Summary: As we grapple with the COVID-19 pandemic, here is a brief overview of existing health insurance, new COVID-19 specific insurance policy and life insurance.
Summary: Insurance companies are offering COVID-19 health insurance policies. They are fixed benefit plans that accept claims for diagnosis for COVID-19 related illness. It is better to buy a comprehensive medical policy and these specific plans are to be considered only if you are at high risk of getting the disease and are short of funds to tide over crises arising out of the illness.
As COVID-19 continues affecting more and more people, in terms of health and loss of income, insurance companies have launched niche product catering to illness due to the virus. Here is an overview of a few of those products -
Should I buy a COVID-19 insurance plan?
Check the health insurance cover of self and family. If it can cover for hospitalization for illness or loss of pay due to missing work, you need not buy a separate plan as most insurance policies should cover COVID-19 related illness/ hospitalisation as per IRDAI's dictate. Do check with your health insurance company about the terms and conditions.
Most of COVID-19 specific plans provide a lump sum on diagnosis. This amount can be used as required. But one must be aware that the sum assured is not enough for intensive care or extended hospitalization Moreover some of the plans do not cover hospitalization in private clinics or homes. In these cases, an indemnity based health plan will help.
Protect yourself and your family with a comprehensive health insurance plan. They provide protection against many medical conditions and can be renewed on a yearly basis. They also have features of flexibility in the policy amount and riders for additional coverage. Moreover, if the person has travelled overseas, most coronavirus-specific policies not cover them but a regular health insurance will provide cover. If a person does not have a health insurance plan and is at a high risk of catching the disease (e.g. medical professional) or is short of funds to tide over any crisis due to the illness, the COVID-19 insurance plan might be useful. For all practical purposes, it is better to buy a regular health insurance plan.
Summary: RBI announced that banks and other lending institutions have to offer a 3-month EMI moratorium. It means borrowers can defer payment of EMIs from March 1, 2020 - May 31, 2020 in the light of the coronavirus outbreak. If you are unable to manage your EMIs, connect with your bank to understand how the process works. If you can afford to pay the EMIS, do pay them off as your overall cash outgo will become higher if you avail of the offer.
What is the EMI Moratorium?
The Reserve Bank of India (RBI) announced in the last week of March 2020 that lending institutions have to offer a three-month moratorium on equated monthly instalments (EMIs) for loans. These loans include all retail loans, credit card dues, EMIs on debit cards, SME loans and corporate loans.
It is a temporary relief measure for borrowers wherein they get a grace period of three months for EMI payments. They can skip paying EMIs from March - May for this year and resume payment from June 2020 onwards. Many banks have announced the related process and conditions.
Who all are eligible for taking up the EMI moratorium?
Bank customers who have availed of loans and/or have credit card dues or overdrafts prior to March 1, 2020 are eligible.
What is the process for taking up this facility?
Each bank has its own process. Contact your bank or financial institution to understand the exact process.
HDFC Bank – Call up on the number – 022-50042333 or 022-50042211 and follow instructions. You can submit the request on their website also. If you do not opt for it, it will be assumed that you will pay EMIs as expected. For credit cards, turn off the auto pay feature or do not pay the EMI to avail the benefit. Post May 31st, resume paying as expected.
ICICI Bank – Customers with loans such as commercial loan, two-wheeler loan, small business loan, Kisan credit card, premium overdraft, etc. will get relief for EMI payments automatically. hey have to explicitly inform the bank to opt out of it.
Customers with home loans, auto loans, overdrafts, personal loan, education loan etc. have to explicitly opt in for availing of the moratorium.
Check this link for detailed information.
Are there any charges for this offer?
Late payment charges will not be levied and no refund will be made for EMI already paid for March 2020 in case you take up the EMI relief offer.
What will happen to the loan interest and EMI?
If you miss out on EMI payments for three months, your loan tenor will increase to accommodate the interest accrued for the three months. The interest from June 2020 will be calculated on the principal amount that has been unpaid for March, April and May. So the EMI payment on the loan or overdue amount will become higher. If the loan tenor cannot be increased, the EMI will increase further to accommodate for the period when EMI was not paid. Here is an example -
*Figures have been approximated
As you can see, the EMI increases if you avail of the moratorium.
Should I avail of the offer?
If your regular income is intact and you have an emergency fund in place, continue your EMIs as-is. Do not avail of the EMI relief measure as you will only increase your cash outgo. But if you are struggling with finances, it might be better to take up the offer as it is better than missing out on payments and your credit score will not be affected.
Summary: The coronavirus outbreak has created a tough economic environment. Some financial measures have been announced to hopefully ease the financial situation for the common man. The RBI decreased the repo rate and reserve rate. It has offered a 3-month relief period for EMI payments. Many banks are offering emergency loans and personal loans.
The RBI, banks and other institutions are trying to do their bit in the COVID-19 crisis. Let us look at the various steps and how they impacts us -
1) Cut in repo rate and reverse repo rate
The RBI, announced a cut in the repo rate by 75 basis points and a cut in the reserve repo rate by 90 basis points. The new repo rate now stands at 4.4% and reserve repo rate at 4%. The aim here is to provide some protection for lenders and borrowers in the current economic turmoil that has occurred due to the COVID-19 outbreak.
So what does this mean for the retail borrower or people who have car loans, home loans, etc. Will it affect FD holders?
Impact On Borrowers
But do remember that the cut in repo rates will result in falling interest rates for Fixed deposits. SBI has already cut its retail term deposit interest rates by 0.20% to 1% across different FD tenors and types of FDs.
2) 3-month moratorium for EMIs
The RBI has also announced a three month moratorium for borrowers. This means borrowers of term loans will get a relief from paying their EMIs for three months. The EMIs that have to be paid between March 1, 2020 and May 31, 2020 can be postponed. You can resume payment in June 2020. These term loans include agricultural term loans, crop loans, corporate loans, home loans, education loans and personal loans and outstanding credit card dues. Loans taken from banks, non-banking finance companies and housing finance companies are eligible for this relief. Interest will continue to accrue during this relief period which means your overall interest outgo will increase. Do check with your bank if this relief option is mandatory or optional. If you opt to postpone your EMI payment, it will not impact your credit score adversely.
3) Tax Related Measures
It has been announced that taxpayers can complete their tax-saving actions until June 30, 2020 for FY2019-20. The earlier deadline was March 31, 2020. People can invest in tax-saving instruments, file appeals, furnish returns and work on other tax compliance actions till June 30, 2020.
4) Other Initiatives
Summary: The coronavirus outbreak continues to wreak havoc. There is no cure yet and the number of people getting affected is increasing. World economy has taken a significant hit. Markets are down. Though it is easier said than done, retail investors should not panic. Long-term investments should be kept as-is. You should take steps to manage your budget and income so that there is minimal upheaval in case of a layoff or business or profession slowdown.
The DOW Index dropped 3,583 points in the last week of February. The Sensex fell by more than 5500 points between Feb 11, 2020 and March 11, 2020. Business activities are subdued globally. The coronavirus effect is increasing as the days go by. There is no cure yet and there are fears that the global economy will go into a depression because of production slowdown, reduced commercial activities and decrease in consumer spending.
What does the retail investor do in this pandemic situation?
It is scary to see your investments losing value. But long-term investors have to sit tight on their investments.
1) You should understand that systematic risks and cyclical movements affect the entire market. Moreover, it is difficult for the market and your investments to constantly be on the upward trend. Today markets are interconnected more than ever. So for example, a slowdown in China or a political issue in the US will affect the Indian markets to some extent. If you look at past events, SARS, bird flu and Ebola were worldwide medical emergencies. The SARS outbreak led to the Sensex being in the red for the one month period. Six months later it was up by over 30%. The Cholera outbreak in 2010 affected the Sensex significantly. But 10 years later, Sensex is valued at close to double the value of Sensex then.
Keep a watch on your portfolio. Investments that have been made for the long-term on the basis of proper research and analysis should be kept as-is.
2) The market has fallen quite a bit. It will be tempting to buy cheap stocks or invest in mutual fund schemes. You have to be patient. The markets are still in turmoil as there is lot of uncertainty. Check which of your investments have the potential to bounce back and offer sound value for the price.
For example, you can increase your SIP amount in large cap growth funds and maybe temporarily cut back on investments that you think will be affected negatively for a long-term. Do make these choices based on your risk profile and investment capacity and goals.
3) Since business is experiencing a slowdown, there might be layoffs in companies. If you are a professional or freelancer, you may experience slowdown in projects or even loss of projects. This can affect your income. Do not panic.
Take steps to manage income and budget and use the emergency funds wisely. Control your expenditure. If you feel that you will not be able to pay off your EMIs on time, check with your bank on how best to manage them. You can restructure the loan. If you have a good payment history, you may be able to defer the payments for a certain period. If you have received a severance package, you may prepay the loan to reduce EMIs. Utilize the opportunity of less work, to upgrade your skills. If you run a business, it is a good time to revisit client acquisition strategies and marketing plans.