Month: July 2022

What is Post Office MIS?

Under the administration of the Ministry of Finance, the Post office is offering its most reliable services to the citizens of India with the help of its more than 1,55,000 branches across the country. Amidst various schemes issued by the Post office, the Post Office Monthly Income Scheme (POMIS) is considered the most popular because it gives the investors a guaranteed return on their deposited money at the rate of 6.6% per annum. This is their fixed monthly income which the investors who invest in the POMIS get despite the uncertain domestic and global market conditions.

Those investors who are interested in POMIS have to start a POMIS scheme in the post office. It can be owned by a single holder or a joint holder. If the POMIS account holder is minor, then his/ her account is operated by the guardian.

Features of the POMIS scheme

Mentioned below are some of the highlighting features of the Post Monthly Income Scheme

1. Risk-Free Investment

   The biggest advantage of the Post Monthly Income Scheme is that it is a risk-free investment. The investors can invest a minimum of INR 1000 in the scheme. The maximum amount that can be invested in the scheme is INR 4.5 lakh. The investors can get guaranteed returns on their money as the volatile market conditions wouldn’t influence the investment returns of the POMIS.

2. Joint Account

   The Post Office Monthly Income Scheme account can be opened as a joint account. One feature that is added to the joint account is that the investors can invest up to INR 9 lakh in this scheme to get the highest amount of returns.

3. Monthly Income

   The investors receive interest from the Post office Monthly Scheme every month. In this way, the investors get a monthly fixed income on their invested amount.

4. Nominee

   The investor has to fill out the nomination form while opening the POMIS account. If the investor passes away, the nominee will be to claim the invested money of the account holder.

Limitations of the POMIS scheme

As beneficial as the POMIS scheme is with its fixed returns and monthly payments; there are still a few limitations tagging along with the benefits such as,

• The funds invested in the POMIS scheme don’t provide any tax reduction benefit under Section 80C of the Income-tax Act. Individuals must pay the tax for the invested funds.
• If the interest income from every month isn’t withdrawn, they stay idle and do not generate any interest on those additional funds.
• The money income paid by the scheme also falls under the taxable section.

Working of the Post Office Monthly Income Scheme 

• In the POMIS scheme, an individual can invest a minimum of Rs.1000 or multiples of Rs.1000 up to INR 4.5 lakhs per annum. 
• During its tenure period of 5 years, the individual receives an interest calculated income every month.
• The two or three individuals can also open a joint, but the maximum investment limit here would be INR 9 lakhs per annum.
• On the maturity of the funds, the individual can withdraw the entire investment funds without any additional charges.
• However, there are penalties included during the premature withdrawal of the funds. Depending on the year joining, the penalty fee can vary between 1% – 2% of the investment funds.

Let us see this example:

Suppose Mr Rajesh, a 39-year-old bank manager, plans to open a POMIS scheme account at its maximum deposit range of INR 4.5 lakhs for a period of 5 years. Then for that period at the end of each month, he will receive a monthly income of INR 2,475 based on the 6.6% interest rate. The monthly payment continues until his entire tenure phase. Once the account reaches its maturity after 5 years, he can withdraw his total investment of INR 4.5 lakhs without any extra charges. If he wants he can also renew his account. 

Eligibility Criteria for the Post Office Monthly Income Scheme

The following criteria have to be fulfilled to qualify for the scheme:

• Any Indian adult above 18 years can open a POMIS account
• They must be a resident of India; NRIs are not eligible
• Minor who are 10 years of age or above can also have an account on a legal guardian or parent’s name
• The minors can change their account name and claim the funds once they reach the majority.

Difference between Monthly Plans vs Post Office Monthly Income Scheme

When the monthly plans of the mutual funds are compared with the Post Office Monthly Income Scheme, it is analysed that the POMIS scheme is a risk-free investment plan that gives a guaranteed return to the investors. Monthly Income Plans or MIPs of mutual funds are debt-oriented mutual funds but are subject to interest rate sensitivity, which does not exist in the POMIS scheme. Since a part of the investment in MIPs is in equity as well, the element of guarantee is lesser than in POMIS schemes.

Also, MIPs have a tax advantage as investors get to avail of indexation benefits over the POMIS scheme. Both allow liquidity before the end of the term but with a charge. In Mutual Fund Monthly Income Plans, there is no limit for investment whereas in the POMIS scheme one can invest upto a maximum of INR 4.5 lakhs per PAN number.

POMIS scheme is a traditional investment and is trusted by many. Hence it has gained popularity over the years. With the facility of online transactions between post offices and banks according to the announcement in the Budget 2022, the POMIS scheme is expected to gain more popularity.

What are the Post Office Monthly Income Scheme interest rates?

• The account holder of POMIS accounts receives a 6.6% interest on their investments.
• A calculated interest value is given to the account holder on completion of the month from the joining date. This continues until the scheme attains maturity (5 years).
• If the account holder fails to collect the interest, the leftover claim will include no additional interest funds in these funds.
• If the deposit value exceeds the maximum deposit limit, the excess funds are returned, and the interest is calculated only up to the allowable deposit limit.
• The funds received from the scheme are taxable.

Post Office Monthly Income Scheme account opening procedure

It is very easy to open a Post Office Monthly Income Scheme (MIS). If you want to invest in the scheme, a Post Office Savings Account is mandatory. If you don’t have a savings account, you can open it with the Post Office. After that you can go with the following procedure:

• Get a POMIS Application Form from your nearest post office
• You need to submit the form with a photocopy of ID proof, a photocopy of address proof, and 2 passport-sized photographs. 
• You need to submit original ID proof and address proof too for the verification process.
• You need to get the signatures of witnesses or beneficiaries.

Penalty against early withdrawal in POMIS scheme in post office

You are allowed to withdraw prematurely from your POMIS scheme but at a cost. Here are certain norms that need to be followed:

• The account holder must submit the bank passbook and a withdrawal application form at their registered post office to withdraw the funds.
• Individuals cannot withdraw the funds until the scheme attains its 1-year maturity. 
• If the individual withdraws the funds between 1 – 3 years of the tenure period, the scheme will charge a penalty fee of 2% on the initial deposit, and the remaining will be paid.
• If the individual withdraws between 3 – 5 years of the tenure period, then a penalty fee of 1% will be deducted from the initial deposit, and the remaining will be paid.

Who should invest in POMIS?

• The Post Office Monthly Income Scheme is generated by the post office for those investors who are unwilling to take any risk. They prefer to keep their capital intact. They are not very conscious of getting high investment returns.
• Those investors who want a reliable and fixed source of getting monthly income should choose the Post Office Monthly Income Scheme (POMIS).
• The locking period of the POMIS is one year. After one year, the investors will be able to withdraw the money by paying the penalty charges of 1-2%. Those who plan to invest for the long term should invest in the POMIS.
• For those who are uncomfortable investing in the stock market, mutual funds, etc due to the volatile market conditions, the post office monthly scheme (POMIS) is the best option to invest in for the long term. Investors don’t need to analyse the market daily.

Maximum deposit limit under the POMIS scheme

The maximum deposit limit varies depending on the type of account and the account holder’s age.

If the account holders are adults, then,

• Single account – maximum investment is INR 4.5 lakhs
• Joint account – maximum investment is INR 9 lakhs (the individuals must make equal shares of investment. However, each individual’s contribution cannot exceed a maximum of INR 4.5 lakhs)

If the account holder is a minor, then,

• Minor account – maximum investment value is INR 3 lakhs.

Documents needed for POMIS

The documents required for POMIS include:

• Identity Proof

  Photocopy of original government-approved IDs such as Passport/Voter ID card/Aadhar card/ Driving Licence, etc.

• Address Proof

  Original government-issued ID or recent utility bills.

• Photographs

  2 Passport size photographs.

Conclusion 

Government-based schemes always provide you with security for your money. By investing in the POMIS scheme, the individual can enjoy the benefits of complete return along with their monthly income. With its decent interest rate of 6.6%, the scheme allows the account holder to enjoy their money benefits instead of letting them stay idle in their bank accounts. No wonder the elder communities and risk-free investors welcome the POMIS scheme so warmly.

FAQs about the POMIS 

1. Does the Post Office Monthly Income Scheme come with a lock-in period?

   Yes, the POMIS scheme offers a lock-in period of 5 years. After this tenure period, the individual can withdraw their investment. Early withdrawal is possible after 1 year of lock-in; however, it can cause a penalty.

2. Can I purchase the Post Office Monthly Income Scheme for my 10-year-old daughter?

   Yes, for minors aged 10 and above an adult can open a minor account in the POMIS scheme. Once the child reaches the majority, she can transfer the account to their name and claim the funds.

3. If I open a Post Office Monthly Income Scheme joint account, how will the income be distributed?

   The contributors of the joint account receive equal shares of the income transferred to their independent accounts. The joint accounts begin with equal claims of investment made by 2 or 3 investors and equal distribution of the income money generated.

4. Will I be able to reinvest my accumulated fund, once it reaches maturity?

   Yes, you can. Once the funds reach maturity, you can reinvest the accumulated funds in the same scheme for another 5-year tenure. Reinvesting assures you to enjoy the financial benefits for another 5 years.

DISCLAIMER

This article is issued in the general public interest and is for educational purposes only. The blogs should not be used as a substitute for competent expert advice from a licensed professional to best suit your needs. Insurance is a subject matter of solicitation. For more details on policy terms, conditions, exclusions, limitations, please refer/read policy brochure before concluding sale.

The life insurance underwriting process determines whether the applicant is eligible to get the applied insurance policy or not. This is determined based on his/her physical as well as financial health. If the applicant is suffering from any critical disease, then he/she may not be considered eligible for purchasing the insurance policy. In the life insurance underwriting, the underwriter also analyses the financial condition of the applicant before approving the coverage and premium. The underwriter ensures that the applicant will be able to pay his/her insurance premium on time. In this way, the underwriter provides the policyholders with the best insurance schemes. 

What is underwriting in life insurance?

Underwriting in insurance is used to assess the risk. Therefore, the underwriters are called risk managers in insurance companies. They use some underwriting guidelines before providing the applicants with suitable insurance products. These underwriting guidelines are determined based on the mortality statistics. Hence, the underwriter analyses eligibility for the chosen insurance products based on the applicant’s age, salary, occupation, health, family size, hobbies, etc. 

In this way, the insurance companies provide that insurance coverage to the policyholders for which they are eligible. The underwriting process in insurance helps the insurance companies by not making them provide the underserved insurance coverage. 

Who underwrites an insurance plan?

An insurance underwriter works in an insurance company and assesses the overall risk on the life or health of the insured to check whether the premium offered is worth the risk on his life or health, as the case may be.

Thus, an underwriter’s basic job responsibility is to verify the insured’s data along with the documents submitted for any discrepancy and confirm if the insured is eligible for the insurance plan he has applied for. They can ask for more information, request medical examinations or conduct background checks for verification.

To know more about the roles and responsibilities of an Insurance Underwriter, click here. 

Life insurance underwriting types:

There are several types of underwriting processes. Read the pointers below to understand the various types of life insurance underwriting: 

• Financial Underwriting

  Financial underwriting includes occupation, salary/wages, family size, ability to pay the premium, etc. When the underwriter approves the insurance plan for the applicant, he/she analyses whether the plan is appropriate or not according to his/her requirements. If the applicant purchases an insurance plan that is not under their budget, then, the underwriter suggests to him/her the best insurance product.

  In the underwriting process, it is ensured that the policyholder will be able to pay the premium of the life insurance policy on time. Therefore, the insurance products are given according to the applicant’s financial condition.

  A financial underwriter needs to check the following documents of the insurer:

  1. Proof of Income:
     1. Salary certificates, Form 26AS, ITR or Income Tax Return or TDS certificates
     2. Bank account or credit card statements, credit score, etc.
     3. P&L statement of a company along with AOA, MOA, Board Resolution, etc. as the case may be.
  2. Other identification documents:
     1. Copy of the PAN Card
     2. Copy of the Aadhaar Card
     3. Other utility bills such as gas, water, electricity or telephone bills.

• Medical Underwriting

  Medical underwriting includes health, past health issues, family’s health history, lifestyle, and addictive habits (if any). The underwriter approves the insurance plan for the applicant by analyzing his/her medical condition in detail.

  If the insurer’s health risk is high, the premium would also be loaded, i.e. higher than standard. The insurer may even choose to postpone or reject an insurance plan if the health risk is considered to be very high. Alternatively, there could be waiting for a period or an exclusion clause for the higher elements of risk.

  A medical underwriter gathers details such as:

  1. Pre-existing ailments and other diseases
  2. The prescription of a medical practitioner or a doctor 
  3. MER (medical examination report) with tests and samples, as and when needed
  4. Medical history of the family.

  The medical underwriter checks all details along with the duly filled form, and analyse whether the insurance policy can be accepted at the said price point or not.

The underlying condition is to ensure that all relevant information is mentioned or disclosed right at the beginning of the policy.

Life insurance underwriting process 

The most important tools that are used in the insurance underwriting process are the insurance proposal form, questionnaire sales report, Aadhar card, PAN Card, income proofs (bank passbook, salary slips, income tax details, etc.), client confidential report (CCR) etc. 

Read the following steps of the process of underwriting in insurance: 

Step 1: Quality check of the proposal form:

• Firstly, the information in the proposal form that has been filled will be checked. Hence, fill out the form carefully
• Each detail is checked in accordance with the attached documents
• After validating the details, the application form goes for the underwriting process
• The underwriter analyses whether you will be able to pay the premium or not for the chosen insurance product

Step 2: Medical examination:

• The results of the paramedical examination are checked if your insurance product requires any health proof
• A simple health check-up is done by the doctor, which may include a blood test, drug test, and the basic measurements (height, weight, and size)
• These medical reports are analysed by the underwriter before approving the insurance product

Step 3: Final Approval:

• The entire underwriting process takes from 3 to 8 weeks
• After validating all the details, the insurance plan is either approved or disapproved.
• The insurance policy and its premium are confirmed if approved.

There are 3 possible underwriting in insurance decisions:

1. Acceptance:
   When the risk is standard, the insurance policy is accepted at par without any loading of premium. 
2. Postponement:
   If the risk is high but temporary in nature, then there could be a postponement in the life insurance policy till the risk lowers or is mitigated.
3. Rejection:
   If the risk is so high that the insurance policy cannot be accepted, then the same is outrightly rejected.
4. Counteroffer:
   If the risk is high and cannot be accepted at the standard rate, the insurance company could give a counter offer with either a reduction in tenure or sum assured, or an increase in the premium or a waiting period or exclusion, temporary or permanent in nature.

The risk factors considered in life insurance underwriting 

Check out the risk factors that are considered in the life insurance underwriting process:

1. Age and gender of the insured
2. Medical history of self and family:
   If you are diagnosed with any serious health issue, then, your application form will be rejected in the life insurance underwriting process. Critical health issues (diabetes 2, cardiovascular disease, etc) are considered genetic diseases. Hence, the underwriter analyses the family’s medical history as well to measure your health risks.
3. The residency status i.e. resident India, NRI, PIO (person of Indian origin), etc.
4. Body Weight:
   If you are overweight/obese, it means your possibility of suffering from serious health issues in the future is high. Hence, slightly higher rates of insurance premiums are determined by the underwriter during the underwriting process in insurance.
5. Addictions:
   If you are addicted to smoking/drinking/drugs, it means you are associated with the risk factors of critical illness for the long term. In this case, the proposal form may not be accepted in the underwriting process. All drug abuse records are checked by the underwriter.
6. Driving and accidental records
7. Insurable interest in case the policyholder and the insured are different
8. Income and net worth of the insured
9. Hobbies such as adventure sports, hiking, car racing, etc.
10. Occupation
11. The geographical location of the residence
12. The amount of coverage applied for along with the existing coverage
13. Criminal records
14. International travel
15. Previous insurance application and rejection, along with reasons.

Implications of taking life insurance without underwriting

You should not take the insurance policy without the underwriting process as you will not be able to know whether the life insurance company will be able to provide your family with the risk cover or not if your risk exposure is high. The underwriting process in insurance determines how much insurance coverage the insurance company would be able to provide and at what premium rate. The insurance premium is computed based on your risk exposure. 

The underwriting process makes the insurance companies more credible as they settle the claims of the policyholders on time. In this way, the insurance companies are serving society.

Duration of the underwriting process in life insurance

The underwriting process in life insurance takes the time from 2 to 8 weeks. The underwriter examines the information that you have filled out in the proposal form and ensures that you will be able to pay the premium without any ado. If no fact is hidden by you, then your insurance policy and its premium will be confirmed easily. Therefore, share your details transparently with the insurance companies.

Bottom Line

If you are buying an insurance product, make sure you pick the one that matches your financial and medical condition. In this way, your proposal form will not be rejected in the process of underwriting in insuranceand you will be able to get the plan of your preferred insurance coverage at the affordable premium rates. Hence, choose the best life insurance plan that will be able to serve your family in the best possible manner if any kind of mishap happens to you.

With the technological advancements and availability of data coupled with artificial intelligence, risk elimination and selection could be a more systematic process with adjustments in the underwriting strategies and tools to suit the fast pace of the industry at large.

FAQs

1. If I hide my critical illness, will my insurance premium decrease?

   If you hide your critical illness, your insurance premium will not decrease because your medical examination will be done by a doctor. If in the medical test, it is found that you have tried hiding any medical fact, then your proposal form will be rejected in the life insurance underwriting process

2. Can the insurance company deny settling my claim?

   Under most circumstances, the insurance company can not deny settling your claim. It is the fundamental duty of the insurance company to settle the claims on time. The main aim of the company is to serve the policyholders. However, if any discrepancy is found in the information given by you, then, the possibility of not settling the claim increases.

3. How does the underwriter compute the premium amount?

   Firstly, the underwriter analyses the financial condition, lifestyle, and family size of the applicant. Then, the other risk factors i.e. age, family medical history, health issues, body weight, smoking habits, etc. are examined. Thereafter, the underwriter computes the premium rate based on the applicant’s financial condition and risk exposure.

4. Which documents should I attach with my proposal form?

   Your insurer will request certain documents. You should keep the following handy:

   • Aadhar card
   • PAN card
   • Driving license
   • Residential proof
   • Bank passbook
   • Salary slips
   • Income tax documents with the proposal form.

DISCLAIMER

This article is issued in the general public interest and is for educational purposes only. The blogs should not be used as a substitute for competent expert advice from a licensed professional to best suit your needs. Insurance is a subject matter of solicitation. For more details on policy terms, conditions, exclusions, limitations, please refer/read policy brochure before concluding sale.