LoanRaja Blog- Personal Finance Guide

If you own a valuable asset in the form of a self-occupied house or a commercial property you can unlock its value by going in for a loan against property. Earlier mainly an option of self-employed individuals, Loans Against Property (LAP) is gaining acceptance among the salaried class also as a means to tide over cash crunch. LAP gives you access to finance on the basis of the property that you hold. It is a secured multi-purpose loan with longer tenure and lesser rate of interest than a personal loan. Banks are now promoting LAP as an effective credit instrument to meet your needs like expansion of business, wedding expenses or education.

Features & benefits

The criterion for applying for LAP is that it should be a freehold and self-owned property, having a clear and marketable title. The loan is given as a certain percentage of the property’s market value (around 40 - 60 per cent). With real estate prices on the ascent, entrepreneurs are exploiting the benefits of taking such a loan to meet their need for low-cost funds for investment. Returns on business are higher than the cost of a loan against property. Loans against property are 30-40 % cheaper than personal loans. LAP will have a longer tenure than a personal loan, usually a maximum of 10 years. But a few banks allow tenure up to 15 years. Repayment is through EMIs.

A significant feature of LAP is that one can avail the loan even while a home loan exists against the property. However, the loan eligibility will depend entirely on your repayment capacity. The loan amount sanctioned may range from Rs.25,000 to Rs.1 cr. Normally the lender won’t bother about the end use of the loan. But some banks like SBI want the borrowers of amounts exceeding Rs.25 lakh to give an undertaking that the loan won’t be used for any purpose other than agreed upon. Banks also allow overdraft in place of loan. The customer is charged interest only for the amount that he withdraws from the account.

Eligibility & documents

Lenders want to make sure about the value of the property and your repaying capacity. The loan amount is usually 24 times the net monthly income of salaried persons and for others twice the net annual income as per latest IT return less taxes payable. LAP is also subject to the minimum market value of the property. Norms vary from bank to bank. But generally the following are the eligibility norms: An employee who has a monthly net salary of at least Rs.12,000. A self-employed person or an income tax assessee with a net annual income of Rs.1.5 lakh. The income of the spouse may be added if he/she is a co-borrower or a guarantor. Maximum age limit : 60 years for salaried and 65 for self-employed.

A borrower has to submit three additional documents apart from what is required for a normal housing loan. Copies of all the property documents have to be handed over before approval of the loan. Borrower has to give a declaration stating that the loan amount would not be used for any other purposes. A valuation report of the property from the professional valuer appointed by the bank is a must. Identity proof and proof of residence along with income proof has to be provided. Salaried individuals have to submit their latest salary slip, Form 16 (along with salary certificate from the employer), and bank statement for the last 3 months. Self-employed people have to furnish copies of their IT returns for the last 2 years, balance sheet, and profit & loss account, bank statements for the last 6 months.

Fees & Charges

Different institutions have different ways of charging fees when you submit the loan application. All lenders charge a processing fee, which may vary from.25 percent to 2 percent. Some banks collect the processing fee along with the application. Most banks charge a prepayment penalty if the borrower forecloses the loan before the expiry of tenure. It is charged as a percentage of outstanding amount, anywhere from 1 to 4 percent. If the borrower wants to change from fixed to floating rate of interest or vice versa he has to shell out a fee. It can be as high as 2 percent of the outstanding principal. There are also charges like penalty for late payment of EMI; statement charges etc.

Overdraft & EMI

The loans against property are generally repaid in equated monthly installments (EMIs). The repayment period could be from two years to 15 years depending on the lender. SBI allows a borrower to divert surplus funds towards prepayment of the loan without attracting any penalty. Banks also offer LAP as overdraft. Here the customer is charged interest only for the amount that he withdraws from the account. Whenever he deposits funds into the account, it goes towards reducing the outstanding balance in the account. Taking a LAP may be an easy process. But remember to make repayments regularly. If you fail you could end up losing your home.

The rising cost of medical care is becoming a big problem in urban India today. Treatment for a serious illness in a private corporate hospital can wipe out your entire life’s earnings at one go. Everybody definitely needs health insurance coverage to avert such a situation. In India awareness on health insurance is very low. Even well employed persons some times ignore the need for health insurance. A health insurance policy not only covers expenses incurred during hospitalization but also before and after hospitalization. This may include money spent for conducting medical tests and buying medicines. The cover is to the extent of the sum insured.

Health insurance is insurance that pays for all or part of a person’s health care bills. Group health plans, individual plans, workers’ compensation etc are among the health insurance plans prevalent. So long as you pay your premium regularly the insurance company will take care of your medical expenses. Cover extends to pre-hospitalisation and post-hospitalisation for periods of 30 days and 60 days respectively. Domiciliary hospitalisation is also covered. It is crucial for you to read the fine print before taking any health insurance policy. Various clauses relating to pre-existing illness and claims have to be thoroughly looked into to avoid disappointment later.

Reimbursement & cash plan

Broadly there are two types of health insurance contracts. The common one is reimbursement of medical expenses or hospitalisation charges subject to a prescribed ceiling. The second is the cash plan. This plan provides for payment of a fixed amount per day for hospitalisation. In such cases, the amount received by the insured may not be enough to meet the actual expenses always. Only the first type is a real health insurance contract. The health insurance contracts marketed by general insurance companies suffer from one serious drawback. The contracts are renewable every year and the insurer has the right to refuse renewal.

Benefits

Considering the mounting cost of doctors’ fees, medicine and hospitalization charges by taking a health insurance policy a person can safeguard himself and his family from the burden of high cost of treatment. In case of a sudden illness or accident, the health insurance policy takes care of the hospitalization, medical and other costs incurred. If you start young the premiums will be lower. It reimburses the medical expenses. Discount on insurance premium is available on family package. The premium paid up to a maximum of Rs.15,000 is exempt from income tax. A patient can be treated at home when he is not in a condition to be moved to the hospital.

Coverage

Based on the coverage offered, health insurance plans can be divided into the following categories:

Hospitalization Plans: These plans cover your expenses in case you need to be hospitalized. Within this category companies offer different payout structures and limits for various heads of expenditure. The hospitalisation coverage can be reimbursement based plans or fixed benefit plans. These plans aim to cover the more frequent medical expenses. Now health insurance companies offer many innovative policies and schemes. ‘Cashless hospitalisation’ is one such product. Under this plan, individuals insured do not have to pay for their hospital bills in case of hospitalisation; the insurance company settles the bill directly. But, certain terms and conditions have to be met. The hospital needs to have a tie-up with the insurance company.

Critical iIllness plans: These health insurance plans provide you coverage against critical illnesses such as heart attack, organ transplants, stroke, and kidney failure among others. These plans aim to cover infrequent and high cost medical expenses.

Specific conditions coverage: These plans are designed specifically to offer health insurance against certain complications due to diabetes or cancer. They may also include features such as disease management programmes, which are specific to the condition covered.

Costs of medical insurance policies vary from company to company. Insurance firms have introduced more innovative policies with riders that cost more. Here is a typical health insurance policy. Parivar mediclaim of National Insurance is a family floater health insurance policy wherein entire family will be covered under single sum insured. The eligibility is from 3 months till the age of 60. The policy covers reimbursement of hospitalization expenses for illness contracted or injury sustained by the insured person not exceeding the sum assured. The sum assured can be from Rs.2 lakh to Rs.5 lakh in multiples of 50,000.

For a Rs.2-lakh policy till the age of 35 the annual premium will be Rs.2469. An additional 25 percent will be charged for spouse and 20 percent each for two children. For 46-50 years the corresponding figures will be Rs.4290 plus 35 percent extra for spouse and 20 percent each for two children. For Varistha Mediclaim for senior citizens the ceiling of sum assured is 1 lakh. The annual premium costs Rs. 4180 for 60-65 age group. For critical illness benefit the sum assured is Rs.2 lakh. Annual premium for the same age group is Rs. 2007.

Life insurance provides a family with financial support should something happen to the breadwinner. Besides serving as a protective cover, life insurance acts as a good money-saving scheme, which enables one to accumulate wealth to acquire assets, get children educated and retire comfortably. Life insurance also acts as an ideal tax-saving scheme. It is a contract between the insured person and the company that is providing the insurance. If you die while the contract is in force, the insurance company pays a specified sum of money free of income tax to the person or persons you name as beneficiaries. The beneficiary can use the cash benefits in the way he or she deems fit.

Benefits

Lack of sufficient life insurance coverage when a loved one dies can have devastating consequences for a family. The loss of income following the breadwinner’s death will cause the family immediate economic hardship and make it harder for them to realize future goals like paying for children’s education. If you are married or not you may need life insurance to protect your partner or surviving family members. Unless you already have sufficient financial resources, your survivors will need life insurance cover. A life insurance policy can be the basis of protection and financial stability after one’s death. There can never be adequate compensation for the loss of a dear one. But, if the family is also left without sufficient money to meet basic needs, they will suffer more.

Savings

Besides other saving benefits a life insurance policy can be linked to a person’s pension plan. A person can make contributions to a pension that is funded by a life insurance company. A policy can provide security for your family, protect your home mortgage, take care of your estate planning needs and look at other retirement savings/income vehicles. Life insurance is the only investment option that offers specific products tailor-made for different stages of life. Broadly there are two types of life insurance: Term, and Permanent. Savings through life insurance guarantee full protection against risk of death of the saver. Also, in case of demise, life insurance assures payment of the entire amount assured with bonuses wherever applicable.

Any person who has attained majority and is eligible to enter into a valid contract can insure himself/herself. Policies can also be taken, subject to certain conditions, on the life of one’s spouse or children. While underwriting proposals, certain factors such as the policyholder’s state of health, the proponent’s income and other relevant factors are considered. Policies can also be taken, subject to certain conditions, on the life of one’s spouse or children. While underwriting proposals, certain factors such as the policyholder’s state of health, the proponent’s income and other relevant factors are considered by the Corporation. At the time of taking a policy, policyholder should ensure that all questions in the proposal form are correctly answered.

Sum Assured

A person taking a life insurance policy can select a policy for a sum, which is linked to his age, income and ability to pay the premium. Higher the sum assured higher is the premium. For policies with higher sum assured medical examination is mandatory. The sum assured on a life insurance policy is payable on maturity (end of policy term) or on death of the policyholder. In the case of policyholder’s death, the nominee must inform the life insurance company of the death and provide all the necessary documents such as notification of death etc. The company will then process the papers and make the payment to the nominee.