Consumer Rights

What are orphan insurance policies ? These are policies where the agent who sold these policies has shifter to another company, and the person who bought these policies no longer has an agent or an intermediary to help service them. This is a common problem in the life insurance business, since:
- An agent will do anything to sell a policy, including using charm, threatening about the problems that could occur later in life if you don’t have an insurance policy, using contacts, etc. The agent gets a good commission when the insurance policy is sold, but the amount of commission is drastically reduced in subsequent years, which leaves little incentive for the agent to remain and service the needs of the insurance buyer. If another company offers a better deal, the agent will move.
How can there be a solution that also helps the insurance buyer ? Well, the IRDA (insurance regulator) is making it more difficult for agents to shift so very easily, adding a set of conditions and rules (link to article):

In A bid to ensure that fewer policies get lapsed, the Insurance Regulatory and Development Authority of India (Irda) has made it tougher for agents to shift loyalties . The new agency guidelines ensure that all agents—individuals , corporate as well as banks—continue to sell policies of the same insurance company for at least three years. Historically, lapse ratio has been higher among orphan policies when compared with policies that are serviced by an agent. To ensure that an agent shifting loyalties does not leave behind orphan policies, the insurance regulator has put in a number of preconditions that the agent has to fulfil before he can obtain a no-objection certificate from his principal.
To take care of the policies orphaned by agents, Irda said, life insurers should ensure alternate arrangement, and these measures should go beyond a call centre facility, which is also an essential requirement . Insurance companies have been asked to intimate each policyholder that their agent has quit and there are alternate arrangements being made to service them.

September 9th, 2009 | Tags: Agent, Commission, Consumer, Customer, India, Insurance, IRDA, Purchase, Regulator, Sale | Category: Complaint, Consumer, Insurance | Comments (1)

I read an article that took a situation where a person was in real trouble financially, and what the person can do in such a situation that could help. The situation was one that many of us can relate to – in times of good money and a good job, your finances and projections for the future are good, and you decide to invest for the future. You take a loan for the house that will be an asset for the future, you invest the remaining money in stocks (after all, equity is the way to grow your money for the future), and you get a car to travel in comfort along with your family. And then disaster strikes – your house loan amount was high (higher as a percentage of monthly take home salary that you would like – should not be more than 40% of take home after taxes and other deductions), and it got higher as interest rates went up, the stock market collapsed, and then the worst of all, you lost your job. So, what do you do ? (link to article – read it till the end, the situation may not be exactly the same, but there will be similarities)

He decided to approach a debt counseling centre for his financial hassles. They showed him the right way to manage his finances. They also mediated between him and his bank. He also obtained written consent from the bank that he would resume repaying his loan once he got a job. In such situations banks do oblige you if you manage to repay most of the money or part of the money if not all as it was a better deal than no money at all.
1. Try to lower your interest rate. Negotiate with your bank. One other way is to convert your credit card debt into a personal loan debt. It will definitely be lesser than the credit card interest rate.
2. Calculate your net worth and see if any of your investments could help you prepay a part of your loans.

More tips are there in the article. The main point is that you should be careful of your finances rather than falling in this trap, and if you do, then get help, speak to the bank and explore other means of financing (except for high-interest loans).

August 19th, 2009 | Tags: Bank, Finance, India, Job Loss, Loan, Negotiate, Personal Finance, Recession | Category: Uncategorized | Leave a comment

Everybody makes mistakes in the equity market, so one cannot blame retail investors for making many mistakes. Even acclaimed mutual fund and hedge fund investors have made mistakes over the years, but that does not excuse the retail investors from trying to learn about the mistakes that they keep on making so that they reduce the number of mistakes they make in the future. At the minimum, investors should learn about these mistakes so that they can try and learn from these mistakes. Some of these mistakes are:
1. Investors typically join the herd. So, when the stock market crashes, people run to liquidate their holdings, even at a loss. For example, when the market was really down in October, companies that were fundamentally sound were picked up by people who believed in the long term.
2. People look at tips, and even do investment based on tips even if they know nothing about the company or stock.
3. People do not read about the fundamentals of the companies that they are investing in. Typically, company valuations follow the projections of the sectors that these companies belong to, and after that, the company performance also plays a role. However, people do not bother finding out these facts.
4. People invest and forget. There are a number of people who invest in companies or mutual funds and do not re-evaluate the nature of their investments and the performance over a regular period, say every 6 months or every year
5. Diversify your portfolio: Do not invest everything you have in the stock market. Invest in mutual funds, some in debt funds, some in PPF, some in realty, and so on. Make sure that you are properly diversifying your investments, at the same time, make sure that you invest only where are you comfortable in your level of knowledge. Even consider things such as investments in gold and art.
6. Don’t get caught up in greed. When people lost out in January 2008 after markets had climbed to record highs, people were not willing to consider that the market could go down. People were not willing to take some of their investments out of the market, and lock that money in safer investments.
7. Invest for the long term. Don’t get scared by short term movements. Even while tracking them, make sure that if you have invested based on fundamentals, and for the long term, you don’t lose patience.
8. Don’t get tricked by other people. You will always hear people say that they made incredible amounts of money in investing in the stock market, and there is a feeling of being left behind. Remember, you only hear the stories that are positive, and you should never let such stories guide your actions.

August 9th, 2009 | Tags: Equity, Finance, Fundamentals, Greed, Herd, Investment, Mistakes, Patience, Retail, Safe Investments, Stock | Category: Finance, Investing | Comments (1)

One typically hears of cases where people have invested money in dubious investment schemes run by scheming and smooth investment gurus who actually end up duping people of their hard-earned money. These smooth operators typically get caught, but this is no consolation for those people who lose their money in these schemes. Similarly, people end up losing their money when they invest in stocks and mutual funds, either if the entire market collapses or if they invest in very risky stocks. So does this mean that people should invest in risk free investments ? No, because there is a ratio between risk and return. It is for every individual to decide their risk – return paradigm based on their comfort levels, and their ability to take risks. Read this article to learn more:

The rating scale starts with AAA (lowest credit risk) and ends at D (default grade, highest credit risk). Going by the normal yardstick, one should always go for the best. So, should all the investors invest only in AAA rated issues? To fathom this paradigm, we have to understand the riskreturn relationship. Risk-return & risk aversion. It is because of the relationship between risk and return — higher the risk, greater has to be the expected return on that investment and vice versa. An investor hoping for higher returns has to embrace the risks that are attached to it.
But how does an investor decide how much risk to be taken? In reality, there is nothing like optimal risk-return trade off. It is often a derivative of various factors like time horizon, liquidity, and some investor specific circumstances. The risk-return trade off is extendable to equities as an asset class also. The relative safety of investing in blue chips may not result in highest returns. In case of IPOs also, the IPO grading is an opinion on the relative fundamentals of the company. The investor decision is guided to a large extent by the valuation and risk tolerance.

So, as they say, the ability of a person to take some risk in their investment is guided by multiple factors. The only thing one should do is to ensure that one has thought through the investment carefully.

August 9th, 2009 | Tags: Credit Rating, Evaluation, Finance, Investment, Risk, Risk Tolerance, Risk vs reward | Category: Finance, Investing, Reward, Risk | Leave a comment