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What is critical illness insurance? Do you need it?

Prathiba Girish Insurance July 23, 2015February 20, 2019

While life insurance & health insurance are topics covered extensively by media, one rarely reads or hears about critical illness insurance. Every time I have tried telling people about the need for this product, I get a strange look followed by “didn’t we just discuss my health cover”, as not many can distinguish between the two.

Critical illness insurance pays you the sum insured on being diagnosed with a critical illness which is covered under the policy, provided you survive for the minimum survival period as per the terms of the policy.

Health insurance policy will reimburse the cost incurred by you including hospitalization, diagnostic tests and medicine for a specified number of days pre and post the illness.The critical illness policy will pay you the sum insured on being diagnosed with an illness covered under the policy “no questions asked”. Critical illness is not a reimbursement plan.

Most of us underestimate the chances of being diagnosed with a critical illness. As per a newspaper article published a couple of years back “It is estimated that by 2020 cardiovascular disease will be the cause of over 40 per cent deaths in India. India is set to be the ‘heart disease capital of the world’ in few years” The treatment for the same can set you back by 3 to 7 lakhs.

As per another article in Business Today a couple of years back “millions are grappling with the prohibitive cost of cancer treatment in India, where the disease has wiped out entire life savings and even forced some people to sell their homes” It further gives indicative cost of treatment. I have reproduced that paragraph in italics below.

“Breast cancer patients, need targeted treatment drugs, such as Herceptin or Herclon, made by global major Roche, which cost around Rs 75,000 for a course; a patient could need up to 17 courses. Similarly, a drug called Avastin – used to treat colon, kidney, lung and gall bladder cancer – can add around Rs 8 lakh to a patient’s bill at around Rs 1 lakh a cycle”.

It is worth noting that the above estimates take only treatment costs and do not factor in other costs related to inability to work and lifestyle changes associated with the illness.

So how is a critical illness different from a health insurance?

A health insurance reimburses expenses incurred due to hospitalization and medical expenses related to the hospitalization. Critical illness insurance pays the entire sum insured on being diagnosed with a critical illness covered under the policy. It is not a reimbursement and hence has nothing to do with hospitalization.

What should you look for in a critical illness policy apart from the premium?

One should primarily look at illness covered & survival period apart from the premium while deciding on the policy. It may be worthwhile to note, that your application for a policy may be rejected by the insurance company and hence it may make sense to apply to a company who is likely to accept your application. This information can be obtained from somebody who deals with these companies regularly.

What are Illnesses covered under a critical illness policy?

The number of critical illness covered differs from company to company. You also get policies which cover one single illness example Cancer Care. Some of the more common critical illnesses include

Heart attack
Cancer
Paralysis
Coronary artery bypass surgery
Major organ transplant (e.g. heart, lung, liver, pancreas)
Stroke
Kidney Failure

What is Survival period?

Most critical illness policies come with a survival period which could range from a few days to a few months. This essentially means you need to survive the pre-specified period after being diagnosed with the illness to be eligible for a claim.

Who should opt for this policy?

This policy ensures that the financial burden of illness is circumvented and hence everybody should opt for it. People with family history and primary bread winners should definitely ensure that they are adequately insured.

What does it cost?

The premium is based on age, the premium for a healthy 30 year old for 20 lakhs policy should be approximately INR 7,500. Like in the case of health insurance the premium will increase with increase in age and is not fixed.

Are there any tax benefits?

Premium paid towards critical illness insurance can be claimed as deduction under section 80 D, the limit of this section have been increased in the recent budget. Under Section 80D, the premiums paid towards health insurance/critical illness policies for self, spouse, children & parents are allowed as a deduction. For this FY the limit has been raised to INR 25000,for senior citizens the limit is INR 30,000. I have written on this subject earlier and am giving you a link to the article. https://finwise.in/blog/?ph=412

Should we take a stand alone policy or opt for a rider with an existing life insurance policy?

When you opt for a critical illness rider with your life insurance policy the premium remains constant throughout your tenure. Whereas with a stand-alone policy it increases every time you cross the age slab. The issues with opting for a rider are two. Firstly these riders are taken when you buy the policy and you may not be able to opt for it at a later stage. So if you already have a life insurance policy you may not be able to add-on a rider now. Secondly the sum insured in a critical illness rider may be limited and may not suffice. My Suggestion would be to go in for a combination of both with the purpose of having adequate insurance.

While it is good to hope for the best, it is equally important to plan for the worst. Let us endeavor to keep illness at bay and double our time invested in fitness. At the same time take adequate measures to mitigate the financial risk arising out of the illness. God forbid if you were to be diagnosed with a critical illness, there should be nothing which stands between you and the best healthcare possible.

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Have you adequately secured your retired life?

Prathiba Girish Retirement June 23, 2015 1 Comment

A dear uncle of mine, who retired a couple of years back, recently checked with me if there were any specific steps to be taken post retirement towards financial wellness. That got me thinking, is there anything which we do differently because we are retired, except of course, not earning an active income? The answer is not a simple yes or no. Some things listed below can be done irrespective of whether you are already a retiree or not, while others are specific to retirees. Following are my thoughts on what your approach should be towards financial planning post retirement.

Start with your current position: To start planning for your future you need to know where you stand currently. Start by listing all your assets and liabilities. Take time to accurately list down your monthly and annual expenses. Factor in one-time expense like the wedding of a child or recurring expenses like vacations. List down your goals and the implications they have on your finances. Start with living a comfortable retired life and work your way down to the long cherished dreams of vacations, etc. Once this is done, you will have a clear road map on finances required at various stages in life and will be able to plan your investments accordingly.

Don’t shy away from equity just because you are retired: Retirement is not a short phase, it could encompass almost one-third of your life. It could last even 20 years and sometimes, even more. Equity has a history of giving stable and superior returns over long periods of 8 to 10 years. I am not asking you to experiment at this juncture in your life. There are relatively safe products to invest in equity. Even assigning a portion of your corpus can do wonders to your returns. Considering we are talking about investing money which you have really sweated out to earn during you entire working life, hire a good professional and understand their reasons for recommending products. If they demand a fee for their advice, believe me, it may be well worth it.

Ensure you have sufficient health insurance cover: This is the phase where expenditure on health related issues is often at its highest. It is extremely important to have an adequate health cover, hence, if you have a health insurance cover of your own, do continue it even if your premium has gone up considerably owing to increase in age. If you don’t have a health cover, you may find it difficult to get one now, especially if you have been diagnosed with one of the abundantly common lifestyle diseases like hypertension and diabetes.

If you are able to get a cover, but the high cost of the same is a deterrent, consider a top up cover where you are covered over and above a deductible. I have written extensively on this and you can find links pertaining to the same at the end of this article. If you have children who have group cover with their employers where they have the option of adding you, please ensure that they do, even if it means you bear the premium for the same. The group covers come with huge benefits where pre-existing diseases are covered from day one.

Put away sufficient emergency corpus in investments which are liquid: Even if you have adequate health insurance, you will need to have a sizeable emergency corpus. Various situations may arise requiring you to pay upfront. The hospital were you decide to go in for the procedure may not be covered for cashless facility with your insurer in which case you will need to pay and claim later. In an emergency, the hospital may ask you for a refundable deposit before they start providing medical attention. Worse, your particular ailment or line of treatment may not be covered under insurance at all.

While you will have some part of your investments in long term products without an easy exit route, it is important to have some funds which are earmarked for emergency.

Make a will: Contrary to popular belief, making a will has nothing to do with retirement. We read about accidents almost on a daily basis in newspapers but refuse to believe that the same could happen to us. It is important to list your assets and how you would like them distributed after you pass away. After all, your intention is not leave a feuding family. Also ensure you change your nomination as per your will, don’t leave your assets to one child while you have nominated the other.

Don’t worry! The process of making a will is very simple. You have a lot of assistance available even online today. Registering a will is desirable. You can also change your will any number of times during the course of your life time without much trouble.

Some aspects not directly related to your finances

Spend on experiences: Like most people, you may not have been able to indulge in experiences which you would have always intended to, due to constraints of time or finances. Make a list of all the things you always wanted to do and plan for them. The time you spend in planning and executing them will keep you occupied and joyous for a long time. Don’t forget to photograph these moments so you can refresh your memory and relive them every now and then.

Invest time and effort in keeping body and mind healthy: While sounding very clichéd, prevention is better than cure. Ensure you spend at least half an hour each day on keeping your body and mind fit. Join the yoga classes nearby, go for a walk, do whatever you enjoy, but be consistent and half your troubles will take the next route out of you!

Join clubs where you meet people at the same stage of life: Join the laughter club near your place or the temple committee, any place where you meet people who are in the same stage of life. Actively participate in organizing social outings. This can cheer you up, especially when you realize that you are not alone and others around you face the same issues as you. It is strangely heartening to know that others face them too.

Try to keep abreast with technology: Your grandchild will be only too happy to demonstrate his/her knowledge to you. Kids can be very patient. If you don’t have a grandchild yet, look for some kid in the family or neighborhood. Technology can be liberating. I have personally witnessed how simple stuff like checking your whatsapp, bonding with your extended family & checking the latest news flash on your phone can keep a person involved and connected.

Links to article mentioned above

https://finwise.in/blog/?p=412

The impact of increased Section 80D limits on your health insurance

Prathiba Girish Insurance April 7, 2015February 20, 2019 0 Comment

A month back I had written on the impact of budget on your personal finances, I had followed it up with an article on Sukanya Samruddhi Account, let’s now see what increase in 80D limits can mean for your health insurance.

What is section 80 D?

Under Section 80D the premium paid towards health insurance policy for self, spouse, children & parents are allowed as a deduction. Cost of preventive checkup for self and family as defined above,up to a limit of 5000 subject to overall limit of 25000 is also allowed as a deduction under this section. With effect from this year the limit has been raised to 25000 there is a further increase of 5000 for senior citizens

Are you asking us to buy an insurance just to save tax?

No! of course not! We strongly believe that your financial decisions need to be totally based on needs and goals, only after you have ascertained the need for a product or an investment should you look for tax optimization. Well, having said that all of us are aware of the ever increasing cost of health care. Just last week my daughter had a minor fall in her school needing a small procedure at the hospital which lasted all of 15 minutes. The bill for the same was a whopping 26,000! I am sharing this incident just to bring home the steep increase cost of good health care.

This being a reality, having adequate health insurance for your family is absolutely imperative.

Yes, but all this was always the case! What has the budget got to do with it?

What the budget has done can be compared to a discount sale on your favorite garment brand. Come sale season many of the well-known brand shops are swarmed with people trying to take full advantage of the offer. Why then should you not treat this opportunity differently? Isn’t it a discount offered in disguise? Assume you don’t have health insurance even though you recognize the need for it and you pay tax at the highest bracket. If you do buy the insurance and claim deduction under section 80 D your premium would be deducted from your taxable amount subject to maximum limits discussed above. You therefore have a choice of looking at it as discount at your tax rate on your health insurance premium.

Fine, we get it but what about the insurance we already have?

If you already have a health insurance, great! What you need to evaluate is if the sum insured is adequate. Having a very low sum insured defeats the very purpose of insurance. Ball park if you have a floater than a minimum of 10 lakh cover would be required. For an individual the minimum would be 5 lakhs. If you find that your current insurance is small. You have the option of going in for a top up or add on cover.

These covers come with a deductible and cost very little. A deductible means that the insurance covers any amount incurred above the deductible limit. For example if you have a deductible of 2 lakhs, for every hospitalization the first 2 lakhs will have to be borne by you and any amount incurred over and above 2 lakhs will be reimbursed by the insurance company. You can opt for a deductible equal to your current insurance & use the top up to increase your cover.

My company covers me, why would I duplicate insurance?

Many companies offer health insurance as part of package and opting for it is normally a good deal. This is because a lot of conditions are waived off for group insurance which is not true for individual insurance. Pre-existing diseases for example will not be covered under your individual policy but will be taken care of in most cases in a group policy

. Despite the apparent advantages being dependent solely on company provided cover can be a little dicey cause you may fall sick or worse have an accident when you are in between jobs. The bigger risk however is the fact that when you retire and desperately need insurance you may be diagnosed with lifestyle diseases like diabetes or hyper tension and may be uninsurable. A top up insurance would come in handy in your case, because you would be limiting your losses to the deductible amount even at a later stage. And the premium for a top up insurance would cost you as much as a meal in a fancy restaurant.

Another problem which I encountered in my own case was, while we were covered for medical expenses by my husband’s company to the extent of 80% of the bills the company had not insured with anybody. This essentially means that when the reimbursements were made they became taxable. So if I incur an expense of 1 lakh the company would reimburse 80% or eighty thousand and we would end up paying tax of twenty four thousand. Which means my reimbursement post tax would be fifty six thousand. If I were to have a personal medical insurance (which I do) I would have been reimbursed the entire sum spent and no tax is applicable on the same.

Given below is the premiums applicable for top up insurance from Apollo Munich (company chosen randomly), this is to give you an idea of how cheap these insurances really are.

For a 40 year old in the highest tax bracket the family can be covered from 3lakhs to 13 lakhs at Rs.9,112+ service tax. If you factor in the tax deduction under 80D you could consider the cost of insurance at 70% of the premium which is Rs.6378+ Rs.898 service tax. Should you decide not to go ahead you would end up paying 3000 tax anyway.

You also need to keep in mind that while your parents may not be dependent on you financially, you would chip in, in case of a medical emergency. The premium as you get older is pretty steep. Instead of forgoing the option of insuring them you could consider the top up option and limit your losses. Again insurance paid by you towards parents’ health insurance is available as deduction under 80D. If your parents are senior citizen you would get a maximum deduction of 30000 over and above the limit of 25000 available for self, spouse and children.

Go ahead evaluate your health insurance and buy your peace of mind. May the beginning of the financial year bring you peace happiness and health. Do leave your queries and experiences as comments.

Everything you need to know about Sukanya Samriddhi Yojana – a scheme meant for girl children below 10 years of age

Prathiba Girish Government Savings Schemes March 15, 2015October 15, 2018 3 Comments

If you have a daughter under age 10 you would have probably promised yourself to read up on the Sukanya Samriddhi scheme launched for the girl child in January this year, launched as part of “Beti Bachao Beti Padhao” initiative of the government. We have attempted to summarize the scheme and give you our views on if you should take advantage ome.

Eligiblity

Account can be opened by the parent or legal guardian in the name of the girl child who is less than 10 years of age.
Currently a one year grace period has been given and girls born between 2.12.2003 and 1.12.2004 are also eligible. They can also be beneficiaries of the account provided the account is opened before 1.12.2015.
Maximum of 2 accounts, one per girl child, can be opened by the parent, unless the second is a twin or the first is a triplet, in which case, 3 accounts are allowed.
Multiple accounts cannot be opened in the name of one girl child.

Where can one open the account?

The account can be opened in a post office or scheduled commercial banks which are authorized to open this account

The account may be transferred anywhere in India, if the A/c holder shifts
The banks where the account can be opened are
- State Bank of India
- Punjab National Bank
- Canara Bank
- Bank of Baroda
- UCO Bank
- Bank of India
- Indian Bank
- Allahabad Bank
- Coproration Bank
- IDBI Bank
- Dena Bank
- United Bank of India
- Andhra Bank
- Central Bank of India

What are the documents required for opening an account?

Birth Certificate of the girl child
Address proof of the guardian
Identity proof of the guardian

Maximum and Minimum Deposits

The minimum deposit to be made per year is INR 1000 and maximum deposit is INR 150000 per year, per account.
While the account can be opened with a minimum deposit of INR 1000, subsequent to opening the account, one can deposit in multiples of hundred, subject to the above mentioned limits per year.
Deposits can be made in lump-sum or periodically. There is no limit on the number of deposits either in a month or in a financial year.
If the minimum amount of INR 1000 has not been deposited, then such an account can be regularized by paying penalty of INR 50 per year along with a minimum deposit INR 1000 per year of default any time till the account completes fourteen years.

Time period of the Account

The deposits are to be made for 14 years from the date of opening the account.
The account will mature on completion 21 years from the date of opening the account or on marriage of the girl after she attains 18 years of age.
If the girl were to get married after attaining 18 years of age the account will be closed and the maturity proceeds will be paid. The account will not be allowed to be operational post marriage.
If the account is not closed on maturity (in case of completion of 21 years after opening the account and the girl remaining unmarried), the account will continue to earn interest at the prevalent specified rate applicable to the scheme.

Rate of Interest

Rate of Interest for this scheme is not fixed. The interest is subject to revision every financial year. For this year (FY15) the interest payable will be 9.1%.
Interest will be compounded on a yearly basis.
You can also opt for monthly compounding on request. Interest will be paid on the balance (to the nearest thousand, downwards) in the account. Eg. If the balance is INR 50,784, Interest will be paid on INR 50,000.

Tax treatment

The deposits are eligible for deduction under section 80C.
The taxation status has been changed to EEE in the latest fiscal budget. This means that the deposits are exempt from tax, the interest earned is exempt and the maturity amount is exempt as well.

This recent change, making the interest tax-exempt is a huge positive for the scheme and makes it a very good option for accumulating wealth, on par with PPF.

Premature withdrawal

Partial withdrawal up to 50% of the balance at the end of the preceding financial year shall be allowed after the girl reaches 18 years of age.

Premature closure

On death of the account holder, the account will be closed immediately on production of death certificate. Interest will be payable till the last completed month prior to the premature closure. The balance in the account shall be paid to the guardian of the account holder.

In cases of extreme compassionate grounds such as medical support in life threatening diseases, death etc. the account can be closed prematurely.

How much will you be able to accumulate with this scheme?

The table below gives corpus one would accumulate at age 24 of the girl and at age 18 for various contributions. These figures are rounded down to the nearest lakh and would be indicative and not exact, since the interest paid is subject to revision. For calculation purposes, we have assumed the same rate of interest (9.1% p.a.) throughout the tenure and that investments are made in lump sums for 14 years. Even though the scheme offers redemption on completion of 21 years from opening the account we have assumed that the redemption is only made at age 24

Should you open this account?

When you have a long term goal like child’s education or marriage, equity is something which we advocate very strongly, subject to your risk appetite. This is because volatility can wreak havoc in the short term but loses significance over long time periods, provided of course that you have chosen the right stock or fund to invest in. Having said that “one cannot put all eggs in one basket” and you would want to diversify.

This scheme is a good option to build assets for time-bound long term goals and is an option you can look at, apart from equity, to help with diversifying your asset portfolio.

The argument in favor of the scheme is its tax status of EEE i.e. you can claim deduction under section 80 C when you invest and earn interest free income. (While 80 C may not be such a big draw for a lot of you who exhaust it with EPF contributions, interest being tax free is a huge positive).

The interest currently being paid is 9.1% which would be above inflation by a few percentages and it is compounded monthly/yearly as per choice. These returns are relatively high compared to other debt instruments.

Above all, this scheme is close-ended and that as per us is good because this forces discipline on you, and gives time to allow compounding to weave its magic on your money and help build a sizeable corpus!

This is therefore a good scheme and it can be one of the instruments to accumulate wealth for education and marriage of your little girl.

Given below is the link of government circular along with forms for opening the account

http://www.indiapost.gov.in/dop/Pdf%5CCirculars%5Csukanya_samriddhi_SB_Order_2.pdf

Budget 2015: How does it affect your personal finances?

Prathiba Girish Budget March 3, 2015October 15, 2018 2 Comments

The Budget is something most of us look forward to with excitement. Our top most concern with the budget is to see if there are any changes in tax slabs which could affect us positively, leaving us money to spare. This year we are done and dusted debating the budget and registering the fact that there are no changes in slabs for us tax payers. Though, while the slabs have not changed, there are some announcements which could impact your personal finances.

1. Deduction for INR 50,000 p.a. for investments in National Pension Scheme (NPS)
This budget has provisioned for deduction of INR 50,000 for investments in NPS, under section 80CCD. This is over and above the deduction of INR 150,000 already available under section 80C. One must note that while investments in NPS are exempt from tax the proceeds are not tax exempt. Currently part of the corpus accumulated through NPS can be withdrawn as lumpsum on maturity and the rest will be given as annuity post maturity; both of these will be taxable.

2. Increase in limit for medical insurance from INR 15,000 to INR 25,000. For senior citizens the limit has increased from INR 20,000 to INR 30,000
You can now claim a higher deduction for premium paid towards medical insurance under section 80D. While deduction allowed for non-senior citizens has been increased from INR 15,000 to 25,000, for senior citizens the limit has been raised from INR 20,000 to INR 30,000. Therefore if you are paying a premium for both your family (spouse, children & yourself) & your parents who are senior citizens, the total deduction available to you would be the lower of INR 55,000 & actual premium paid.

3. Transport allowance increased from INR 800 to INR 1600 per month
If your salary structure has an allowance called transport allowance, INR 800 per month totaling to INR 9,600 per year was exempt from tax. This amount has been doubled to INR 1,600 per month ie. INR 19,200 per annum.

4. Interest paid to beneficiaries in Sukanya Samriddhi Scheme will be tax free
A scheme to encourage savings for the girl child Sukanya Samruddhi was launched in January this year. This was a welcome option paying 9.1% interest (interest to be fixed on an yearly basis like PPF) aimed at encouraging long term savings for the education and marriage of the girl child. The interest to be paid was earlier taxable. This budget has made interest to beneficiaries in Sukanya Samriddhi account non -taxable which makes it an very interesting investment option.

5. Wealth tax abolished
The number of people paying wealth tax may have been very small but the law required anybody having assets in excess of 30 lakhs to pay wealth tax. Many people who did not pay wealth tax were on the wrong side of law, and in such cases, ignorance cannot be a defense. This budget has abolished wealth tax to be replaced with a surcharge for the super-rich. This has done more for our peace of mind than for our finances.

The finance minister during the course of his budget speech said that relief to the tax payer will be to the tune of INR 4, 44,200. The calculation he was referring to is as follows
1) INR 1,50,000 under section 80C
2) INR 2,00,000 for repayment of interest on a home loan for self-occupied house (For a house which is let out on rent, entire interest paid can be set off against house rent received )
3) INR 25,000 under section 80D for premium paid towards health insurance (if you have parents who are senior citizens whose health insurance premium is paid by you the deduction will go up to INR 55,000 as mentioned above)
4) INR 19,200 towards transportation allowance

Few more points which need to be noted are

The increase in service tax from 12.6% to 14% is an indirect hit since service providers transfer this cost to the end customer. This can be a substantial hit.
If you are a salaried person you can now choose between investing in EPF & NPS.
Employees with salary below a certain level will be allowed to choose if they want to continue their contributions to EPF or stop the same; the employer will still be obligated to continue his contributions.
Gold scheme to be introduced, where you can deposit physical gold (except in jewelry form) and earn interest on it.
Gold bonds to be introduced where the movement of price of bonds will mirror gold prices.
While interest paid on Recurring Deposits were taxable, TDS was not being deducted from the same.

Looking at buying a term life policy online or offline? They now come with a whole lot of frills, do you actually need them?

Prathiba Girish Insurance February 24, 2015February 20, 2019# Accident death benefit, # life insurane, # return of premium policies, # Single premium, # term life insurance 0 Comment

We attempt to uncomplicate life insurance and give you a brief on why you should or should not opt for the many add-ons which have now become a part of term life insurance.

Thanks to the media and the financial planner fraternity, most of you aware that marrying your investment needs with insurance is not a wise option. It is best to separate both and go for plain vanilla term plans when it comes to life insurance.

At the cost of adding to the clutter of various articles being written on the above subject, let me reiterate the reasoning behind this. Life insurance is meant to buy you peace of mind so that in case of an untimely death your dependents are spared the financial burden of having to get on with life without the bread winner!

When it comes to life insurance, most of us ask “While I pay premium what do I get if nothing happens to me?” The answer to this is simple – “You paid for the peace of mind that you would be providing for your family even if something were happen to you”. Well, this answer just doesn’t suffice and we are happier with a product which pays us if there is loss of life and pays something even if we were to live up to a ripe old age and survive the policy period. Money-back and endowment policies endeavor to do just that and give you a policy with a bit of insurance and a bit of investments. The problem is the insurance offered is often so small that it’s meaningless andthe investments rarely give you returns in excess of 7% inflation. The matter gets further complicated since these policies have huge penalties attached, should you realize your folly later and try to cut your losses short.

We all agree on the virtues of a simple online term plan. Term plans however are not as simple as they used to be. Various clever ways have been now designed to increase your premium to offer you perceived benefits. Let us take a look at some of these iterations/add-ons and give you our thoughts on these

Tenure of insurance beyond retirement age: Term insurance is a risk transference tool by which you transfer the risk of loss of income for dependents due to your untimely death. Since there is no income post retirement the entire purpose of term insurance is defeated and it normally does not make sense to continue your term insurance post retirement.
However unlike health insurance, in life insurance the premium is fixed for the entire tenure of the insurance. The premium is primarily dependent on the age at which you take the insurance apart from factors like smoking, general health, etc. This premium will remain the same throughout your insurance period and does not increase with age. Say if you were to take insurance for Rs. 1 crore at age 40 and your premium is Rs 20000. The premium will remain 20000 even at age 65. Meanwhile the value of the 20000 would have diminished to close to Rs 4000 in 25 years at an average inflation of 7%. Therefore with reduced value of money, the premium will actually seem very small and insignificant in 25 years from now. If the insurer is willing to insure you why forgo it after so many years? The sum insured could form part of estate of the deceased.
In view of the above we believe longer insurance term actually makes sense!

Accident Death Benefit: With this feature as an add on, the sum insured is doubled or increased on death due to accident for payment of a small additional premium.
The amount of life cover you require depends on current expenses, financial goals and assets in hand. When you arrive at the amount to be insured in a scientific manner you can be rest assured that your obligation will be met irrespective of your presence.
What one needs to bear in mind is irrespective of the reason for death, the amount required to fulfill your obligation will remain the same. An exception would be the hospital expenses incurred in case of an accident.
We suggest you do not combine accident insurance with term life primarily because the purpose of an accident insurance is to protect you in case of disability and the ensuing loss of income due to the accident. In view of this we suggest that you go in for a separate accident insurance to cover you in case of disability whether permanent or temporary.

One time premium payment option: This option lets you pay premium one time and have insurance cover as per the tenure selected. Considering the value of your money keeps diminishing due to inflation and you are losing out on the opportunity cost, this is not such a good option in our opinion.

Limited premium pay option: This option allows you to pay premium for a restricted number of years and enjoy the tenure for a longer time. Essentially you could pay higher premium for say 20 years even though your tenure is 25 years. The argument against this is the same as the previous point since as the value of money keeps diminishing, financially it is a better option to pay less today rather than pay more now to avoid paying at a later date especially so since the premium does not increase later.

Sum assured paid as part lump sum and part annuity: In this option the insurer offers to pay part of the sum insured upon death and rest as annuity spread out over specified number of years. This may suit survivors who do not have the ability to earn basic return on investment or the discipline to set the insurance proceeds aside to take care of life’s emergencies.
By and large it is advisable to take the entire sum insured and outsource the job of earning decent returns without undue risk to a qualified financial planner like a CFP, in case the nominees do not have the band width to do the same.

Return of premium
When you buy a term plan with return of premium, the sum assured is paid to nominee in case of death and the premiums are returned to the life insured in case he/she survives the entire tenure. This gives you the illusion of free insurance. You need to factor in the potential of the premium paid to earn interest and reduction in value of money due to inflation. This option does not seem attractive.
For example normal term plan with ICICI prudential for a 35 year old male for 10 lakhs sum insured and tenure of 10 year would cost you 2878 but return of premium plan will cost 37,193. If the difference in premium were to be invested in a safe instrument giving 8% returns post tax it would build you a corpus of 5,36,874 which is far in excess of return of premium which would be 3,71,930. This difference is taking a very conservative return of 8%, given the long period for which you stay invested, you could easily better this returns increasing the gap wider. Plain term insurance is therefore better than return of premium plan.

7 Things to keep in mind while planning for Retirement

Prathiba Girish Retirement February 12, 2015# retirement, Comprehensive Financial Planning in Mumbai, Financial advisory services in Mumbai, Financial planning and women, Investment planner and advisor in Mumbai 0 Comment

While we make elaborate plans for the vacation round the corner or a wedding in the family many of us don’t take the pains to make a plan for retirement. Quite naturally so, considering retirement to most of us seems far away. We refuse to acknowledge it. Retirement is a reality just like death and taxes. It will happen to us whether we want it or not.

Your parents took care of the first one-third of your life and left no stone unturned to ensure that you had the very best! You slog it out and try to make the best of the opportunities for the second one-third. What about the last one-third of your life? Do you want to be left in a lurch at the mercy of others when you truly deserve to enjoy the fruits of all the hard work put in?

1) Have a plan
Most of us would agree that nothing happens by chance or by itself. Putting away money randomly and believing it should suffice could be a grave mistake. Retirement is a long term goal for most of us. It would be prudent to remember though that time is a luxury when it comes to investing and we must take full advantage of it. The first step in planning is to estimate what is likely to be your expenses post-retirement. Make sure you list your current expenses correctly. Next discard expenses incurred towards children’s education, life insurance premium, EMIs, investments and other expenses which will not exist during your retirement. Once the task of classifying expenses which will be carried forward to your retirement is done, factor in inflation. A good rule of thumb would be expenses would double every 10 years at a inflation rate of 7%. Next would be to calculate the corpus required to sustain you through your retirement. Once you have done this and knowing how much time you have on your side, you will be in a position to choose best fit products which will maximize your returns without taking undue risk.
2) Don’t under-estimate life expectancy

With medical science making advances every day, life expectancy of a moderately well-to-do person is only going up. When asked how long their post-retirement life would be, most people under-estimate their life expectancy by as much as 10 years, sometime even more. If you have to err, than let it be on the side of caution. If you plan to retire at 60, I would recommend that you must plan for a minimum of 25 years post retirement.

3) Start early
The importance of starting early when you are investing for retirement can never be emphasized enough. Starting early and staying focused can make a huge difference in the quality of your retirement. Start small if you must, but the key is to start now!! If you start with a small amount and diligently increase your contribution towards retirement you will be amazed at the magic compounding will weave to make an enviable corpus.
4) Don’t dip into your retirement corpus
Temptation to dip into your retirement corpus will be many and frequent, given that retirement is a long way off and cannot even be visualized and will compete with a need that might offer you instant gratification. But beware! Stay away from dipping into your corpus unless it’s a matter of life or death. Nothing, not even your child’s education should come in the way of your retirement (after all, your child can easily take a loan to fund his or her higher education, reap tax benefits and pay it comfortably considering he or she has a long working life ahead). Also remember that people who willingly loan your child money for higher education will not do the same for your retirement!
5) Don’t be mis-lead into investing in anything with the name retirement attached to it!
There is a trend is to include retirement or child education to the name of insurance or investment products as marketing ploys. Don’t be lured, the product with the name retirement attached to it may not suit your requirements at all and may have very divergent goals. What’s in a name? When it comes to investments, whats important is choosing the right one for your goals.
6)Don’t wait till you retire to take your health cover.
Take a health cover when you are healthy and young even if you are in employment and you are covered by your employer. If you insist that two health covers are a waste, then go for an add-on cover which will offer you cover above a deductible (say 2 lakhs). These types of policies are very inexpensive as compared to normal health covers. This will ensure that should you become uninsurable due to any lifestyle disease like diabetes or hyper tension at a later age, you would have capped the amount to be borne by you towards any post-retirement hospitalization-related expenses.
7) Stay invested in equity
Retirement is not a single stage and neither is it short; it could last one third of your life time! Just because you are retired (or about to), it does not make sense to withdraw completely from an asset class like equity which gives long-term returns which is unmatched by any other asset class. After all, assuming that you retire at 60, you still have 15 years for your expenses when you are 75. That’s a long time and short term volatility should not bother you given the time frame. A word of caution though, take both your risk capacity and risk tolerance into account before deciding on percentage of corpus which will remain invested in equity.

Six urgent personal finance actions you must take as a woman!

Prathiba Girish Financial Planning, Personal Finance February 5, 2015October 15, 2018 2 Comments

1) Invest don’t save
While most people use both words interchangeably there is a world of difference between the two. We women are considered to be very good savers. That is, we do put away a part of our income for a rainy day very effectively. When it comes to Investing which is ensuring that the money put away is fetching us appropriate returns that are commensurate with risk taken we fall woefully short. One of the main reasons for the same is extreme risk averseness and lack of interest in finances, which we don’t consider our domain. There are a lot of resources available for you to explore different options before you invest do take complete advantage of the same
2) Indulge your love for gold.
The very thought of gold brings a sparkle to most of us. Indulge in gold it can be a very good hedge against currency. Ensure gold forms 5 to 10 % of your portfolio. Investing in the right form is very important. The making charges a, wastage etc. levied on jewelry does not make it a desirable choice. Consider gold coins and better still gold ETF. Invest in gold on an ongoing basis and avoid buying them during Akshaya Tritya and Dhanteras and such other auspicious occasions where the gold price is at its highest.
3) Befriend Equities
Investing in equities is no rocket science. When you are investing for the long terms there are very few asset classes which can match the returns given by equity. Learning the basics of investing in equities is an absolute must. If you find it too cumbersome to invest directly choose the mutual fund route. If you need to take advice on which funds to invest in, take advice of a professional who is not motivated by the commission he/she receives from the mutual fund company but has your best interest at heart. If this means you need to shell out a fee for the advice don’t scrounge, it will stand you in good stead
4) Take an health insurance
This is something you absolutely must do, with spiraling costs of hospitalization being left with no health insurance is not an option any of us can afford. I would go a step further and say take a personal insurance even if you and your family are covered by your/spouses employers. This will cover you when you/spouse are in between jobs. Further when you decide to take insurance at the time of your retirement you may not be insurable due to pre-existing illnesses and will be deprived of the facility when you need it the most. Look at a pure term life insurance if you contribute substantially towards the expenses and definitely opt for a critical illness cover.
5) Ensure you have a will in place
No matter how young you are it is critical to have a will. Accidents and unforeseen sickness is not something which you read about in papers and happens to unknown people any more. You would be surprised and shocked to know the laws applicable to women who die intestate. Making a will gives you peace of mind and costs you very little (anywhere between 7500 and 15000 depending on the complexity). You live all your life catering to every whim and fancy of your child would you like to leave them in a lurch in case of an unfortunate unseen event such as loss of both parents? Make sure you give a serious thought to who should be their guardians in such a scenario. Ensure your nominations and bequeaths are in line with each other. Get your spouse to make a will too.
6) Don’t put all your money into your business (this point is specific to self employed women)
List your goals and ensure you have a plan to achieve them. When you invest all your surplus into your business, which by the way has a never ending thirst for funds you may create a good company and net worth but you may not have the liquidity which you need. Once you have listed your goals start setting aside some money for your goals and don’t dip into it unless it’s a matter of life and death.
If you can juggle a family and business/job all by yourself this is fairly simple and straight forward. Wear the personal finance hat, believe me it is very liberating! Go for it now!

Shopping for consumer electronics? Here’s how to save 5% of your purchase cost over and above the best price offered to you!!

Prathiba Girish Personal Finance January 29, 2015October 15, 2018Comprehensive Financial Planning in Mumbai, Financial advisory services in Mumbai, Investment planner and advisor in Mumbai 0 Comment

As a Financial Planner or a prudent investor one would be very reluctant to take on debt, it’s the right approach in a majority of the cases. But imagine if you have accumulated the amount required for a big ticket purchase and when you land up to buy it, somebody offers you an interest free loan! Should you grab it? Or continue as planned and pay upfront for your purchase?

I suggest grab the offer with both hands, provided there are no hidden charges and the processing fee is really small, like in the case of Bajaj Finserve. You have an opportunity to earn 8- 8.5% p.a. while paying 0% interest on the borrowed sum! What could be better!

Let me explain further on the thought process behind writing this article. A dear friend of mine who is setting up home wanted me to accompany her to help decide on the brand, model, etc. Once we were done with the nitty gritty of picking the model, the person at the cash counter asked her if she would like to avail of interest free EMI. She being a prudent person said no without checking the offer. With great skepticism I asked about the offer and was amazed to find that the offer was indeed interest free and included a small processing fee which was negligible given that she was buying goods worth two lakhs. The icing on the cake was the process was very simple with very basic documentation.

I suggested that she invest her corpus in liquid funds, and withdraw each month, from the liquid fund to pay for her EMI. I explained that investing in liquid funds (a type of debt mutual fund) is very simple with a Dmat account and you could invest your surplus even for 2 or 3 days, and earn interest on it. Further, when you want to withdraw the funds you can do so at the press of a button and the funds hit your bank account the next working day. She saw merit in my recommendation and opted for the EMI, parking her funds as suggested. On a purchase of Rs.200,000 she would end up earning Rs12,000 post tax in a period of 2 years!

Why hire a financial planner?

Prathiba Girish Financial Planning September 26, 2014October 15, 2018 0 Comment

As clichéd as it may sound, Failing to Plan is Planning to Fail. While we take great pains to plan for small events like vacations round the corner or a birthday party for our child, we do not have a plan for our finances. Therefore, does that mean all of us who do not plan, live life king-size with no worries for tomorrow? No! Of course not, we Indians have an extremely healthy savings rate, currently pegged at 34% of GDP as against 17% of GDP for the US.

Now you would wonder, if we Indians do save such a huge chunk of our income, where is the problem? Why bother with financial planning? Before we answer that, let us look at exactly how we go about investing our money.

How do we go about investing our savings?

• Luckily for us, culturally many of us have been brought up with the belief that one must invest in Gold and Real Estate whenever one has surplus. Contrary to what media and many finance experts have you believe, these asset classes have generated fabulous returns over the last 7 to 10 years. So, pat yourself on your back if you had invested in these asset classes 7 to 10 years back, you have done well.
• We invest in mixed needs products where the performance is just about average and end up not taking care of either of the needs completely or optimally. Examples which have been debated at length would be money-back and endowment insurances. These give you the emotional satisfaction of having catered to both insurance and investment needs.
• A lot of our decisions to invest in a particular product or asset class are driven by the fact that people in our social circle have invested in these. They are almost always ad-hoc and do not follow a particular plan and definitely are not done with the end objective in mind.

Points to ponder

• Gold and Real Estate – Do you understand the risks associated with these asset classes? Wouldn’t it be risky to put all your eggs into these baskets? Will they give you the same kind of returns in the future?
• As you embark on the second half of your corpus accumulation phase, how aligned are your investment decisions to your end goals? While you have got your big decisions right, what about those 20% of your financial decisions which will finally decide if you have an average plan or a good one?
• While you have got your investment decisions right till now by being in the right asset class at the right time, will you be able to repeat your performance going forward? Timing your entry and exits can lead to wonderful results if you get it right and it can just as easily erode your capital when you get it wrong. Are you willing to gamble or would you prefer to take risks which are more planned and thought through?

What is Financial Planning supposed to do for you?

• To start with, take a look at where you stand in terms of your financial health currently. This is done by examining your assets, liabilities, income and expenditure, investments, tax and estate plan.
• You set realistic personal and financial goals. These would include goals like children’s education, retirement, second home, etc.
• Make a comprehensive financial plan to meet your goals. The plan should address your financial weaknesses and build on your financial strengths.
• The most important part is to implement – to put your plan into action and monitor its progress.
• Last but not the least, review the plan periodically to course-correct as well as align to changed personal objectives.
Financial Planning as opposed to a plan is a continuous process and needs to be reviewed regularly to account for changes in personal circumstances, tax laws and introduction of new products.

Where does a financial planner fit in?

• A financial planner would bring in her/ his expertise.
• Will help in instilling financial discipline and focus to follow through on the plan once made.
• Will give you a third party unbiased perspective on what are often emotional, difficult decisions.

Managing your personal finances is ultimately your responsibility. However, you don’t have to do it alone. A qualified financial planner, such as a CERTIFIED FINANCIAL PLANNER (CFP) professional, can help you take decisions that make the most of your financial resources. A Financial Planner is someone who combines the technical expertise of a doctor, the discipline of a traffic policeman and the unbiased connect of a friend, to help manage and regulate your financial well being.