Insurance Council, said that going forward, policies with borderline terms of 10, 11, 12 years will not be pushed by companies. According to Mathur, products with five-seven-year terms will slowly be phased out because companies won’t find value in selling such products.

Until now, all insurance companies were deducting fund management charges, mortality charges and charges on yields upfront, that is from the first premium paid. In many cases, around 80-100 per cent of the first premium was usurped by the companies by way of various charges and allocations to funds were made only from the second premium.

With a cap on overall charges, the customers stand to benefit in the form of higher returns on their investment. Moreover, life insurance companies will now be encouraged to sell long-term products because there are lower charges on products with a term greater than 10 years.

Pranav Mishra, head-products with ICICI Prudential Life, said, “The charges over the long term (five years or so) are going to go down significantly and similarly, rewards in the form of premium/fund-related additions/bonuses over long term will help customers generate better returns.

ICICI Prudential Life is also introducing some new products to address latent customer needs based on feedback and research.

The move by Irda follows what mutual funds (MFs) are allowed to charge. MFs can charge up to 2.5 per cent of assets under management (AUMs) under various heads as fees.

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China Pacific Insurance (Group) Co. and the country’s pension fund plan to raise as much as HK$25.93 billion ($3.3 billion) in a Hong Kong share sale that may be the city’s second-biggest this year, four people familiar with the plan said.

The nation’s third-largest insurer and the National Social Security Fund are offering 861.3 million shares at HK$26.80 to HK$30.10 apiece, said the people, declining to be identified before an official announcement. The sale is made up of 90.9 percent new shares from the company, with the rest offered by the fund.

The offer values China Pacific at a discount of at least 27 percent to its two bigger competitors, based on estimates of embedded value by banks involved in the sale, two of the people said. The insurer, part-owned by Carlyle Group, will replenish capital after the company and rivals accelerated sales of lower- margin policies to boost market share.

“That’s a reasonable price range,” said Qiu Peng, a Shanghai-based investment manager at Western Securities Co. “China Pacific’s premium growth should pick up in 2010 after the company has almost completed structural adjustments. The stock market should also do well, boosting investment returns.”

The company made a 1.7 billion yuan profit in the third quarter, reversing a loss a year earlier as the domestic stock rally boosted returns.

Embedded Value

The 861.3 million shares being sold represent a 10.2 percent stake in the company. The share sale values China Pacific at 1.7 times to 1.9 times next year’s embedded value as estimated by banks involved in the sale, said two people familiar with the sale. China Life Insurance Co., the nation’s biggest insurer, trades at about 2.8 times and Ping An Insurance (Group) Co., the second largest, at 2.6 times.

Embedded value estimates a company’s net worth excluding new business.

“Some investors are willing to pay about 30 times new business value multiple for insurer stocks,” said Qiu, using a different evaluation method that reflects an insurer’s future profitability. “Insurers’ valuations remain relatively low.”

The price range would indicate room for at least a 20 percent increase before it rises to a 30 times new business value multiple, Qiu estimated.

Gains last week pushed the Hong Kong-traded H shares of larger Chinese insurers higher than their Shanghai-traded A shares, indicating the city’s investors are “more bullish on Chinese insurers,” said Olive Xia, an analyst at Core Pacific Yamaichi. China Life rose 2.6 percent to HK$41 in Hong Kong trading Dec. 4, 9 percent higher than its Shanghai-listed shares.

Better Market

“The market demand is fairly good now,” said Xia. “China Pacific’s H shares should also see some premium to the A shares after listing.”

Shanghai-based China Pacific rose by its 10 percent daily limit in Shanghai on Dec. 4, possibly reflecting investor expectations that demand for the Hong Kong offering will be strong and a trial of new endowment insurance products in Shanghai will boost sales, according to Xia.

China Pacific delayed a plan to sell as many as 900 million shares by September 2008 following the global equity rout.

Dow Jones Newswires reported the size and price range of the sale earlier.

China Pacific’s stock has rallied 144 percent this year in Shanghai, almost double the 78 percent advance for China Life’s stock trading in the Chinese city, and bettering the 125 percent for the A shares of Ping An. The stock fell 0.7 percent to 26.92 yuan as of 1:51 p.m. in local trading.

Improving Profitability

The solvency margin for life insurance at China Pacific dropped by 10 percentage points to 224 percent in the first half of the year, while the ratio for property insurance fell by 11 percentage points to 177 percent.

China Pacific made a 5.8 billion yuan profit from investments in the third quarter as the nation’s stock market recovered this year, helping the company reverse a 1.5 billion yuan loss a year earlier. Net premiums earned climbed 4 percent to 21.3 billion yuan.

The insurer is boosting sales of protection and savings products and curbing investment-type policies this year to improve profitability. New regular-premium business more than doubled in the first half to 6.8 billion yuan, according to the company.

The company’s property insurance arm reduced its combined ratio, which measures claims and expenses as a percentage of premiums, by 7 percentage points from a year earlier, to 101.5 percent in the first half, as it cut management costs.

Taking Orders

The insurer plans to start taking orders from international institutions on Dec. 7 and price the shares around Dec. 16, said two people familiar with the plan. Corporate investor including Allianz SE will take a combined $395 million of the shares. The sale may be expanded to 990 million shares to meet demand, the three people said.

The stock is scheduled to start trading on Dec. 23. Allianz, Europe’s largest insurer, alone will be buying $150 million of the shares, according to two people.

China International Capital Corp., Credit Suisse Group AG, Goldman Sachs Group Inc. and UBS AG are managing the sale. CICC didn’t reply a request for a comment, while the other investment banks declined to comment. Liu Li, a spokeswoman for China Pacific, wasn’t immediately available for comment.

China Minsheng Banking Corp., the nation’s first privately owned lender, last month raised HK$30.1 billion in the city’s biggest public share sale since April 2007.

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