Month: September 2024

Categories
Personal Finance

Why you should have a good CIBIL score

What is CIBIL score

CIBIL Score is a three-digit numeric summary of your credit history. The score is derived using the credit history found in the CIBIL Report (also known as CIR i.e Credit Information Report).

A CIR is an individual’s credit payment history across loan types and credit institutions over a period of time. A CIR does not contain details of your savings, investments or fixed deposits.

CIBIL Score range

Score BandCategory
< 300Poor Credit Score
300-550Very Low Credit Score
551-620Low Credit Score
621-700Fair Credit Score
701-749Good Credit Score
750-900Excellent Credit Score
CIBIL score range

Why you should keep a healthy CIBIL score

Everyone will need a loan from a financial institution at some point in their life for high value purchases / spends which may include the following –

  • Home Loan
  • Education Loan

A good CIBIL score will help you get your loan approvals very quickly without any hassles.

Disadvantages of a poor CIBIL score

If you have a CIBIL score which is less than 700 , you may find delays in your loan approvals and may end up with additional paper work and end up paying more. Some additional costs that you may incur –

  • For additional paper work, you may have to approach a CA who may charge you 2-4% of the loan amount.
  • Banks may charge additional processing fees of up to 0.5%
  • Banks may charge additional interest of 0.5 – 1 %

Let’s see if you have to pay these additional cost at the lower end, how much you may need to shell out from your pocket.

Additional cost categoryAppx cost for a 20 year loan of 50 lacs
Additional paper work by CA @ 2%1,00,000
Additional processing fees by banks @ 0.5%50,000
Additional interest by banks @ 0.5% for a 20 year loan at 8.75%~ 1,500 per month
Overall Additional Costs8~10 % more for your entire loan term
Damages for a poor CIBIL score

Why banks will charge more

Banks lend based on risk profile of a customer. If the risk is more, banks will charge more.

It’s that simple.

For a customer with poor risk profile, probability of default is more.

Who will be happy if you have a bad CIBIL score

  • CA’s – They get additional money for paper work
  • Banks – They charge you additional processing fee and additional interest rate
Categories
Personal Finance

Bought an insurance policy – It’s not covered !

How insurance agents get your number

You might be wandering how all insurance companies get your number? Possibly you have filled a lucky draw form/coupon at a mall.

You didn’t get lucky but the company which got your form was lucky to have sold your number to insurance brokers/agents for a small fee.

Type of Insurance

There is no dearth of types of insurance. Most sold ones include –

  • Term Life Insurance
  • Endowment Plans
  • Health Insurance / Hospitalisation Plans
  • Travel Insurance
  • Fire Insurance
  • and the list goes on….

What agents are going to tell you

Agents may usually take you for coffee or drinks when they try to sell you an insurance product.

They will start with the policy highlights which are usually all the good things. After hearing them, you might be tempted to buy one.

They won’t tell you bad things like exclusions, waiting period , pre existing illness etc

Common non claimable scenarios

Scenario 1 – You buy a hospitalisation insurance and fall sick after 2 months and need to be hospitalised

Outcome - Insurance plan may have a waiting period of 90 days and your claim is rejected

Scenario 2: You buy a hospitalisation insurance and get hospitalised. You get a bill of 2 lacs but only 1.5 lacs is approved.

Outcome - Your agent most likely would not have told you about exclusions. All items that a hospital bills you are not claimable. Some examples could be disposables , over the counter medicines such as probiotics.

Scenario 3: You buy a vehicle insurance and get a third party claim

Outcome : Third party claim is not covered

Scenario 4: You have purchased a travel insurance policy and are told that bag damage and loss is covered and your bags are damaged when you receive them at the airport belt.

Outcome : What is the most likely part that gets damaged - Wheels / handle - which are usually not COVERED

Scenario 5: You buy a travel insurance and flight delay is only covered if it is more than 12 hours. Your flight is delayed by 10 hours overnight.

Outcome : You end up paying for a lounge or hotel room , food etc and no claims can be made

Why agents won’t tell you the bad part

  • They get hefty commissions, losing a potential sale / client may not be beneficial for them
  • They have sales targets to achieve. They may offer a small gift for buying an insurance which may further tempt you

What your should do next

  1. If you have an insurance and have a policy document ready. Try giving it some time and try to understand the coverage. The problem is you will get it only when you buy the insurance.
  2. Most insurance policies (by law) have a free look out period for 14 days or 28 days. Please ask it from your agent even before you buy.
  3. Read the policy document carefully once you get it ( most of them are now digital copies which can be accessed through your insurance portal account or you might have received it in your mailbox as a password protected pdf file .
  4. If you are not satisfied , inform the insurance company and they are obliged to refund you the initial premium back.