Tuesday, February 19, 2008

How credit card firms milk customers on insurance

The Insurance Regulatory and Development Authority has warned insurers not to issue policies without receiving the requisite proposal forms from customers as stipulated under Section 4 of the Irda Act 9 (Proposal for Insurance).

"Any violation of this provision by an insurer shall be viewed seriously by the authority and action as deemed fit, (will be) taken," said the regulator in a communication received by insurance company CEOs on Monday.

Irda said it has received several complaints that policies were being issued without collecting proposal forms from customers. The regulator further pointed out that "the number of complaints of policies being issued without the consent of policyholders, either through telemarketing or banking channels, especially through credit cards, is on the rise."

Credit card companies are now being watched closely since co-branded credit cards offered by leading banks come with either life, accident or health insurance schemes to lure in first-time card holders. Premiums towards these policies are deducted directly from the customer's credit card.

In this process, there is no verification or proposal form filled in by the insured person; the only form which the customer fills out is a credit card application. Customers feel that in the absence of relevant documentation they are exposed to exploitation by the insurers.

It may be recalled that couple of years ago, the regulator pulled up Citibank and two general insurers -- Tata AIG and Royal Sundaram -- for foisting accident insurance covers on credit card-holders.

Irda has summoned insurers to explain why and how their personal insurance schemes are being tied up with credit card companies.

It is alleged that credit card companies have been charging the card-holders the premium for insurance cover without their consent, and automatically debiting card-holder accounts against the insurance premia.

How card firms milk customers

S Srikanth, a Chennai-based software engineer, bought a credit card from a major bank, which came with personal accident insurance, which he didn't opt for.

What irked Srikanth was that the bank was debiting the premium and administrative charges from his account automatically.

"Just because they give a customer a credit card does not mean that they own the customer and resort to such tactics. It is a dangerous notion for financial institutions to harbour," Srikanth says.

"Irrespective of the merits of the insurance cover, I feel that the scheme is unethical as I have not given debiting authority in writing to the bank."

An industry expert gives an example of a credit card company offering 5 lakh (500,000) cards with accident cover. At a conservative estimate of average collection per card-holder being Rs 300 per annum, the credit card company would mop up around Rs 12.37 crore (Rs 123.7 million) per annum. On this, an insurance commission of 15 per cent works out to Rs 1.8 crore (Rs 18 million).

If you own a credit card, chances are that you were probably asked by the company if you would like to slap on some credit insurance. In most cases, gullible customers are unfamiliar with this type of insurance and accept it, especially if tax benefits under sections 80 C or 10(D) are offered.

Actuarial sources note that credit insurance is beneficial to the credit card company since it can be used to pay off debt when a credit card holder dies.

Thus, the final beneficiary of the customer's insurance policy is the credit card company itself, they add.

Wednesday, February 6, 2008

Tax? 10 things to do before March 31 - Investment Guide

The Income Tax department does not want too many papers as proof of investments made or expenses incurred. But it is always better to file them now.
So please rush! Here are ten things to do before March 31, 2008 or before the financial ends:
1. If you are claiming deduction for house rent allowance on account of actual rent paid, collect the rent receipts from the owner and keep them in your possession.
2. If you received any gifts during the year, please collect the gift deeds. The deeds should clearly state that you received the gift without any consideration.

3. In case you have changed employment during the financial year, you have to go back to your previous employer and collect the Form 16.
4. If you have donated to charitable trusts, obtain a receipt and also a certificate saying the trust is an approved one under Section 80G of the Income Tax Act, 1961.
5.Collect all your bank statements and TDS certificates, if any. This will help you calculate your earning from bank interest and deposit advance tax if required.

6. If you have a running home loan, you must collect the certificate of repayment of principal amount and the interest paid during the financial year from the bank.
7. If you are claiming an interest-paid deduction on an educational loan, get a certificate of repayment made in the financial year where the interest is stated separately.
8. Keep all receipts for contributions made to schemes listed under Section 80C, such as insurance payment, PPF, ELSS, and children's tuition fees.

9. In case you are claiming a deduction for any medical disability under Section 80U, do not forget to collect a certificate of disability from an authorised doctor.
10. If you are claiming deduction for payment of health insurance premium, you need to keep the premium receipt indicating that the premium was paid in cheque.