Where to Invest for Retirement Planning?

What is the best retirement plan where we can invest? Alas, this simple question does not have a one line answer!

Moreover, if we really want to plan for our retirement >20 years from now, it's a good idea to spend an hour or so rather than come to a hasty decision. In fact when you are planning for retirement, you are also, in a single stroke, managing your personal finance. Because retirement investments takes into account your financial goals, income, spending and savings. So it is a good idea to spend some quality time on this.

So, let's start with figuring out your retirement funds, how much every month will you need after factoring inflation and how long will the funds keep going.
(you may like to spend time with this retirement planner, these sheets and calculators)

After you have an idea about your retirement needs, you also figure out how much to invest. And depending on what your income is, you make the decision for savings too. So, in a way, your retirement planning is a complete management of your money too!

Now it's time to weigh the various options available. The common investments options are:

1. Pension products from Insurance companies,
   
2. Mutual Funds and
   
3. Post Office investments.
4. PPF.
   

Before we proceed, it's important to consider three out of four parameters of investing. i.e. 1) Growth, 2) Security and 3) Expenses (leaving out liquidity, which has to come much later!)

The pension products from the Insurance companies have a high cost structure as they pay a decent amount to their Agents. The Insurance companies have to follow guidelines from IRDA to invest your money which is generally in safe investments (Other than ULIPS where investor bear the investment risk). This affects the returns and the average return can be pegged at around 6% as of now.

ULIP Pension products can give higher returns though the investor bears that risk. But the cost structure of ULIP pension funds is higher than Mutual Funds.

Mutual Funds offer better returns and again they are subject to market risks. But over a long time frame, the returns are really good.

Post Office monthly accounts offer interest @ 8% per annum, payable monthly.

Now, coming back to the question about the best retirement plan, the answer would be a combination of the following products:

Mutual Funds, Public Provident Fund, fixed deposit (FD) and fixed maturity plan (FMP), etc to build the retirement fund while you are young and can take risks.

As the fund grows, the investments can be deployed in avenues like FDs, senior citizens scheme, Post Office Monthly Income Scheme, MF investments with a systematic withdrawal option, FMPs in the dividend distribution mode and monthly income plans, etc to get periodic returns.

Essentially it's like bat like Sehwag first and then let Sachin take you to the winning post!

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What is the most amazing thing in this world? Yudisthira answers!

In Mahabharata, the great Indian epic, there’s a story of a Yaksha asking some intriguing questions to Yudhisthira. The story goes like this….

One day while living in exile in the forest, Yudhisthira finds that while attempting to drink water from a lake, all his brothers have been killed by a mysterious Yaksha (a celestial entity). When Yudhisthira arrives the Yaksha challenges him to answer all his questions or else face the same consequences as his brothers.

One of the questions was what is the most wonderful/surprising thing in the world and Yudishthira answers that the most amazing thing is that even though every day one sees countless living entities dying but no one can imagine him/herself taking that last journey!

See all the Yaksha questions here

I guess that’s why even though Insurance is an important financial product, people have a natural tendency to avoid it. Infact most of us cite the agents pestering and tax issues for taking insurance!

If you ask me, the following form the crux of my thoughts on insurance:

• First of all, you should never buy anything but term life insurance. Insurance as an investment is a great investment for the insurance company but a terrible one for you. If you want insurance, get insurance; if you want to invest, buy an investment. Don’t mix the two!
• Second, if you have no dependents and no spouse, don’t buy life insurance. Ever. Don’t let a salesman talk you into it.
• Next, the more net worth you have, the less insurance you need. This means that before you start thinking about life insurance, know what your net worth is. This is an important number for figuring out how much net worth you’re going to need.

For starters why don't you check out the amount of insurance that you need.

Cross posted on Insurance Information in India which is the first blog off the Blogs201 stable

What are the different charges of a ULIP?

Unit linked Insurance Plans (ULIP) provide the twin benefit of providing the benefits of investing in the stock market and covering your risks. It is important to understand that a Unit Linked Life Insurance product is different from the traditional insurance products and are subject to the risk factors.

The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions.

Other than the fact that the investment risk in investment portfolio is borne by the policyholder, let us take a look at the different charges in a ULIP.

Particulars	LIC	ICICI Pru	HDFC Standard	Bajaj Allianz
Plan name	Profit Plus	Lifetime Gold	HDFC Unit link	UnitGain Plus Gold
Premium allocation	24%	20%	70%	25%
Mortality Charges (/1000 )	1.80 for age 35	1.46 for age 30	NA	1.74 for age 30
Fund Management Charges	0.75% for Bond 1.50% for growth	0.75 % for preserver to 2.25% for multiplier	0.80%	0.95% for Bond, 1.75 % for growth
Policy Charges	Rs 60 per month in first year, Rs 20 after that.	No other charges, but FMC can be raised to 3.5%	Rs 20 per month for administration	Rs 600 per annum inflating at 5% per annum
Switching charges	4 free, Rs 100 after four	4 free, Rs 100 after four	24 in a year free, Rs 100 after that.	3 free, Rs 100 after that
Miscellaneous charges	Rs 50 for alteration	Switching can increase to Rs 200	Charges for revival, withdrawal, etc at Rs 250 per request.	Rs 100 per transaction for revival, etc

There are a few parameters like the flexibility of premium paying term, the amount of cover available for disability, illness and accident which has a wider variation among the Insurers.

I dislike the heavy premium allocation being charged. Out of the Rs 100 you pay to your Insurer, only Rs 70 odd goes to your investments (Rs30 in case of HDFC!!)

India's first online weekly onpersonal finance

What is your Human Life Value

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."

That, I feel, is the paradox that makes people avoid life insurance!

That also makes agents take the wrong line of selling Insurance as a tax saving and/or Investment product (ULIP).

So what should we do?

Start with calculating your 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.

Right now u can
go to this Page to calculate yr HLV from Bajaj Allianz. Another link is from Metlife Insurance

Also click on Insurance Industry to see a ppt on Insurance as an emerging industry.

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.

Financial Literacy for me, you and your friends

I need to go through a financial literacy programme and I am making that effort. So do you, dude.

I've hated finance. Maybe because I was not able to understand the jargons and the maths. But I guess ignoring personal finance worsens the situation. And the only way to get maximum out of your personal finance is to look it into its eye and grapple with it. You will come out stronger.

If you think it's too early for you to bother, let me tell you that the first principle of investing is to start early and see the magic of compounding. College grads, fresh MBAs and guys under 25, the smart thing to do is to start now.

Do you think that you have mastered the basics but are not able to use it to your advantage, it's time to put your thinking cap on and review your strategies. Learn from your failures. Often we tend to get stricken by some deadly internal enemies which Kartik Jhaveri details here.

Some of you guys would be rich enough not to be bothered about these mundane things. But have you ever given a thought that you are in a position to contribute to the nation's economy by being more efficient about your finances. Wealth has the unique ability to create more wealth. Are you using that power?

Before I move on, let me articulate the background to this financial literacy programme that I am so smitten about. The following facts and questions keep on humming in my mind:

1. Equities give the best returns and you are putting your money in a professionally managed corporate organisation. Compare this with your insurance products which give much lesser returns and your money is invested in the Government which is inefficient with your money, to say the least.
2. However the total AUM under Mutual Funds is about Rs 3.5 lakh crores while LIC alone manages funds worth more than Rs 6 lakh crore. Yes it's true that LIC has been there for over 50 years and has a huge distribution reach. But it has hardly tapped the huge insurance potential that India has.
3. Financial experts scoff at ULIP saying that it's very expensive compared to Mutual Funds. But LIC collected more than Rs 25000 crore in 2006-07 and it's total fund under ULIP is approx 40000 crore which is more than UTI's AUM of approx 39000 crore (since existence)

All this and more points to widespread financial illiteracy at all levels. Be it college grads, software geeks, MBAs, Engineers, even CFA/Economists( they are experts at business finance or government finance) and even Financial advisors (they rarely have a holistic view), everyone needs to be literate about his personal finances.

And there are over 700 mutual funds, 5000 stocks, 300 insurance policies and hundreds of other financial products to choose from!!

Interested! And the literacy programme that I have in mind will have the following details:

• Financial planning basics.
• Financial markets.
• Financial products like Mutual Funds, Stocks.
• Research reports, Financial analysis, technical analysis.
• Insurance : Basics, Company review, product review.
• ETF : Basics, Company review, product review.
• Bonds : Basics, Company review, product review.
• Tax Planning : Basics, product review.
• Retirement Planning : Basics, product review.
• Children's education. : Basics, Company review, product review.
• Calculators :Budgeting, Networth, Loan, Asset allocator, Risk analyser,etc.
  

Any suggestions. And if you are interested why don't you subscribe to my RSS feed or by email. And tell your friends too. I'll cover them one at a time. [ I need to learn them and then only I can share it with you :) ]

Btw, if your eyebrows are tensed up and you are thinking why I am making so much effort working on this financial literacy programme, I'll tell you my secret. It's for the website I dream of every day and night!! The site launches in August'07.

Trade Your Insurance Cover

When will we be able to distinguish between Insurance and Investment?

Now, Trading and assignment of life insurance policies to third parties has been allowed under a recent ruling of the Bombay High Court. Assigning a policy means that one can sell a life insurance policy to another person and all the benefits (including death, maturity proceeds, critical illness cover, accident benefits, permanent disability and others) automatically flow to the person who has bought the policy .

Several unethical practices can be carried out in the name of trading in life policies.

• The life of the policyholder may be at great risk if the policy is assigned to someone else. “Only the life insured does not change — and it is here that the possibility of moral hazards creeps in. The person who buys the policy will gain if the seller dies a natural or an unnatural death.
• The emergence of a possible grey market transaction during the modus operandi and the problems mount.
• In a fiercely competitive life insurance maket, an agent can hardsell his company’s policy by asking the policyholder to forgo or sell off his existing policy by arranging a buyer.
• There has been various instances of money laundering and there could be a lot of misuse.
• Trading in policies go against principles of insurable interest and increases the moral hazards.

Editorials are welcoming the new ruling without understanding the difference between Insurance and Investment. A free and fair debate is desirable. What do you think?

Reviews, Tips, Calculators with an Indian perspective.

Look Before U Leap

DNA carries an informative article on buying Unit Linked Insurance poilcy (ULIPs), titled: It pays to stay away from ULIPs by Vivek Kaul.

The article talks about the level of transparency and other issues which one should look at before U L(ea)P.

Reviews, Tips, Calculators with an Indian perspective.

ULIPs Advertisement by LIC

This ad by LIC baffles me as well as makes me happy that some Financial product company has put an ad like this. Especially when you see it with the perspective of my previous post. Way to go LIC!

Reviews, Tips, Calculators with an Indian perspective.

Insurance Companies Beat Mutual Funds in Their Own Game

ULIP is a bestseller today. 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.

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.

1. 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.
2. The Mortality Charge of the Life Insurance Coverage: This is common for all the companies and depends on their mortality table.
3. Fund Management Charge ranges from 0% to 2% depending on the Insurance company.
4. Policy Administration Charges
5. Sum Assured charge
6. 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!!

Reviews, Tips, Calculators with an Indian perspective.

Review of a Unit Linked Insurance Policy in India

Unit linked insurance plans (ULIP) is a bestseller today. Life Insurance companies are falling over each other to introduce and market their ULIPs. Backed by aggressive selling by agents and the booming stock market, the sales figures they have notched up is mind blowing.

Birla SunLife Insurance has introduced Supreme Life, again a ULIP. Visit their site and they have the following superior benefits to talk about:

The plan is a unit linked non participating plan. It offers a choice of 6 investment fund options to invest your premiums into, depending on your risk profile. Additionally you have the flexibility to allocate the premiums (including top ups) in varying proportions into the different funds to create your own fund option. The opportunity to top up your Fund Value whenever you have additional savings. High liquidity in the form of partial withdrawals and surrender benefitsA choice of 2 death benefits to opt from based on the benefits you would like your nominees to receive. An Accidental Total Permanent Disability benefit in the event of Total Permanent Disability (TPD) caused by accident, injury or illness.

I was interested in the charges for which the details are as under:

Premium Allocation charge (as a percentage of Policy Premium (excluding underwriting extra, Top-up premium) is 5% for the first year and 2% from 2nd year onwards.

The Premium Allocation Charge on Top up and Underwriting Extra (if any) is 2%.

Other charges are: The Mortality Charge of the Life Insurance Coverage , Fund Management Charge not exceeding 1.5 % per annum of the Fund Value, Policy Administration Charges for the Life Insurance Coverage, a Sum Assured charge, Surrender charges(applicable in case of surrenders only)

So take a decision on buying a ULIP after you get the entire information from your advisor.

Tips on Insurance Cover in India

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, Page to calculate yr HLV or this link Insurance. The future income growth, yr 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.





Reviews, Tips, Calculators with an Indian perspective.

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.

LIC:Way to go!

Here's a list of achievements by a Public sector Insurance company:

• NDTV Profit Business Leadership Award 2006.
• Asia Insurance Merit Award 2005 and 2006 in the area of ‘CORPORATE SOCIAL RESPONSIBILITY’
• Awaaz Consumer Awards 2005 and 2006 given by CNBC-TV 18- ‘Best Life Insurance Brand in India’ –an award given on the basis of a market /consumer survey done in conjunction with AC Neilson ORG Marg.
• Golden Peacock Global Award for Corporate Social Responsibility in emerging economies (Public sector) for the year 2005 by World Council for Corporate Governance.
• LIC adjudged No.1 in Net Worth & Net profit and No.2 in Total Income among the TOP 500 companies of India by Dun & Bradstreet.
• Adjudged Number One Service Brand in India by Economic Times and AC Neilsen Org Marg for the year 2005 for the third consecutive year.
• GOLDEN PEACOCK AWARD for being the Winner of Special Commendation Certificate for Excellence in Corporate Governance (PSU sector). A
• djudged No.1 Insurance Company at the ‘Businessworld Most Respected Company Awards 2005’.
• Awarded Reader Digest’s Trusted Brand 2006 (voted by consumers).
• LIC – Adjudged Superbrand India 2003/04 and 2004/05.
• Second largest investor in Asia among insurers. (Source : Asian Investor)
• Largest Financial Institutional Investor – both in equity market and term loans.
  LIC - An Institution Builder promoting many financial and insurance institutes like NSE, NCDEX, LIC Mutual Fund, Stock Holding Corporation of India, National Insurance Academy, Insurance Institute of India etc.
• LIC is the second largest PC user in the country.
• LIC is the number one insurer in the world in volume and has sold around 31.5 m policies in 2005-06 with historical growth of 31.77% over 2004-05.
• LIC posted a growth rate of 48.56% in new premium income for the year 2005-06.
• More than 1 crore policies sold under new plan ‘Bima Gold’ during a period of just 7 months. LIC settles 2 claims per second.
• LIC’s e-portal (website) has won Webby’s Consumers’ voted best website award.
• The Hindi version of the website has been launched.
• More than 40 different plans catering to the changing needs of different segments of the society.

Way to go LIC!

ULIPs : is there a better way?

Unit linked insurance plans (ULIP) is a bestseller today. Life Insurance companies are falling over each other to introduce and market their ULIPs. Backed by aggressive selling by agents and the booming stock market, the sales figures they have notched up is mind blowing.

Traditionally, life insurance products have usually been considered as ‘safe’ investment options, which also offer a life cover. However, since unit linked insurance plans (ULIPs) burst onto the scene a few years ago, the rules and definitions of life insurance have undergone a sea change. The popularity of ULIPs can also be attributed partly to the scrapping of ‘assured return’ insurance schemes and falling interest rates which rendered conventional products like endowment plans unattractive.

And instead of taking insurance based on their economic value( human life value-HLV), people are going for ULIPs which is Mutual Funds plus term assurance rolled into one. To my mind, one should look at the following issues before writing the cheque to your persistent agent.

Transparency: The quality of data and its presentation need to improve significantly, if investors, both existing and potential, are to be able to study portfolios and make intelligent decisions. ULIP portfolios need to be disclosed regularly. Mutual funds are required to disclose all relevant information like portfolio, assets under management (AUM) and the benchmark indices to name a few.

Expense: The annual expenses incurred on the ULIP are 3.50% (2.00% recurring and 1.50% fund management charges) apart from insurance charges, In contrast, mutual funds are managed at an annual expense of 2.50% (maximum) of net assets.

Past performance: While the Mutual funds have a history of past performance, the ULIPs have a short history and the current bull run to boot. Performance of a fund manager will be tested when the going gets tough. ULIPs have not been tested apart from the May crash.

Isn't it more worthwhile to go for term assurance from an Insurance company and a trusted and performing equity fund from a Mutual Fund/AMC?

Baby steps to Insurance

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. (Source: The Money Times.com)

Though the importance of buying an insurance cover is well known, 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.

Check out for no-commission deals
One of the reasons for higher premiums is that most life insurance policies pay commissions to the agent/broker. However, you may be able to purchase a no-load policy through an insurer that sells no-load policies directly to consumers.

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.

Ensure to be adequately insured
Many employers offer their employees group life insurance. But this amount of coverage is usually not enough to adequately meet the life insurance needs. Also, as group life insurance policies are not portable, you’ll be left uninsured when you leave the job.

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.

Buying more is sometimes cheaper
As the amount of sum assured goes up, the premium amount also rises, but at a decreasing pace. If the numbers work out, you may be able to pay a lower premium while increasing your coverage.

My Insurance cover

My economic value towards my family can be calculated in a number of ways. Taking my future earning potential and calculating the present value of that comes to Rs 40 lacs approx. However on the basis of the present monthly expenses and the amount required to maintain that lifestyle should come to Rs 25 Lacs approximately.

For a normal endowment insurance policy of Rs 25 lacs, one has to pay more than Rs 100000. But I have a basic cover of Rs 13.5 lacs and accident cover of another 11.50 lacs by paying a premium of roughly Rs 16000 only. And all of them are LIC policies. Surprised? Here's the list of my policies a/w premium and the type of policy.

1. Basic cover Rs 3 lac, Accident cover Rs 3 lac, Bima Kiran: a term assurance plan with premium back plus extended cover after maturity, Prem: Rs 3000

2. Basic cover Rs 4 lac, Accident cover Rs 2 lac, Jeevan Griha: Triple cover insurance, Prem: Rs 4500.

3. Basic cover Rs 5 lac, Accident Rs 5 lac, Anmol Jeevan, Pure term assurance,no maturity value, Prem: Rs 2300.

4. Basic cover Rs 1 lac, Accident Rs 1 lac, Endowment, Prem: Rs 2600.

5. Basic cover Rs 50K, Accident Rs 50K, Money back, Prem: 3600.

Obviously my decision on the policy mentioned in serial 4 & 5 is a wrong one. I could have insure myself for another 10-15 lacs from that amount. However assuming that the only way I'll go away from this world is an accident, a cover of Rs 25 lacs should suffice.

As you age, the premium of the term assurance policies increase drastically. So I don't know how much I've to pay for the same term policy I had taken 5 years back. Hopefully I had my timing right. Ideally the time of taking an Insurance cover would be when you start a family of your own.

But this blog helped me in reviewing my Insurance. I feel that I don't need another insurance advisor. But wait, my mortgage loan is not insured. Maybe time to get a mortgage insurance and an advisor should get a call from me!

Unique Insurance Plan

Here's a unique Insurance plan from LIC ( a pleasant surprise!!). It's called Jeevan Saral and it lives upto its name, for sure.

You simply decide the amount you are ready to pay every month. LIC will insure you for 250 times that amount, regardless of your age ( between 18 and 50, of course). And if you have any qualms about paying monthly, you can opt for quarterly, halfyearly or annual payments too.

The Maturity Sum Assured depends on the age at entry of the life to be assured and is payable on survival to the end of the policy term. It also offers the flexibility of term and a lot of liquidity by way of partial surrender of policy whenever you require some urgent money.

For benefit details and an illustration too, go to LIC.

Please don’t buy an insurance policy from me

(Source: The Indian Express, Dated 19th october, 2006). A story worth looking at.

I had been talking to Darshan Kumar (name changed), an insurance agent for some months. One morning in June he asked me "Do you want to become an agent?" "You can earn 40 per cent of the policy premium as commission. If you sell a policy with a Rs 1 lakh premium, you earn Rs 40,000 in the first year alone," he said. When I told him that not all policies yield a commission of 40 per cent, he said he would tell me the ones that did. I knew insurance agents push policies that maximise their commissions, without caring for a policyholder's needs. However, to check the claims made by insurers that they follow best practices, had qualified agents and mis-selling was not rampant, I played along, and committed. Darshan briefed me on the formalities: 100 hours of class work over 18 days at an insurance training institute, followed by a two-day crash course at the company, then an exam certified by the Insurance Regulatory Development Authority (IRDA). That's pretty intensive and time-consuming, I retorted. "Not to worry, it would be taken care of," he said. On July 4, I filled up forms to become an agent of the life insurer he represented. I gave him Rs 700 (Rs 150 for course book, Rs 200 to the Insurance Institute of India as exam fee and Rs 350 as the licence fee, which would be refunded if I didn't clear the exam). "But I can't attend classes since I have a regular job," I told him. "No problem, just take a day out to show your face to the people at the institute and take your course book. I will take care of the attendance," he said. On July 15, I went to the institute showed my face, took my course book and signed the register for 18 days — proof that I had completed 100 hours of class work. But he reminded me that I must attend the two-day learning programme, on August 18 and 19, conducted by the insurer, at their office. When I expressed my inability to come for two days, pat came the reply: "Come for one." I skipped the August 18 class. On August 19, I attended the class, that too only for the first half. At one point, when I asked the company trainer — the only person who seemed intent on playing by the rules — for a copy of the model test papers, he said: "Most of you don't attend classes at the training institute and then you resort to desperate measures." The next day, I sat for the exam in a Delhi school, with my mobile phone in tow. The invigilator objected, but when I told her that I had forgotten my calculator, she let me keep it, provided I kept it in 'silent' mode. A week later, my contact informed me I was a qualified life insurance agent and that I can — and should — start selling policies. When I told him that I didn't have documentary proof, he said: "Everybody sells policies without a licence. Why are you worried? You have cleared the exam. Give me your photograph, and I will get it ready. Meanwhile, you must sell policies." Two months on, I haven't sold a single policy and I keep making excuses for not giving him my photographs. From time to time, he calls and asks me why am I not selling. He has to — if new agents like me don't sell policies, the company's premiums don't increase. If premiums don't increase, point-persons like Darshan don't earn more.

Insurance Basics

Even though new age financial planners scoff at the idea that Insurance can be an investment, here's a revealing figure. The total fund manged by LIC is more than Rs 5 lakh crore while the total funds managed by the entire Mutual Fund industry is Rs 2.31 lakh crore only!

 

Even though Mutual Funds may and should catch up with Insurance, let's take a look at the Insurance concept. Life insurance is universally acknowledged to be an institution which eliminates risk, substituting certainty for uncertainty and comes to the timely aid of the family in the unfortunate event of death of the breadwinner.

 

Life insurance is concerned with two hazards that stand across the life-path of every person:That of dying prematurely leaving a dependent family to fend for itself and that of living till old age without visible means of support.

In India, Life insurance is popular because Savings through life insurance guarantee full protection against risk of death of the saver.  Life insurance encourages 'thrift'. It allows long-term savings since payments can be made effortlessly because of the 'easy instalment' facility built into the scheme. It is also easy to acquire loans on the sole security of any policy that has acquired loan value.  Life Insurance is the best way to enjoy tax deductions on income tax and wealth tax.

A policy that has a suitable insurance plan or a combination of different plans can be effectively used to meet certain monetary needs that may arise from time-to-time. Children's education, start-in-life or marriage provision or even periodical needs for cash over a stretch of time can be less stressful with the help of these policies. Alternatively, policy money can be made available at the time of one's retirement from service and used for any specific purpose, such as, purchase of a house or for other investments. Also, loans are granted to policyholders for house building or for purchase of flats

With the insurance industry showing robust growth, it's time to become more aware of your insurance needs. And which is actually evaluating your human life value and then deciding your insurance.

 

Time value of money

The time value of money serves as the foundation for all other notions in finance. It impacts business finance, consumer finance and government finance. Time value of money results from the concept of interest.

 

Isn't your Rs 500 note the same after one year? No, you'll promptly say. Inflation can eat into it or interest can add to it. So there are various high sounding words like Future Value (FV), Net Present Value (NPV), And the formula is simple :

Fazed with this formula?  There are ready made tables giving factors where you just do the basic calculator stuff. Important thing is to understand that time value of money(TVM) is vital to your financial decisions.

 

I will attempt to upload an Excel sheet (should be easy with some amount of time) where you can toggle more easily with the numbers, both PV and FV !