Late Extra: NRIs need to review their financial plans

The definition of 'financial security' has undergone a dramatic change worldwide. Bearing this in mind, the NRIs, especially those from the Gulf, will also have to review their financial plans. It is no good saying that a financial plan is in place and that it has been there for the past decade or two.

One will have to take out a magnifying glass and take a closer look at what one proposed to do, what one has achieved and what still remains to be done.

It is possible that what was perfectly safe and absolutely secure 10 years ago is no longer so. Yes, 9/11 brought in some changes, then the ongoing Iraq War and the SARS scare are the most immediate catalysts which have ushered in the change.

Unfortunately, so many invisible factors have and will come into play in the years ahead. Try as hard as you wish, they are not going to vanish for a long time. The most immediate will be perceptions and misconceptions whether valid or not which wreak havoc on one's carefully worked out plans.

Back to the basics and you will recall that financial planning included ownership of house, life insurance, provisions for children's education through to college and, lastly, if one still had money to spare, investments with assured returns.

Gulf NRIs can be clubbed into three broad categories. The first, which are in a majority, are those who will return to India eventually. Then there are some who use the Gulf as a springboard to migrate to other countries. In the third category are those who would like to and are staying put, come what may.

As matters stand today, whichever category one is in, life insurance and assured returns have and are proving to be most fickle. There will be many NRIs who have chosen insurance companies based in the West which boast of a track record of 100 plus years.

They are deemed to be secure. But do take a closer look at your policies and make a note to ascertain the judicial jurisdiction under which any disputes arising about your policy would be governed by, for example 'Manx Law and the Courts of Isle of Man'.

If the NRIs have chosen an insurer in India, in all probability it would be the Life Insurance Corporation of India (LIC) because the others are new players. Please follow the Government of India announcements carefully because there is a proposal to change the laws governing taxation of the proceeds from your policy.

Please don't panic, the LIC policies, "to the best of my knowledge", are absolutely secure but the taxation structure may change very soon. After all, the Life Insurance Corporation of India is perceived to come under the security net of the Indian government but so did the Unit Trust of India. Therefore, the qualification of my statement with a 'to the best of my knowledge'.

As regards the life insurance plans and pension funds originating and operating from many other parts of the world, I am sure many of you would have already received notices that the "guaranteed assured returns" are not guaranteed anymore.

One foreign insurer has written thus: "The fund additions are net of the annual management charge of 1 per cent per annum, and include the Guaranteed Fund additions.

"The anticipated fund additions are not guaranteed until they are formally declared at the end of each year. Once declared, they are guaranteed and cannot be taken away, providing the client does not surrender their plan."

Preceding the above statement was a very thorough and carefully worded explanation as to why you may not get what you expect by way of dividends this year and for some unspecified time to come.

A comparative chart illustrates the performance of the FTSE; S&P500 and Xetra Dax and goes on to explain: "The sustained low performance of equities means we can no longer support such large Fund Addition. Unless there is a very strong improvement in stock market levels, it is likely the dividend will be cut again in July."

So much for assured returns.

Then there was this American insurer, which charged me an additional fee for risk in war coverage because in those days I was covering the Iran-Iraq War. It was called Form M4 (War Coverage Clause) for -----. Forget the amount. The clause in no longer applicable.

That is why it is absolutely essential that investors should not take any assurance given verbally and in writing about returns and conditions of life cover etc. for granted. It does not matter if you invested 20 years ago and your policy if fully paid or if you bought some product recently. The conditions and terms are changing by the minute.

The author is India-based journalist.