Me and my wife both working and have good monthly income, but still we are not happy!!!

MoneyOne day my friend came to me and told that both he & his wife works in MNC’s. They both draw good monthly salary but they are not happy. He told me that they are not happy because they are worried. They are worried whether their monthly saving is good enough for the future or not. They both started spending less; they do not go for vacation etc. They are confused whether to buy a flat or a land, when to buy a car. Yes, looks like he is really confused and worried.

To help him, below questions were asked to him.

  1. What your current savings are and how much?
  2. Why do you need money and why are you saving?
  3. What major and important financial goals you have?
  4. When do you need the money for your financial goals?
  5. Do you know approximately how much money you need for all your financial goals?
  6. Do you have enough money to handle any financial emergency?
  7. If anything happens to you, how is your family going to survive?
  8. How long are you going to work?

AR_RBasically these questions are for each one of us. My friend is worried because he did not give a strong thought about his financial goals. He does not have any idea how much he needs for any of his financial goals. He is not sure what will happen if any emergency occurs. He does not know which investment product he has to choose based on the purpose and duration of his goals. He was not sure why he needs a Flat or a land, whether he wants to stay there in a flat or invest in a land. He did not think about how to protect his family if anything goes wrong with him. He was randomly saving, also not investing. Since saving and investing are totally different concepts.

There are many people you can see, who work hard, always save (without knowing why they are saving), they spend very less, they do not go to any new place, and they even forget where they kept their money. Whether their investment is taken care of inflation rate or not. One day they become old and die. They never enjoyed their wealth.

AR_RAdvice to him was, to go to a Personal Finance Advisor and create a complete plan and personal finance portfolio. If we have a plan and know how to execute that plan, we can be focused and achieve our goals. In this way, he can concentrate more on his job; he can properly give time to his family and enjoy his life. He will know how much exactly he can plan for yearly breaks, go for movie, go for shopping with his wife, buy a car, buy a flat or a land and spend time for his hobby. He can even decide when to retire happily.

If we have our personal finance on track, we can be free from worries and live happily. Since healthy mind means healthy body. Remember, we have a limited time in our life and there are many beautiful reasons to enjoy our life.

We are also equally responsible for Chit Fund or Ponzi Scheme Scam!!!

ChitFundAs per Indian Express Article, Investigations found that the Rose Valley group had raised as much as Rs 10,281 crores from investors, while Sarada firms had mobilised an amount of Rs 2,459 crore. In another scam Rs 10,000 crore. That is the extent to which bogus chit fund companies have duped investors in Maharashtra.

Horrible outcome of these Chit Fund Scams is Suicide.

Articles in India Today Ranjit Pramanik, hanged himself from the ceiling of his residence following Sarada Group’s chitgate episode. Once a zari worker in the district, Ranjit had invested a savings of Rs 3,000 in a Saradha scheme expecting a return of Rs 7,500 in four years. But after watching television reports about Sudipto Sen’s arrest and the company that went bust a few weeks ago, he went into severe depression. There are many such instances such as “Times Of India” article headings “Chit fund owner commits suicide” & “Chit fund investor commits suicide”.

Chit Fund Scams are not new; it is there all over the world since ages. More details can be found in Wiki Page. Then why people still invest in the chit funds or ponzi schemes and become a victim?

If we go through the promises of any Chit Fund or Ponzi scheme, we can easily find out why people invest in these funds. Two of the major promises these funds gives are:

  1. Higher Interest rate: Yearly 20 to 30% return on the investment. Some funds promise to double your investment in 3 years (which is 26% annual interest).
  2. No paper work: No need to give PAN card, address proof details. All investment as Cash Transaction.

AR_RHere are the points, because of which we are also equally responsible for Chit Fund or Ponzi Schemes Scam.

 

  1. Since we are greedy and want quick money, we are influenced with this high interest rate. We always look for a short cut in our life to get more money quickly. We do not ask where money will be used and how they can offer such a huge interest rate. Yes, most of the people do not understand about interest rate, but still we should at least check the company details and most importantly we should not be greedy.
  2. We do not have to do any paper work, no need to provide our PAN card information and all transaction is in cash. What does it mean? It means we are putting our Black money. Only rich people do not have black money, people who do not disclose their income and do not pay their TAX are also possess black money. The amount of money can be very small, but still it is black money. For example when we go to a small grocery shop, we do not get proper bill, which might become black money. People, who have black money, get it very easy to invest in to these chit funds.

Hence, we should not encourage those companies who promise high interest rate by investing on their schemes.

BoySo how to take decision while investing to a company’s scheme?

 

AR_R

  1. Check how much interest rate it is promises. If it is more than 15%, then there might be something wrong.
  2. Ask the representative or the broker, what that company does, its registration number and where your money will be invested and how?
  3. Get the complete details of the scheme (brochures), also ask for the company’s directors information.

It is our own duty to save our hard earn money. No one can fool us until and unless we give others a chance to do so. We should help our friend, relatives to understand/inform about these kinds of scheme. Irrespective of the recent news about chit fund scams, it will not stop people to come up with similar schemes in future.

Once again, it is your hard earned money so you only have to protect it.

Now India has the youngest population in the world…. what about after 35 years?

people_populationAs per United Nations Population Fund (UNFPA) and Help Age International, India’s population is likely going to ARincrease by 60% between 2000 and 2050 and people with age 60+ is going to increase by 360%. They also said, Indian government should start framing policies now else its consequences are likely to take it by surprise. Complete report present in http://www.gktoday.in/indias-elderly-population-some-fundamentals/ .

In a report “Aging Report” by United Nations Population Fund (UNFPA) and Help Age International, below are the major challenges of population aging:

  1. Financial security: While many developed countries and some emerging economies are challenged with an aging workforce and ensuring the sustainability of pension systems, most developing countries have to establish their systems now when the challenge is less acute and when the fiscal space available for social policies is increasing as a consequence of the “demographic dividend”.
  2. Health: Health is another major concern for older persons. The demographic transition to an aging population, accompanied by an epidemiological transition from the predominance of infectious diseases to non communicable diseases, is associated with an increasing demand for health care and long-term care. Although not an inevitable outcome of growing old, the number of older people affected by mental health problems are increasing due to population aging. Their management has become an increasing concern for both developing and developed countries.

Present Financial Security in India:

  • As per rating agency CRISIL only 8 percent of employees who retire from the private sector in India are covered by pensions while 92 percent of private employees have no income security.
  • As per ‘Retirement Survey’ by Reliance Capital Asset Management (RCAM) conducted online pan India in collaboration with IMRB International, India’s per capita retirement and pension assets as a percentage of gross domestic product (GDP) is among the lowest compared to other economies like Germany, USA and Brazil. India has only 15.1% of retirement assets (as a percentage of GDP) as compared to 21% in Germany, 41% in Brazil,78.9% in USA.

Present Health Security in India:

  • As per Health Infrastructure report 2013, India has Rural 15398 Gov Hospitals with 196182 beds, Urban 4419 Gov hospitals with 432526 beds. Where average population served per Gov Hospital is 61744 and average population served per Gov Hospital Bed is 1946.
  • Awareness about health policies was pretty low among Indians and many still have the misconception that health insurance is meant only for the elderly, according to a survey by Max Bupa Health Insurance.
  • According to world health organization India has 112 ranking in health all over the world.

AR_RAs per the above points, by 2050 Indian Government has to come up with various schemes to solve Financial and Health Security issues, otherwise it can lead to a major problem for most of the Indians. So, should we wait till 2050 for government to make the policies? Government alone can not fix these issues; we also must help our self and government to handle these issues together. Remember we must accept that one day we are going to be 60+.

BoySo what should we do?

AR_R 1. We should make a financial plan, which will take care of our responsibilities and retirement; this will solve our future Financial Security.

2. In the financial plan, we also should take care about Health Insurance w.r.t the future cost. Since in India Medical expenses are increasing at the rate of 10% every year. Which means today’s Rs 1L medical cost will become around 28L by 2050.

3. Since we are aware of Financial Planning importance, it is our duty also to help our friends, siblings, relatives, even our Maid/Dudhwala/PaperWala to inform about saving for future.

Hence do not delay your retirement plan including your medical security. Since it is easy to build a big corpus with little money only if we start early.

Learn to say NO when you are taking any financial decision

LearnToSayNoDo you find difficult to say NO to your relative/friend/your relationship manager/someone you know, when they ARapproach you with investment and/or insurance product? If the answer is YES then you are already or going to make some bad investment unknowingly. Most of the time it has been seen that people make financial decision without understanding the product where they are investing. Below are few scenarios where people approach us related to investment once we start earning:

 

  1. Our relative/friend or their referrals come to our home and introduce us with some financial products. They tell us this is the best investment, which include insurance and tax saving also. If we are not convinced, they play emotionally with us, sometimes they say that they have to meet their target otherwise they will lose their job. Since they are our known people, we cannot say NO to them. Because if we say NO, it can harm our relationship.
  2. You go to bank and someone approaches you saying “Sir/Maa’m, we have a very good investment for you, which will give you a very good return. Will use some financial Jargons, looks smart, intelligent and well dressed. Wallaa, you cannot say NO, because if you say NO, what that guy will think about you?
  3. Based on your bank balance, your bank has assigned a relationship manager for you. He/She is supposed to help you for your financial decision. He/She will formally take an appointment with you and then place an investment product in front of you. You cannot say NO, since your bank has appointed him/her and he/she knows the best.
  4. Towards the end of every financial year, we see more advertisement on TV, Newspaper related to investment products which are eligible for Tax Saving. The reason is that they know because of our laziness we did not do our tax planning and at the time of financial year end, we will be in hurry to look for an investment which gives Tax benefit.

AR_RIt is your hard earned money, you have to know where you are investing, why you are investing, what is the risk involved etc. You know best about your financial goal and your risk taking ability. So dare to say NO, if you are not comfortable/convinced with the investment.

Below are few techniques you can use to identify about an unnecessary financial product:

  • Most of the people who are trying to sell any financial products are only looking for their commissions. So if any person approaches you and directly puts an investment/insurance product without asking anything about your financial status and financial goal, then you can immediately understand that he/she is only bothered about his/her commission.
  • If any product which is combination of Investment and Insurance, then you can discard immediately. Since we should not mix investment and insurance together.
  • If anyone is selling any financial product only based on Tax Saving.
  • If you are meeting a person first time, he/she first praises you (about your dress or about your current job or about your name) and then places the investment product in front of you.
  • If the person is smart and have good experience dealing with clients, then you can start asking below questions to identify whether the product is for you or not
    • How much commission you are going to get if I invest in this? No one can deny giving the answer. This is because as per IRDA, from April 2015, all agents have to share the commission information if someone asks for the same.
    • Ask for the detail information of the product. If someone is promising high return, then ask for some proof or some solid data.
    • Ask about the risk involved in that investment and try to map with your risk taking ability.
    • Ask that person to show you how much compounded annual interest you are getting / going to get finally. This is important, check compound interest only.

AR_RHow to say NO comfortably:

  • If the person is known and you understood that you do not want to take the financial product. Then clearly say NO to him/her. Do not give any excuse or tell lie, because if you do then he/she will come up with solution for your excuses. If you think that you can explain why this investment is not good for you, then go ahead and explain or else say politely NO. Please make sure he/she understands that you are saying NO. Do not worry nothing is going to happen to your relationship.
  • If the person is not known to you, then you can use “Broken Record” technique. This means you Keep on saying “NO” with a smile irrespective of his/her explanation.

AR_ROne interesting incident I would like to share with you. One of my friend is an agent, one day he came to me and told me “you invest in this product and I will get X amount as commission, I will share part of it with you, in this way you will pay less money and will get more returns”. But he did not explain me about the product or tried to explain why this product is good for me. His intention was only to sell the product and get the commission. What did I do? I said NO to him. Believe me we are still good friends .

BoySo, if we are going to say NO to most of the people, then how will we invest to fulfil our financial goal?

 

AR_RThere are two techniques,

  • One is, learn and understand financial product and then invest.
  • Other one is, take a help of certified Financial Planner. Make sure it is not FREE or he/she gives discount if you invest through him/her. Remember investment through him/her means commission and they will suggest those investments from which they can get maximum commission.

AR_RSo remember, SAY NO TO ANY INVESTMENT WHICH YOU ARE NOT CONFORTABLE WITH. There is no harm saying NO to someone. This is your hard earned money; do not sacrifice your future to make others rich.

Let’s make Mutual Fund as our Best Friend!!!

MutualFundEquity Mutual funds invests in stock market. Stock Boy_Rmarket is very risky. Why to invest our hard earned money in stock market?

AR_RIf we do not know what we are doing, then anything & everything is risky (not only stock market). Most of the retail (individual) investors think stock market is a place, where we invest in a stock and the time it is invested, the stock price will keep on increasing. Retail investor forgets that there is a company behind every stock. When we invest in a stock, actually we are investing in a company and based on the company’s performance over the year, we will get the benefit in the long run. Benefit can be as a dividend and/or stock price appreciation. Most of the time it has been seen, retail investor participated in stock market based on friend’s/relative’s/news channel’s recommendation. This is only to earn quick money, without knowing anything about the company where they are investing. The topic of investing in Stock is very vast and there are many great books that has been written on “How to invest in stock?”. With proper knowledge, better investigation and long term vision, stock investing is a great option. Below chart has been taken for CNX NIFTY

Niftyfrom 3rd Jan 2000 to 27th July 2015. Within this time frame CNX NIFTY went from 1613 to 8375, 11.61 compound interest annually. If someone had invested on 3rd Jan 2008 (when market was at peak and after that a big crash) and held it till 27th July 2015 , the result was positive 4.21 percent interest compounded (CNX NIFTY went from 6274 to 8375).

BoyAs mentioned, investing in Stock market directly is great investment, then why to go via Equity Mutual Fund route?

 

AR_RYes investing in stock market directly is the great investment, only if we are competent to do so. Every one of us is capable to master in one or other subject. Since we have only limited time in our life, it is impossible to master in all. Hence, we should be very selective when we choose our subject/profession and the time we spent on that. That’s why if we are not good at stock pick, it is better to ask for help from the advisor (not free of cost). For example, if we are sick we go to doctor, we do not try to study medical at that time to fix the sickness. Similarly, if finance, economics are not our subject and the time we are going to spend for identifying best company with best price is not sufficient, it is better not to invest in stock directly. That’s why we have mutual fund. Here qualified fund manager will be managing the fund on behalf of us and charge us for that. It works same way; we choose a doctor for our health and we choose a Mutual fund for our financial health. One more advantage of Mutual Fund is, it diversifies its portfolio, so that it can handle the sector specific risks (depends on which mutual fund we choose). Since we should not put all our eggs into the same basket.

BoyIf we invest in many Mutual funds, it also means we have diversified portfolio. Right?

 

AR_RLet’s say we want to invest in Mutual funds which invest in large cap stocks (bluechip stocks). Now, there are many such Mutual funds exists in the market and if we choose 10 different Mutual Funds from the list, that does not mean we have taken good decision of diversifying our portfolio. This is because, if we go through what all stocks these Mutual Funds hold, we will see that at least 70% of the stocks are common. Hence if we invest only in one Mutual Fund from that list, it will also satisfy the diversification. Most of the well known investors have advised to have at max 7 mutual funds in one’s portfolio with various type of combination. Also since we have to check the performance of our investment portfolio once or twice a year, it will be a huge task for us to check/verify more than 7 Mutual Funds.

BoyWhat should be the objective behind investing in Mutual Fund?

 

AR_RFor short term goal, it is strongly advisable not to invest in equity mutual fund. Now what is the duration which qualifies short term? Many people say 2 to 3 years is referred as short term. But better to be in a safer side, any goal which is less than 4 years away should be considered as a short term. For short term goal, if we want to invest in mutual fund, then debt mutual fund is advised. For medium term, it is advisable to invest in balanced mutual fund (which has equity and debt combined). What is the duration which qualifies Medium term? For safer side, any goal which is greater than 4 years and less than 7 years away, can be considered as a medium term. Hence any goal which is more than 7 years away can be considered as a long term and advised to be invested in equity mutual fund.

BoyIs our age a factor when investing in Mutual fund?

 

AR_RMany people say (100 – current age )% should be invested into equity. But age is not at all important while taking investment decision. The duration is important, on which a Goal has been set. Hence based on the short term, medium term and long term goal, we should choose whether to go with debt or balance or equity mutual fund. When our goal is approaching, we can slowly move our investment from equity to debt funds. This is to safe guard our investment, because at the time we need money for our targeted goal, we cannot take a chance of market’s movement.

BoyShould we wait till the market goes down, reach bottom and then invest?

 

AR_RTime to Market is extremely difficult. No one can predict exactly when the market will reach bottom or top. If we can select good, well managed mutual fund then over the long term we will get the benefit. Hence irrespective of market movements, for long term goal, we can systematically invest in Mutual funds.

BoyShould we go for one time investment or regular investment irrespective of current market situation?

 

AR_ROne time investment is nothing but we are trying for time to market. Mutual fund through SIP (Systematic Investment Plan) is the best way to invest in equity mutual fund for long term goals. With regular SIP investing irrespective of Market movements, we will get Rupee Cost averaging. When market is low, we will get more funds unit and when market is high, we will get less funds unit. To get the benefit with equity mutual funds through SIP, we should be very disciplined and continue investing till our target is achieved. For example, if we would have invested in HDFC Top 200 (G) in SIP with only Rs. 1000 monthly from 3rd July 2000 till 30th July 2015, then on 30th July 2015 the investment value would have become Rs. 12,95,562. Which means CARG 23.42%, with actual investment Rs. 1,81,000. This is the power of compounding in long term.

BoyI am a business man/ self employed/worked where not having fixed monthly income. It is not possible to commit SIP route? What to do?

 

AR_RYes for those who do not have fixed monthly income it is very difficult to commit on SIP. We can figure it out how much money we can guarantee every month for SIP and start investing. Even small amount such as Rs 500 can also be a starting point. After that, when we save a good amount of money, we can invest the same through STP (Systematic Transfer Fund). For example, when Rs 50000 is saved, we can invest this 50000 to one of Liquid Mutual fund and then monthly transfer 2500/- to an Equity Mutual Fund for long term goal.

BoyHow to create a portfolio from various type of Mutual fund?

 

AR_RAs advised, at max we should only have 7 mutual funds in our portfolio; it is very important task for us to figure out which one to select. Based on individual risk capacity, we need to select the combination of Large Cap, Small & Mid Cap, Flexi Cap, Value Cap, Opportunity, Short term Debt, Long term Debt Mutual funds. Here “Risk” means “Financial Risk”, it does not mean how brave we are , such that whether we can jump from a second floor or not. Based on the analysis of our current financial situation, our future goals, our current & future income we should calculate how much “Financial Risk” we can take while investing in Mutual funds. Also we should have mixed of Mutual Fund Houses. Portfolio re-balancing is also a very important task for us. Periodically we should check whether our targeted allocation on various financial instrument are on track or not. Below table gives an idea to create a mutual fund portfolio based on individual’s Financial Risk taking abilities:

Risk Type Fund Type Allocation
Conservative Large Cap 1 20%
Large Cap 2 15%
Balance Fund 1 25%
Balance Fund 2 30%
Flexi Cap/Value Cap 5%
Gold Fund 5%
Moderate Large Cap 1 30%
Large Cap 2 20%
Balance Fund 1 20%
Value Cap 15%
Mid & Small Cap 10%
Gold Fund 5%
Aggressive Large Cap 1 25%
Large Cap 2 15%
Flexi Cap 20%
Value Cap 20%
Mid & Small Cap 15%
Gold Fund 5%

BoyIs investing in Direct Plan better than Regular Plan?

 

AR_RYes, Direct Plan is much better than the Regular Plan. The effect we can see over the long term. For example after 20 years we can see a very good difference in these two types of plan, approximately 2 to 3%. If we are sure, we can handle our mutual fund portfolio by our self with direct plan, it is strongly advisable to go for Direct Plan. If we are very busy or do not want to understand the process (though it is very easy) of direct plan, Regular plan is still ok for us.

BoyHow to choose a mutual fund?

 

AR_RIt is very important to short list Mutual Funds for our portfolio. Because we give our hard earned money to a Fund House/Fund Manager for investing on our behalf. We can take Financial Advisor’s help to figure out the required Mutual Funds. Make sure, the Advisor is certified, ask for one time charge to give the service (since free service must be having some other motive), does not ask to invest through them and also provide detail information why those funds are suitable for the individual. We can refer the below mentioned check list while choosing a mutual fund:

  1. Ignore Mutual Fund IPO. Even though most of the distributor might give us many wonderful reasons to invest (because they are going to get very good commission), it is always better to ignore IPO. This is because, there is no data to evaluate whether it is worth to choose that fund or not.
  2. Check performance: We need to check the past performance of the mutual fund (at least for more than 7 years), this will let us know in the various market situations how the fund has performed. Need to compare the performance with similar mutual fund from other Fund Houses.
  3. Need to check the Risk associated with the Fund: SD (Standard Deviation) is the way to check the fund’s risk. Need to compare SD with similar funds with different fund houses.
  4. Diversify: Need to check how well the portfolio of the mutual fund has been diversified. Also need to verify whether the portfolio of the mutual fund does not hold more than 50% stocks of few companies.
  5. We also need to verify how frequently the stocks has been bought and sold in the portfolio. If there is too much of transaction, then there will be more volatility in the fund’s portfolio.
  6. Fund Manager: We need to check who is the fund manager, his/her qualification & other fund’s performance if the same manager is managing.
  7. Expense Ratio and Exit Load: Expense ratio is the fee charged by the Mutual Fund Houses to manage the Fund and Exit load is the amount charged by the Mutual Fund Houses when an investor exits the fund. We should check on these charges and make sure we are not overpaid.

As mentioned earlier, if we are not sure and do not have time to investigate a mutual fund, we should consider to get a help from Financial Advisor. If we invest in wrong Mutual fund, then it will directly impact our goals. And over the long term, we will lose more money than the fee of Financial Advisor.

Do we need a Personal Accidental and Critical Health Insurance policy?

PersonalAccidentInsuranceDo we need a Personal Accidental and Critical Health Insurance policy? Boy_R

 

AR_ROur personal finance plan is not complete without Term Insurance and Health Insurance. These will help us to secure our personal finance. Once we are comfortable with the premium for these insurance and after meeting all our expenses, including saving /investment targets, if we can still manage to save a little, we should consider Personal Accidental and Critical Health Insurance. These insurances have been designed to secure specific issues. Premium is usually very small compared to Term and Health Insurance. One of the important factors to decide a premium for an insurance policy by the Insurer is the probability to pay back. Since there is very little probability for accident (this also based on the nature of the work the person who is willing to take the insurance policy) and Critical illness, the premium is also less. Let’s try to understand the benefits a Personal Accidental and Critical Health Insurance policy provides:

AR_RPersonal Accidental Insurance:

This product has been designed to handle few unexpected events which can happen with anyone, anytime. For example, one is doing very well in life and income cash flow is also going well (either through his/her service to his/her job or through his/her business). Now if because of an unexpected accident, he/she is unable to continue the work for some period of time or long period of time (due to partial or permanent disablement), this will surely effect his/her personal finance. Term insurance is not going to help in this situation and health insurance will only cover the hospitalization expenses. Personal Accidental Insurance policy can come here to rescue. Personal Accidental insurance features:

  1. On Death: Nominee gets 100% sum assured. Some companies provide 200% of sum assured based on the nature of the accident, few provide children education bonus also.
  2. Permanent Total Disablement: Policy holder gets 100% Sum Assured. Some companies give more also 110%, 120% etc.
  3. Permanent Partial Disablement: Percentage of sum assured, one time or monthly. Based on the product designed by the company.
  4. Temporary Total Disablement: Which means for some period of time policy holder will not be able to work. Onetime payment of percentage of sum assured depends on company to company.
  5. Accidental medical expenses: Provides all the medical expenses due to accident.

Age does not affect the premium, but nature of work might matter. No Heath Check up required.

Hence if we believe we can afford the premium, then we should include Personal Accidental Insurance in our Personal Finance. If we have (we should) health insurance, then we can drop the medical benefit and only can take combination of a+b+c+d from the above points. This will also reduce premium amount. During one’s life time, if all financial commitment have been accomplished then we can stop this policy at that point. Go through the policy document carefully and fill the application form by ourself. Compare all the reputed companies offerings because of the computations, insurance companies are coming with very innovative products.

AR_RCritical Illness Insurance:

Healthy life style not addicted to any bad habits but a sudden stomach pain and next day we come to know the reason is Kidney Failure. This can happen to anyone. It can lead to continuous medical expenses which are very very high and we will not able to continue work etc. Critical illness is a condition of serious nature of health issue/ diseases. Such as, Kidney failure, Heart Attack, Paralysis, Stroke, Organ transplant, Cancer, Coronary artery bypasses surgery. Few companies cover more illness. . Premium of these policies are very small. Critical illness policy pays lump sum once diagnosed of serious illnesses that are listed on the policy document. This amount can be used for expensive medical expenses or pay for the financial commitments. Most of the policies put survival period clause such as, the insured must survive 30 days once diagnosed with the serious illness. While buying the policy we need to go through the policy document properly and compare the premium, benefits with different company. Make sure to fill the application form by ourself and declare the present health status, parent’s health history. Based on age or parent’s health history, insurance company might ask for health check-up or can reject the application. Hence if we are planning to take this policy, it is better to apply when we are young. Once we are done with our financial commitment, we can stop this policy, that’s why it is better not to club Critical Insurance as a rider with any other policy.

Do you want to be a barrier for your child’s future?

B_F_ChildDo you want to be a barrier for your child’s future?AR

  • “What a ridiculous question. How can a parent be a barrier for his/her own child?” I believe this is the feeling right now you have after reading this question. We always try to give our children the best toy, best education, best dress, best food etc. At times we even compromise our own needs for our children.

AR_RCan we assure that in future there won’t be a single moment/situation where we may become an obstacle for our child’s future? Yes, it is very difficult to give an assurance. If we can take care and plan for few things, we can at least try not to be a barrier for our child’s future. I would like to bring forward the following points:

Good health: Along with annual health checkups, if we maintain good health; we can assure that we will be always with our children till they are dependent on us. There are many cases where we see that because of parent’s health a child has to leave his/her studies and search for a job to take care of them.

Health Insurance: Even though we may have group insurance by our employer, we must have personal health insurance plan. Actually this will help us when we require it most, that is at the retirement age, when we will not have company insurance. If we plan to take personal health insurance at the retirement age, there is a possibility that insurance companies may refuse to give one because of various reasons. At that time I am sure we would not like to be dependent on our children. More about Health Insurance, please check here.

Life Insurance: It is always recommended to have good sum assured (preferably Term Life Insurance), which will take care of the dependent if anything happens to the policy holder. None of us would want our children to drop education and search for a job to fulfill financial requirement if anything happens to us. More about Life Insurance, please check here.

This is a very important point, because most of us ignore this or think that it is very early to plan for. Yes I am talking about our Retirement Plan. Since our retirement plan is directly linked to our Child’s Future Success. Nowadays in India, we live in nuclear family. Most of us are away from our parents and the same is going to happen with our children. We might still look after our parents, but it will be difficult for our children to look after us. This is because of various reasons such as high inflation and many other new challenges . If our child wants to choose entrepreneurship path and we are still dependent on them at our retirement era, then they won’t be able to take risk to be an entrepreneur. That’s why it is very important to plan for our retirement, so that we will not become obstacle in our child’s bright future.

This point is very interesting. Can you tell exactly how are you going to spend your time once you get retired? Your probable answer may be it’s very early,” how can I tell now, how am I going to spend the whole day ”? It has been seen that most of the people who have a good retirement plan do not have any idea about how they are going to spend their day. Do you want to sit idle the whole day or look after your grandchildren or just count your days? In some way or the other, we may actually be a barrier in our Child’s Future. Think about this.

AR_RI would like all the readers to give a thought on the above said points as we really love our children and would be very happy to see their success.

Is insurance a necessity?

InsuranceHowToBoyIs insurance a necessity?

 

AR_RInsurance provides a security to protect one’s lifestyle or dependents on an unexpected event. Hence it is individual’s requirement and decision which leads to take an insurance policy. Remember Insurance is a commitment, which means we have to pay the premium on time till we want to have it. Hence while taking any insurance; we have to understand our requirement, premium paying capacity and the benefits.

BoyWhat type of life insurance policy we should go with?

 

AR_RUniversal truth “NEVER MIX INVESTMENT AND INSURANCE” and never take Insurance if the only purpose is to save TAX. I would like to recommend everyone to go with ONLINE TERM Insurance.

BoyTerm Insurance does not return any money if the policy term is over. This means I am not going to get anything even though I am paying premium till the policy term. Don’t you think it is waste of money?

AR_RI can understand your feelings; we always want to get back something once we are paying to someone from our pocket. Actually Term Insurance is the best product one can have in his/her portfolio. This is because with very little money, we get a huge insurance cover (sum assured). Also at any point of time we can close this policy if we do not need the product in our portfolio and hence do not have to pay the premium.

BoyHow long we need to have life insurance cover?

 

AR_RAs we proceed further in our life, new dependents will get added to our life and hence if required we need to increase life insurance cover or check whether current cover is sufficient or not. I would like to recommend, not totake single policy. Take insurance as per the current requirement and then take one more as and when life demands. Also take the insurance term as the highest term (30 Years) given by the selected insurance company. Now after every 3 years evaluate your insurance requirement and if you find that you have accumulated good amount of money (same as your one of your insurance sum assured), then you can cancel one of your insurance policy. This will help you to reduce your burden of paying insurance premium. Once you have fulfilled your entire requirement and saved enough for dependent, then you can cancel all your term insurance policies.

BoyI heard many people say, “I am very young and no one is dependent on me or I just got married, will plan about insurance later or once we have a kid”. So when is the right time to take insurance?

AR_RAs soon as one has realized that insurance is required, calculate the insurance cover required and take term insurance ASAP. Please do not delay. This is because, at the young age, we will not have any health issues and hence will get insurance very easily, premium also will be very cheap. As time passes, we might build some health issues and Insurance Company might deny or put extra premium load for the required insurance cover.

BoyI am afraid; now and then I see that people are victim of miss-selling of insurance product by the insurance agent or broker. Is no-one monitoring this?

 

AR_RYes there are many incidents where agents or brokers sold insurance products only to get the handsome commission. Insurance is getting matured in India and IRDA has taken many important steps to curb these miss-selling. IRDA brought out regulation on Standard Proposal Form for Life Insurance for individual policies, which is effective from Feb 18, 2013. Now to take a life insurance, we need to fill Standard Proposal Form For Life Insurance Section A. Details of Proposer and/or Life Assured Section B. Specialised/Additional Information Section C. Suitability Analysis Section D: Product Proposed (this is very important, since this needs to be filled by Agent/Broker. Here Agent/Broker needs to justify why this product is suitable for the Proposer).

BoyOnline Term Insurance looks very easy to avail. Is there any checklist to follow before buying?

 

AR_RYes, because of the technology, buying insurance online is very easy. It is better to follow below checklist before buying any insurance online or offline.

 

  1. Think and try to get the answer ‘Why are you buying insurance and is this going to fulfil your requirement? Also can you afford the premium?”
  2. Verify whether Insurance provider is registered or not with IRDA.
  3. Ask for license or ID card for Agent/Broker (if you choose to go via this route)
  4. Read the policy document (available in company’s website) and check what the policy covers and what not.
  5. Fill the Application Form yourself. Answer all the questions properly (do not lie, insurance company can find it out at the time of claim or via health checkup. Because of wrong information, insurance company can reject the claim)
  6. If you were smoker within the past 7 years and recently quit. Still insurance company will treat you as a smoker/tobacco user category. So do not lie.
  7. If you already have any insurance, please make sure to update all those insurance details.
  8. Provide correct information about your family (parents) health history.
  9. Do not forget to mention Nominee.
  10. Once you pay and your policy gets approved. Insurance company will send you the Hard Copy of the policy. Go through the received policy document carefully and if you are not satisfied with the policy wording or mismatch with the promise while taking the policy, you can cancel the policy within the 15 days and can get the complete refund.

BoyHow to choose an Insurer?

 

AR_ROne of the important factors to look for is the Claim Settlement and Claim Repudiated percentage (check the actual number also). Below are the four Top Insurer information collected from IRDA Annual report for Individual Death Claims for the year 2013-14

Life Insurer Total Claim Claim Paid Claim Repudiated Claim Pending at the end
of the period
  No of Policies Benefit Amount No of Policies Benefit Amount No of Policies Benefit Amount No of Policies Benefit Amount
LIC 760334 8905.04 746212
98.14%
8475.25
95.17%
8387
1.10%
181.3
2.04%
3962
0.52%
227.69
2.56%
HDFC STD 7259 254.32 6824
94.01%
216.94
85.30%
341
4.70%
22.90
9.00%
94
1.29%
14.48
5.69%
ICICI PRU 13398 353.47 12608
94.10%
278.60
78.82%
667
4.98%
45.00
12.73%
123
0.92%
29.87
8.45%
Max Life 9478 249.24 8896
93.86%
214.60
85.84%
578
6.10%
35.07
14.03%
4
0.04%
0.34
0.14%

 

Apart from the above numbers, we need to check the facilities given by the Insurer. Facilities such as Online Services, Payment facilities. Check whether there is a physical branch office in your native or not, etc.

BoyAfter getting and confirming the insurance, keep it in a safe place. Is that enough or anything else has to be kept in mind?

 

AR_RJust keeping the insurance document in a safe place is not enough. We need to inform at least one from our family and one outsider (friend whom you trust) about the insurance policy and where it has been kept. Also along with the policy document, maintain one note, where you update a. when was the last time the premium has been paid (keep updated this note) b. Customer care number c. What all documents needs to be submitted at the time of claim (The basic documents that are generally required are death certificate, claim form and policy bond, Other documents such as medical attendant’s certificate, hospital certificate, employer’s certificate, police inquest report, post mortem report etc could be called for, as applicable.) d. What to do with the money (sum assured); give a plan (better ask to consult a financial planner).

We can hold our Insurance policies electronically. On 16th September 2013 Hon’ble Finance Minister launched Insurance Repository System. To implement the Insurance Repository System, IRDA has granted Certificate of Registration to the following five entities to act as Insurance Repositories.

We need to get an e-Insurance account from any of the above Insurance Repositories. Both new or existing policies can be credited to this account. The policyholder can appoint an Authorized Representative who can access the e-Insurance Account on the demise/disability of the policyholder to facilitate the nominees in the claim processing. The Authorized Representative would only act as a facilitator and is not entitled to receive any policy benefits unless designated as a ‘nominee’ or ‘assignee’ by the deceased policy holder. E-Insurance policy account is Free of Cost. The main advantages of this facility are; a. storing the policy document electronically, which means safety b. All our policies are placed in one place c. No need to submit KYC each time when we go for a new policy d. Single service point, for example if we want to change our address, we can make a single request and this will get effected to all our policies. For more information please go through http://www.policyholder.gov.in/Insurance_Repository_System.aspx link.