Category Archives: Insurance

Personal Finance Website Update

Nine months ago I did not know what a blog is? Stuck up at home due to a back injury, I was casually chatting up with a geeky friend asking him about how to create a website, purely in jest. “Why don’t you begin with a blog and then see if you can make it bigger”, he said and gave me a link of Blogger.

300 posts later, the dream of translating it into a website seems plausible. Just take a look at what I’ve created without knowing html code! (Well, I can figure out the a href link code, but just!!) Now you know why there’s no post here. I have exported these posts to my website blog

RSS readers are requested to take this feed please: http://feeds.feedburner.com/personalfinanceforeveryone

Personal Finance 2.01: It’s a one stop personal finance website and I urge you to take a test drive. Feedback will be of immense help.

Discussion Forum: It’s a forum where you can discuss all your doubts and questions about personal finance, planning and various products like insurance, stocks, mutual funds, etc.

PF 2.01 Blog: I have started a blog focussed on personal finance and I would invite you to share your thoughts. Let’s have a real conversation of PF going on here.

Weblinks: I am regularly out on the web. When I find a great site I list it here for you to enjoy. From the list choose one of my weblink topics, then select a URL to visit.

NewsFeeds: We have some great news feeds to take a look at. Suggestions are welcome.

Financial Advisors Directory: We invite professional and net savvy advisors to register and provide the information needs. This one is a first in India to the best of my knowledge.

The design stage will take another two months after which I’ll be ready to go live. The real action begins only after then. Wish me luck.

Financial Literacy Drive Treasure Post

This post links to a treasure trove of information on personal finance. Actually, April was National Financial Literacy Month in the US and JDR (GetRichSlowly) has the ultimate collection of posts covering everything on Personal Finance.

Other than the 20 posts linking to the literacy drive, he also links to his popular articles and the websites which provide such information. Maybe it’s all dry information, but you can do well to bookmark that post and keep coming back to it. It’s dry, but important for you. Why? Look at the following questions and then decide.

How much do you know about money? Have you learned about the power of compounding? Do you know how the stock market works? What is a bond? Can you tell the difference between an Income Statement, a Balance Sheet, and a Cash Flow Statement? Do you even know why you would want to?

Do you know how to keep a budget? Do you understand how your taxes are used and why we pay them? Do you know what it takes to purchase a house? How much insurance do you need?

Head on to this treasure trove. Even though some posts are US specific, the concepts are useful and important to learn.

Being Covered is not sexy or cool but Smart!

Hey, I’m not into fashion designing. But could not resist a tantalising title to talk about Insurance!! If you haven’t started a family, an Insurance cover is the least of your priorities. But even though it’s not that cool to be insured, it sure is smart when there are people who depend on you.

Life insurance is a potent tool that not only offers the ability to plan for unforseen events that can affect the family’s financial situation adversely, but is also looked up to as an important tax saving cum investment tool.

One needs to do a certain amount of spade work before purchasing a policy, to ensure the best possible coverage at the right price. Here are some helpful tips to get you started:

Explore As premiums vary widely from company to company and cover to cover, it’s important to look around. One can try internet sites to get instant quotes.

Plot your value The key to purchasing the right amount of life insurance is to have just enough coverage to meet your needs. If you have more life insurance than you need, you’ll be paying unnecessarily for higher premiums. On the other hand, it’s important not to have too little coverage, resulting in you being underinsured.

Health matters the most Healthy people get better rates on life insurance. Higher premiums are quoted for anything that poses a risk for longer life expectancy (smoking, on regular medication, etc). Sooner the better As premium rise with increasing age, the younger you are when you purchase life insurance, the lower premiums you will be required to pay.

Review your cover periodically Any life change indicates the need for an overall review of the financial plans. Make sure you have enough cover for all important events of life.

Focus on annual installments You may not realize it, but you may be paying more for your life insurance if you pay your premium in monthly installments. Many insurance companies charge extra fees if you make monthly premium payments instead of paying the annual premium.

Never conceal facts Though, age and negative health related conditions attract higher premium, don’t think about lying on the insurance application. If your insurance company gets the knowledge of concealed facts they can terminate the cover.

Do you have the right Insurance?

Today I was talking to a friend who was telling me about his Insurance cover. He is a 32 year old guy and has a cover of Rs 7 lacs and pays a premium of approx. Rs 50000. When I told him that I’m covered for Rs 35 lacs with only Rs 20000 premium, he did not beleive me at the first instance.

If you haven’t started a family, an Insurance cover is the least of your priorities. But even though it’s not that cool to be insured, it sure is smart when there are people who depend on you.

A very simple way of looking at your economic value towards your family is as follows. Imagine a monthly income of Rs 20000 and the net income provided to the family is Rs 18000 after deducting Rs 2000 for personal expenses. Thus the annual income provided to yr family is Rs 226000. The amount of money which will earn Rs 226000 pa at 8% interest rate is Rs 28,25,000. This is only a representation of the value of HLV. It is not the exact way of calculating yr HLV.

Right now you can go to this page to calculate your HLV, The future income growth, your income generating assets, liabilities, spouse income, children’seducation, etc are also to be factored in.

Ask your agents about the term assurance plans and he would definitely discourage you from taking one. After all there’s little commission he’s getting there since the premium is so low.

The point is that Insurance is NOT Investment.

What is Human Life Value?

Putting a finger on the value of yr life is crazy. Isn’t yr life invaluable and priceless?

Indian consumers have bought life insurance for reasons of tax saving rather than the core need of providing for one’s family in case of death of breadwinner.

Secondly, Indian consumers have been unaware that insurance too needs change with every change in one’s life stage (e.g., if one gets married or has children, one’s need for insurance goes up).

As a result the average insurance size is less than Rs 1,00,000. This is less than the price of a car yet to be made. And every car has to be insured by thr rule of the land. This implies that people who think they are insured are also heavily under-insured.

Heard of this yaksha question: What is the greatest mystery on earth? Yudhisthir answers, Every one has to die. But no one thinks that for himself. This is the greatest mystery.”

In a broad economic sense, insurance transfers risk from individuals to a larger group, this is
better able to pay for losses.

So how do you calculate yr Insurance need? Start with calculating yr Human Life Value (HLV). A very simple way of looking at it is as follows. Imagine a monthly income of Rs 10000 and the net income provided to the family is Rs 8000 after deducting Rs 2000 for personal expenses. Thus the annual income provided to yr family is Rs 96000. The amount of money which will earn Rs 96000 pa at 8% interest rate is Rs 12,00,000. This is only a representation of the value of HLV. It is not the exact way of calculating yr HLV.

The future income growth, yr income generating assets, liabilities, spouse income, children’s
education, etc are also to be factored in.

Is ULIP for you?

ULIP is a hot selling insurance product these days. Unit Linked Insurance policy is an insurance policy where the funds are invested in the Capital market and the policyholder bears all the investment risks.

Insurance companies are falling over each other to bring out ULIPs in new and attractive packages, thanks to it being accepted across India in huge numbers. More than 80% of the new premium income of Insurance companies come from ULIPs today.

Advantages:

  • Tax benefit under Sec 80C
  • Better returns than other insurance policies like endowment and moneyback.
  • But shouldn’t this product be left to Mutual Funds who have been dealing with investments in the capital market with much more transparency and disclosures?

    Well, the Insurance companies have only added the insurance angle and are charging separately for that too.

    Let’s look at the charges for investing in a ULIP. Generally, a Mutual Fund charges 2.5% as entry load and 1-2% as Fund Management charges.

  • Premium allocation charges: Companies charge from 5% to 70% as premium allocation charges in the first year. Ofcourse it comes down in the second and third year but still is substantial. This means that only the balance percentage will be invested in funds and the charge goes into commission and other administrative charges.
  • The Mortality Charge of the Life Insurance Coverage: This is common for all the companies and depends on their mortality table.
  • Fund Management Charge ranges from 0% to 2% depending on the Insurance company.
  • Policy Administration Charges
  • Sum Assured charge
  • Surrender charges
  • Last but definitely not the least, the commission ranges from 10% to 32% for your friendly advisor.
  • Companies also run schemes where they take high performing advisors to Singapore, Brazil et al.

    And the investors will be taken to the cleaners!!

    So look befor you leap for a ULIP!!

    Take Responsibility for Your Finances

    Slideshare is a wonderful way of sharing your slides and powerpoint presentations. It is a place to share and discover slideshows. You can embed the slideshows in your blog, tag, comment and have fun.

    I have embedded a presentation I have made on “Taking responsibility for your finances”

    Click here for the slides

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